More than a month ago, we warned of this decision ("Supreme Court About to Hand Government to Republicans, Again: This Time Forever", December 17, 2009). Among other points, the article noted that the Fortune 100 companies have $600B in annual profits, that is, free cash after all expenses. That's what the Supreme Court has unleashed against democracy.
Hopefully, now, people will listen, and act. The key is to stop the ruling from having an impact in 2010. Once gone, democracy will not be recaptured.
We divide the potential responses to this decision into 3 categories:
1. 'Guerilla War'
A. Blacklist companies that fund any activity that would have been prohibited under McCain-Feingold before the Supreme Court struck, and boycott them. [We are establishing a website that will monitor political activity, and send emails whenever a company is added to the list.] It does not matter what candidate or cause they espouse -- their money is rotten, period. Depending on disclosure requirements, we may have to get that information in other ways (see below). But, get it we will.
Do not worry about the difficulty of having an impact. Even small reductions in companies' revenues are problematic. When a company loses 10% of its revenues, shareholders get very angry. When the revenue loss is the result of being blacklisted because of unacceptable political activity, corporate boards and officers are vulnerable. Corporate boards and officers crave their jobs first, and easy operations second.
B. Buy one share of a variety of companies and use the right that provides to harass, to provoke, to expose. Present a slate of alternative board members, offer corporate resolutions. Sue, as a shareholder, to know what candidates the company is supporting. Attend the annual shareholders' meeting and demand to know why "your money" (profits that could have come to shareholders or be reflected in a higher share price) is being squandered in politics.
Our website will serve as a place to aggregate efforts.
We will recommend companies that masses of citizens, each purchasing one share, can disrupt and, by working with civic-minded investment funds such as CALPERS that is devoted to good governance, force out the Board and replace management for squandering resources on political campaigning.
The following two categories are Administrative and Legislative actions that may be taken. We qualify these suggestions as 'food for thought', as not all have been thoroughly researched to determine the meets-and-bounds of government authority. We mention them in the hopes of stirring such research by others -- like-minded, but better situated to inform those judgments.
2. Administrative Action by the Federal Government: Not Requiring Legislation
A. The Justice Department should prosecute any company that participates in US politics that has a foreign domicile, like the Cayman Islands. These companies have been unpatriotically avoiding US taxes (driving up your tax rates and mine) for years by claiming a foreign domicile that is usually just a mailbox. Now, they get their comeuppance--as a foreign entity it is illegal to participate in US politics.
B. The Justice Department should let it be known that US companies with foreign shareholders could be prosecuted for participating in US politics as that would provide that foreign shareholder with a voice in US politics. [Needs further legal analysis to be certain of this remedy, and can be clarified by an Act of Congress--see below].
C. The Securities & Exchange Commission ("SEC") can set rules by which corporations must operate to take political action that was previously prohibited:
- Public disclosure of the endorsed and attacked candidates
- Shareholders' vote required to allow corporate money to spent
- Dissenting shareholders' right to receive a "dividend" to compensate him for unapproved
use of corporate funds.
D. Public disclosure of Board members' and Officers' political views.
Public statement to the markets as to what the company expects to achieve with the proposed expenditure. Such statements, as business claims about political activities and not political statements themselves, may be subject to business speech rules such as truthfulness and full disclosure.
E. The right for dissenting shareholders to receive a "dividend" (above) could be particularly effective because all shareholders, and especially the large funds that have fiduciary responsibilities to their investors to make every penny they can, will demand the dividend. If you are an investor in a mutual fund or pension fund, you can demand that the fund demand the dividend. Moreover, if being on record as a dissenting shareholder is required to receive the "dividend", then if shareholders' votes are also required (ii,above) there will be a great deal of pressure on the big funds to vote "no", thus prohibiting management from proceeding with their planned political adventure.
3. Legislative Action
This, of course, is the most problematic since legislators will weigh the consequences of opposing the corporations when they have just been granted this power to destroy them in the next election.
A word here for Democrats: if you believe that, with this power in their hands, the corporations are going to support you because you are playing footsie with them and are not joining the fray of outrage against this decision, when they now know they can buy your Republican challenger your seat, then, well, you have been smoking, and inhaling, some powerful weed. They only feathered your nest before because they did not think they could defeat you. They will always prefer a loyal, purchased Republican to a purchased Democrat.
A. Prohibit any entity that has any foreign ownership from participating in the political process. Make the criminal penalties for violating this rule very severe, such as 5-years minimum jail time for the Board members and CEO of the company. As indicated above, there is some legal ambiguity as to whether the prohibition against foreign participation would apply to any ownership at all, but you can resolve that ambiguity with a new law.
Most of the major corporations have some foreign ownership, and thus the impact of the Supreme Court's ruling would be blunted. Moreover, this would apply both to public and privately-held corporations including a privately-held corporation in which an owner has taken "foreign citizenship" to avoid US taxes would be deemed to have foreign ownership.
B. Change Officers and Directors' Liability Rules. As indicated in "Supreme Court To Hand Government to Republicans: This Time, Forever", ibid., Corporations are creatures of the State. One of the key benefits of the corporate structure, conferred by the State, is a limitation on the liability of officers, directors and owners (shareholders) for the injuries or other misdeeds perpetrated by the corporation. There is nothing "god-given" about those protections. The Congress can pass a law that removes those protections against claims in federal courts for corporations that engage in previously prohibited political activities,
i.e., under the provisions struck down by the Supreme Court. Moreover, the removal of those protections can be self-triggering, so that the mere act renders the directors, officers and shareholders personally liable for any actions brought against the corporation.
Would ExxonMobil engage in those political activities and expose their owners and managers to personal liability for the next Exxon-Valdez spill?
The objection will be raised that removing the limited liability of individuals for their corporation engaging in what the Court has now invented as a Constitutional right is illegal, and an undue -- even punitive -- act against a party exercising that right. But, such an argument misses the essential nature of the Corporation--it is a creation of the State, and there is no god-given or Constitutional right to the benefits of limitations on liability. Thus, the State may decide that the previously-proscribed political activity no longer qualifies an entity for the benefit of limited liability. The Corporation still exists, it still can carry on its business--it just cannot do it any more with limited liability for its directors, officers and owners.
The State giveth and the State may taketh away.
C. Compel full disclosure, at least to shareholders upon their request, of the political activities the corporation has funded, either directly or indirectly. This may be unnecessary, as shareholders are owners and, as owners, have the right to know what the corporation is doing in their name.
Pass shareholder reimbursement rights, as indicated above.
D. Pass a law that prohibits the "business judgment rule" from being applied in cases involving political speech. Under the "business judgment rule", Courts have deferred to company officers and managers decisions rather than substituting their own judgment. The rationale is that they (the officers and managers) are the experts in running their businesses. Thus, lawsuits by disgruntled shareholders for misjudgments that lead to losses rarely prevail. If the legislature instructed the courts that this rule is not to be applied in cases involving political speech, then corporate officers and managers would be far more vulnerable to a disgruntled shareholder prevailing.
E. Keep the filibuster rules. Democrats may be able to retain 40 Senate seats for awhile, and, after that, they still have President Obama's veto pen. But, 2012 is going to be a tough year with billions of corporate dollars attacking the President.
Finally, we close with a comment about a Constitutional Amendment. We strongly suggest energies be directed at the above mentioned actions (and others of like character) that can be carried out to block the impact of this ruling in 2010. We do not oppose an Amendment (that could be as simple as "money will not be construed as Speech and Corporations will not be deemed Persons"), but worry that energies spent on that long-term effort -- that is going to require Members of Congress and State Legislatures to vote for it, when they already may have been purchased by corporations -- will drain time and resources from the measures that may blunt the impact of this ruling more immediately.
Let us make the corporations regret achieving what they wished for.