Earlier this year, Justice Stevens ended his powerful dissent in Citizens United v. Federal Election Commission with the following words: "While American democracy is imperfect, few outside the majority of this Court would have thought its flaws included a dearth of corporate money in politics." While many have focused on how the Court's decision in Citizens United challenges the integrity of our democratic process, it also represents a watershed moment in corporate governance.
The ruling leaves investors in a world where company managers can legally spend shareholder capital on independent electioneering advertising without checks and without limits. As companies are not required to disclose their independent spending, shareholders cannot determine how much company capital will be spent on politics and what its impact will be on the bottom line. We now need to use every available avenue to hold corporations and their boards of directors accountable for their political spending.
The regulations barring spending from corporate treasuries on campaigns did not just shape our political process; they also offered crucial protections for shareholders who could suffer from excessive corporate campaign spending. The potential gap between the interests of company managers and those of their shareholders represents a basic problem in corporate governance. Allowing unfettered campaign spending from corporate treasuries threatens to widen this gap.
Studies of the relationship between spending on politics and risk and returns for shareholders bear out this risk. A study by economists at the University of Minnesota revealed a correlation between high levels of political spending and falling corporate governance standards and returns. The International Monetary Fund also released a working paper that demonstrated a negative relationship between spending on lobbying and performance among lending institutions. The problem is clear -- without restrictions and without shareholder disclosure around campaign expenditures, companies, and by extension their shareholders, suffer.
The current system denies U.S. shareholders measures to ensure transparency and accountability in their companies. The United States should follow the example of other countries that have required transparency and accountability of corporations that engage in political spending to their investors. As an example, in 2000, the United Kingdom amended its Companies Act to require all British companies to disclose and seek the consent of their shareholders before making substantial political contributions. As a result, managers submit proposed political budgets to their shareholders each year. A recent study by the Brennan Center for Justice suggests that this approach has protected investors and restricted the flow of excessive financial resources from British corporations into the political process. By mandating disclosure, the UK allows shareholders access to meaningful information they can use to hold their companies accountable. Congress should adopt legislation that gives shareholders information and the tools they need to hold corporations in which they invest accountable for their political spending.
Investors should not wait for new laws to provide necessary protections; we should use tools that already exist to ensure that corporations do not exploit the new reality to undermine their companies' financial health. Shareholders and institutional investors across the nation should demand more accountability and transparency from the corporations they own.
In the 2010 proxy season, the New York City Employees' Retirement System (NYCERS), the largest pension fund in New York City, filed shareholder resolutions requiring disclosure of political spending by numerous corporations in which it is invested. Now, we are calling for other institutional investors across the country to join us in support of these resolutions and to help us build a national shareholder movement for increased corporate disclosure and accountability. By working together we can help give all shareholders a much needed voice in how corporations decide to spend money on elections.
The Supreme Court's decision has created a new reality for how corporations participate in political campaigns and, by extension, how money influences our government. In the months ahead, corporations, candidates, investors and the public will all face a choice. Will we accept new levels of political spending with no limits and little disclosure or will we demand a new approach and sense of public responsibility from our country's corporations? This decision will define our democracy for generations to come. It is up to all of us to get it right.
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