In the wake of last year’s U.S. Supreme Court decision in Citizens United v. FEC, the scope of political speech protected under the First Amendment has substantially expanded. Whereas corporations and unions were previously prohibited from directly advocating for and against political candidates by spending funds from their general treasury, the Supreme Court has now recognized that those viewpoints are important components of the national debate by which we Americans govern ourselves, and that the First Amendment does not permit the government to suppress or stifle those voices.
But this decision has been controversial. Many object to the Citizens United decision because of a general view that money spent in the political process is somehow inherently corrupting or distorting. Others – especially those from within the environmental and labor movements – see for-profit corporations as their political enemy, and seek partisan or ideological advantage by squelching corporate political speech while their own speech remains unencumbered.
As a result, there have been two parallel attempts to water-down the impact of Citizens United. The first has been through legislation and political action. Last year, the DISCLOSE Act, which would have placed burdensome requirements on corporate political speech, failed to secure passage in Congress. Similar actions have included a draft executive order that would require government contractors to publicly report their political spending, including support for trade associations and 501(c)(4) non-profit organizations, and regulatory efforts such as recent SEC rules effectively prohibiting most state and local political contributions by investment advisors, and an SEC petition by certain law professors requesting regulations requiring additional disclosure of political activity.
The second track, however, is ongoing: the attempt by politically-active, mostly left-leaning groups to engage in “activist investing” with the aim of limiting corporate political speech. These shareholding activists are, essentially, lobbyists for political causes.
This paper provides a brief review of “activist investing,” whereby politically-concerned individuals and groups purchase a minimum number of shares in a company, not solely or principally with the intention of maintaining those shares for their wealth-generating potential, but largely to ensure that they can force corporate votes on political initiatives concerning global warming, labor relations, and political spending. We are not discussing “activist investors” who seek changes to management, strategy, or governance in an attempt to increase the value of their own (usually substantial) investments.