Citizens United and corporate governance

Former New York Governor Elliot Spitzer has an interesting, if occasionally hyperbolic and certainly ideologically-driven, article over at Slate today. In what is something of a follow-on to his September article urging the Supreme Court to overturn the Austin decision in its forthcoming Citizens United ruling, Spitzer takes after the U.S. Chamber of Commerce and urges state comptrollers and treasurers in charge of public pensions to try to reign in the political activities of the Chamber.

Writes Spitzer: “The U.S. Chamber of Commerce…has been wrong on virtually every major public-policy issue of the past decade: financial deregulation, tax and fiscal policy, global warming and environmental enforcement, consumer protection, health care reform …

The chamber remains an unabashed voice for the libertarian worldview that caused the most catastrophic economic meltdown since the Great Depression… It is the chamber’s right to be wrong, and its right to argue its preposterous ideas aggressively…

The problem is, the chamber is doing all this with our money…”

Spitzer explains that “…we-you and I-own the companies that support the chamber…” To call this a dramatic oversimplification and generalization is to be too kind. It ignores the fact that most Chamber members are closely-held corporations or businesses that do not have their shares traded on exchanges, or that “you” may quite likely disagree with “I,” particularly when there are tens of millions of “you” and “I.”

But Spitzer’s larger point is correct — the Chamber gets its money from businesses, and that money is the money of the owners of those companies. As he goes on to point out, if the owners of a company aren’t pleased with their moneys being sent to the Chamber for advocacy of views they don’t agree with, they should have every right to cease their membership and support.

His solution is simple, and utterly reasonable — to a point. Focusing on the role of public pension plans, Spitzer suggests that “The comptrollers and treasurers who run public pension funds (often elected officials)…[and] who agree-as a vast majority will-that the Chamber of Commerce has a distorted view of both economic and political policy should demand that each company in which they own stock drop its membership in the chamber. If the CEO doesn’t agree, the public pension funds should pressure the board to drop the chamber membership.”

This will undoubtedly strike some as heavy-handed, government intrusion into the political speech of corporations. And that concern is real and justified. But ultimately, if the government is going to operate pension funds, the officials in charge of those funds must exercise their judgment of what is the financial and economic interest of the pensioners they represent (they must also be accountable to the pensioners and voters, of course).

But while those who run pension funds, and mutual fund managers, and everybody who owns even one share of a corporation, have every right to demand as shareholders pretty much anything they want, they don’t have the right to get their way. They may be able to persuade a majority of their fellow shareholders in any given enterprise to pass a resolution requiring it to drop Chamber membership. Or they may not. Most pension funds don’t in fact own anything approaching even 1% of the shares in any one company.

Consider the holdings of CalPERS, the largest public pension fund in the country. If anyone is going to hold enough shares in a company to throw its weight around and get results through its share ownership, it’s CalPERS. But looking at their largest stock holdings according to their 2008 report (page 90, if you’re really curious) shows that their ownership stakes are miniscule, at least in regards to their ability to muster a majority of votes in favor of passing any resolution.

ExxonMobil is the largest single holding of CalPERS, roughly 24 million shares at the end of 2008. But ExxonMobil has over 4.8 billion shares outstanding, giving CalPERS an ownership stake of less than half of one percent. Other holding show similarly small stakes, with none exceeding half of one percent.

So the prospect of any one or even a group of public pensions owning enough shares to force any given corporation to leave the Chamber of Commerce is extraordinarily unlikely, unless they were able to persuade large numbers of other substantial shareholders to join them. But that’s how corporations work – the majority of shareholders get to set policy if they chose, and those that don’t like the old or new policy and feel they can’t own shares in a company following policies they disagree with are free to sell. Including CalPERS.

This detour into corporate governance is inspired, of course, by the Citizens United case, which seems likely to produce a ruling by the Supreme Court that lifts the ban on independent express advocacy by incorporated entities, including unions and trade associations. So-called “reformers” (and Spitzer is among them, although with a far healthier view of the First Amendment and the protections afforded independent political speech than most) are just shy of launching into what the great outdoor writer Patrick McManus might call a “full bore linear panic” (not to be confused with the “modified stationary panic”) over the likely lifting of speech bans on corporations.

As a result, the “reform” community has been pondering just how they might limit corporate independent expenditures in the wake of Austin‘s expected demise. Corporate governance regulations and activist shareholders trying to limit corporate independent express advocacy seems to be the preferred course of action, judging by Spitzer’s piece as well as this paper by an attorney of the pro-“reform” Brennan Center (although Brennan doesn’t seem to insist that their own corporate donors follow the procedures they demand). That I also received a call yesterday from a journalist on this topic would seem to confirm that this is the direction the “reformers” intend to go in a post-Citizens United world.

And for the most part, that’s fine. CCP’s position on all of this is that if shareholders wish to limit or prevent companies they own shares in from spending money in politics and public policy debates that they don’t agree with, it is certainly their right to try to persuade a majority of their fellow shareholders to follow their lead. And if they are unsuccessful, they can sell those shares, or hold on to them if they wish.

This, ultimately, is what CCP has long argued — that citizens can and should make their own decisions about how their money should be spent or not spent to promote political messages, without government interference or restraint. Allowing citizens to freely associate or disassociate from any entity based on whether they agree or disagree with their political message is the very essence of political freedom, whether that is through their individual actions or collectively through business corporations, unions, trade associations, advocacy groups, or any other association.

The Center for Competitive Politics is now the Institute for Free Speech.