Corporate Speech Restrictions as “Protection” for Shareholders

One argument for restricting election-related speech by corporations is that it’s necessary to “protect” shareholders from having their money used to support candidates (or ballot measures) of which they disapprove. Many shareholders, the argument goes, might find it hard to sell their stock in corporations that express such support; indeed, they might find it hard to avoid buying such stock, for instance if the investment is made by their pension fund. And shareholders should be protected from such use of what is, after all, their money. Here’s Justice White expressing this view in First National Bank of Boston v. Bellotti (where he was arguing in favor of a restriction on corporate expenditures supporting or opposing ballot measures):

[A]n additional overriding interest … is [also] substantially advanced by Massachusetts’ restrictions …: assuring that shareholders are not compelled to support and financially further beliefs with which they disagree where, as is the case here, the issue involved does not materially affect the business, property, or other affairs of the corporation…. [This policy] protects the very freedoms that this Court has held to be guaranteed by the First Amendment…. [I]n Abood v. Detroit Board of Ed., we … held that a State may not, even indirectly, require an individual to contribute to the support of an ideological cause he may oppose as a condition of employment….

In most contexts, of course, the views of the dissenting shareholder have little, if any, First Amendment significance. By purchasing interests in corporations shareholders accept the fact that corporations are going to make decisions concerning matters such as advertising integrally related to their business operations according to the procedures set forth in their charters and bylaws. Otherwise, corporations could not function.

First Amendment concerns of stockholders are directly implicated, however, when a corporation chooses to use its privileged status to finance ideological crusades which are unconnected with the corporate business or property and which some shareholders might not wish to support….

And here’s Justice Stevens, joined by Justices Souter, Ginsburg, and Breyer, in Citizens United:

Most American households that own stock do so through intermediaries such as mutual funds and pension plans, which makes it more difficult both to monitor and to alter particular holdings…. [And] if the corporation in question operates a PAC, an investor who sees the company’s ads may not know whether they are being funded through the PAC or through the general treasury.

If and when shareholders learn that a corporation has been spending general treasury money on objectionable electioneering, they can divest. Even assuming that they reliably learn as much, however, this solution is only partial. The injury to the shareholders’ expressive rights has already occurred; they might have preferred to keep that corporation’s stock in their portfolio for any number of economic reasons; and they may incur a capital gains tax or other penalty from selling their shares, changing their pension plan, or the like.

I think, though, that the Court was right to reject these arguments, for largely the reason the majorities gave in those cases.

First, some general background: Because corporations can have very many co-owners, managers are generally not required to satisfy every stockholder’s desires. Instead, managers are subject to the “business judgment rule,” under which they can be legally faulted only for decisions that couldn’t rationally be seen as being in the company’s best interests. (I oversimplify a bit here.) So if your pension plan invests in a company that then starts making munitions, performing abortions, and selling tobacco, you have no basis for complaint, no matter how much you might disapprove of your investment being spent on such things.

Ah, Justice White might say, but it’s especially bad to have stockholders’ investment be used to subsidize speech they disagree with. Yet it’s very hard to credit that as the true government interest behind restrictions on election-related spending by corporations, or see such restrictions as “narrowly tailored” to this interest. After all, if a company wants to contribute to Planned Parenthood, the law doesn’t stop that (assuming there’s a plausible business reason for such a contribution), even if the money is used to counsel women to have abortions. If a company wants to start selling pornography, the law doesn’t stop that. If a company wants to put out ads saluting our soldiers, or praising racial diversity, or urging people to recycle, the law doesn’t stop that — even though some stockholders might be upset that their investment is used to subsidize speech they disagree with. If a company is not only selling cigarettes but also advertising cigarettes, the law doesn’t stop that.

In legal terms, a ban on election-related speech by corporations is strikingly “underinclusive” with respect to the government interest in protecting shareholders against having their investment used to subsidize speech they disagree with, given that shareholders can disagree with far more than just election-related speech. And that makes one doubt that the law is really about “protecting” shareholders this way.

Justice Stevens’ response is that, “The shareholder protection rationale has been criticized as underinclusive, in that corporations also spend money on lobbying and charitable contributions in ways that any particular shareholder might disapprove. But those expenditures do not implicate the selection of public officials, an area in which ‘the interests of unwilling … corporate shareholders [in not being] forced to subsidize that speech’ ‘are at their zenith.'”

But this strikes me as quite unpersuasive. Why is a shareholder’s interest in not having his investment subsidize “Vote for candidate X” any greater than the shareholder’s interest in not having his investment subsidize “Buy our cigarettes” or “Here is why you should get abortions” or “Salute our men in uniform” or “We support equal treatment for gays”? In all these situations, people’s investments goes to support speech they dislike. (After all, Abood, the case that Justice White cites by analogy, barred government entities from requiring employees to fund union political advocacy whether that advocacy was focused on elections or focused on ideological speech more generally.)

Nor is it that the restrictions on corporate speech about elections somehow implement the “business judgment” rule, on the theory that such speech is especially likely to just reflect the managers’ ideology and not serve the corporate interest. Often getting a particular candidate elected or defeated, or a particular ballot measure passed or blocked, will be of considerable potential value to the corporation, for instance because the corporation would benefit from the candidate’s favored policies. Indeed, the value may be more direct than the value generated by the corporation’s charitable contributions.

Also, what about people whose pension funds invest in media corporations? Media corporations are generally exempted from restrictions on election-related advocacy by corporations. But how is the shareholder protection rationale consistent with that exemption? After all, someone who owns stock in the New York Times might be just as upset by the Times‘ editorial supporting some candidate or ballot measure as someone who owns stock in Glock might be by Glock’s spending money to support some candidate or ballot measure.

Justice Stevens responds to this by saying, that, “with a media corporation, there is … a lesser risk that investors will not understand, learn about, or support the advocacy messages that the corporation disseminates. Everyone knows and expects that media outlets may seek to influence elections in this way.” But wait: Justice Stevens himself noted that “[m]ost American households that own stock do so through intermediaries such as mutual funds and pension plans,” so the “investors” about whom he is worried might well have never chosen to invest in the New York Times — it’s their pension plan, with no input from them, that chose to make that investment, and there’s as little they can do about as they can about the plan’s investment in any other corporation. Moreover, Stevens’ expectations about what “[e]veryone knows and expects” assume the conclusion. Once corporate free speech rights are recognized, everyone will know and expect that corporations may seek to influence elections in favor of candidates or ballot measures that they think will help their bottom line.

So for all these reasons, the majority on the Court has found it hard to see restrictions on corporate speech about elections as being genuinely justified by a desire to shield shareholders — the restrictions are just too underinclusive with respect to any such interest. And I think the majority is right on this. When the normal rule is that corporate managers may make plausible business decisions notwithstanding some shareholders bitter moral disagreement (again, consider the examples of abortion, tobacco sales, munitions manufacturing, pornography distribution, and support for a wide range of charitable causes, including ideological charities), an exception that’s limited to nonmedia businesses, to speech, and in particular to speech about elections sounds simply like an attempt to block corporate influence on elections. It doesn’t sound like an attempt to genuinely “protect” shareholders’ tender consciences.