Corporations, Democracy and Popular Sovereignty: corporate money in politics
Our Constitution is founded in twin ideals of liberty and democracy. Good government is essential to human freedom, but incompetent or overreaching government is a threat to it. We need government to restrain private power, to organize people for the common good, and to create the conditions for security, economic prosperity, health, happiness and human flourishing. At the same time, we must constantly beware lest the government of the people turn from our servant to our master.
Americans have long believed that we need two basic controls on our government:
- First, limitations on government designed to preserve liberty -- certain areas of private life should be beyond collective control, so that individual human beings have a space in which to live and exercise their own individuality based solely on their own consciences. We, therefore, guarantee each American freedom of speech and religion and basic rights to privacy in our own homes, in order to preserve a space for the individual free from collective pressure.
- And second, democracy. The basic purpose of government is, in the language of our Constitution, to "promote the General Welfare." The government must remain answerable to the people, first because only the people can, in the end, determine what is their general welfare, and second, in order to preserve government from being taken-over by powerful groups or individuals or -- today -- corporations that seek to use it to promote their own private interests and increase the power of the already powerful.
Today, much of our collective governance is outside the formal state. Our largest, richest and most powerful bureaucracies are far less likely to be city school boards or state departments of motor vehicles than business corporations, funded by the profits on sales of necessities or ordinary consumer goods all over the world, governed by self-perpetuating bureaucracies answerable only to the institutional investors of the financial markets or the not-always benevolent anonymous forces of the market itself, and subject to neither the restraints of limited government nor democratic control.
As America becomes increasingly unequal, the threat of concentrated wealth to our system becomes increasingly dire. Neither democracy nor capitalism can survive if law is for sale -- the rich will simply use their money to buy elections, or, cheaper still, threaten to buy negative campaign ads, in order to assure that politicians think first and foremost about preserving the wealth and power of the already wealthy and powerful. Capitalism thrives on innovation and competition, but innovation and competition always threaten the currently dominant companies and their owners. Successful capitalism requires a large and well-paid middle class to buy its products and services -- but the quickest way for the upper class to get richer still is to increase the share of profits at the expense of middle class wages and salaries. Capitalism requires an extensive and powerful set of regulators and regulations to assure that the powerful do not use their power to avoid the rules of the game -- but if the rich can buy legislation, they will simply change the rules to benefit themselves.
No capitalist economy has long survived the combination of corrupt politics and sharply unequal wealth. We must act now to regain control of our country and economy before we decline into a slough of corruption, in which great wealth is made not by innovation but simply by pressing the middle class.
The techniques are clear -- well known since almost the beginning of the capitalist era. We need democracy -- to keep the government under the control of the middle class so that wealth comes from serving the needs of the middle class and not simply using the government to redistribute it upwards.
The following proposals are directed at reversing the Supreme Court's catastrophic holding that corporations -- human institutions that like the government agencies they so closely resemble are instituted among men deriving their just powers from the consent of the governed -- are, instead, entitled to be treated as citizens, as if we were their servants and not the other way around. Only by securing the independence of the government from the corporations can our corporate-based market system survive.
Moreover, they seek to extend the lessons we have learned about democracy itself to the corporate sector. Just as, by long and bitter experience, we have learned that government should never be viewed as the private property of those entrusted with running it, so too our other large, bureaucratic, publicly financed governance organizations. Multi-national corporations are no more private than the King's Exchequer was in the bad old days. It is time we applied the basic lessons of Eighteenth Century liberal republicanism to the institutions of the Twenty-first Century.
An amendment to the Constitution to reverse the Supreme Court's lawless misreading of the Constitution to secretly create Constitutional rights preventing us from controlling the behavior of our economic organizations, including the Santa Clara and Citizens United cases. The Amendment seeks to establish clearly that business corporations, like municipal corporations and other governmental agencies, are creations of the people, not their masters.
- This Constitution grants no rights against the People or their governments to any legal person that is not a human being.
This Amendment reverses a long line of Supreme Court decisions treating corporations as if they were human beings or citizens. Corporations are instituted by humans for human purposes and do not have natural or God-given rights. Corporations, of course, will continue to have legal rights; they cannot exist without them. This Amendment clarifies, however, that corporations exist only by grant of power from the People and have only the rights that the law grants them, and we, the People, retain the right to change those rights if we decide that these institutions have become destructive of our ends. Corporate rights are created by ordinary law, and we may change ordinary law in the ordinary way if reform is necessary or desireable.
- Corporations shall be fully subject to the police power and regulation by the states and Federal government.
This and the following provisions are meant to exclude specific arguments the Supreme Court has used in the past to invent unenumerated rights for corporations or extend to them rights that the Constitution grants to human beings or citizens. This provision makes clear that corporations are fully subject to democratic rule: we are entitled to control them, not the other way around, thus rejecting the lingering after-affects of the Lochner case.
- Corporations shall be deemed state actors for purposes of the Fourteenth Amendment.
Our major business corporations are large, bureaucratic organizations necessary for our comfort, security and affluence and threatening to our liberty in exactly the same way as the bureaucracies of the government. This provision makes clear that we need constitutional protection against these important and powerful actors far more than they need rights against us. It reverses Supreme Court doctrine holding that business corporations have unfettered rights to exercise unlimited power over those dependent on them. Instead, corporations, like government agencies, should be held to minimum constitutional standards requiring them to respect the most fundamental rights of citizens, including freedom of religion, freedom of speech and equality under the law.
- Corporations shall not be deemed citizens of the United States or any state under this Constitution, or persons entitled to protection under the Constitution, regardless of the citizenship or rights of the human beings affiliated with them, nor shall any corporate charter be deemed a contract within the meaning of the Contract Clause.
This provision prevents the Supreme Court from reviving arguments it has used in the past to grant constitutional rights to corporations even when the Constitutional text does not mention corporations. It specifically overrules the unreasoned holding in Santa Clara and reaffirms the nation's longstanding rejection of the doctrine of Dartmouth College.
- For purposes of this provision, "corporations" shall include similar entities defined or created by law or by permission of the law, that have privileges of entity liability, legal personality or a legal existence separate from some or all of the human beings associated with them, including but not limited to trusts, limited partnerships, and limited liability companies.
This definitional provision is intended to define corporations broadly so as to include similar legal entities that currently exist or may be created in the future.
From a campaign finance perspective, Citizens United is only a
sideshow. The real problem is Buckley v. Valeo, which held that
campaign spending is a form of "speech" and that "freedom of speech"
means that we are barred from providing for fair restrictions on the
distorting influence of wealth in democratic elections.
The First Amendment guarantees the freedom of individual citizens to dissent and protects the ability of citizens to organize to control their government. Under Buckley, however, the right of free speech is perverted into a right of free spending. Ours is a government of one person one vote, not one
dollar one vote. Freedom of spending does not promote equality but
instead corrupts our system, as politicians bow to the power of
unlimited spending and the threat of attack ads.
The Supreme Court has turned the First Amendment into
protection for the power of the rich and well-placed to get their way,
instead of the rights of individuals. The effect is corruption. Buckley protects the wealthy when they seek to use their riches -- and corporate managers who seek to use the wealth under their command, even if it is not their own -- to influence the government to make it easier for them to accumulate still more wealth and power. Instead of restraining power, the Supreme Court's misreading of the First Amendment multiplies it.
Under the Supreme Court's misreading of our Constitution, economic incumbents -- those who made, inherited or control money under the existing rules of the game -- have a constitutionally protected right to use that money to influence politicians and government officials. Predictably, they use that right to seek law and regulations that give them still more money, more power, less responsibility, and less accountability to market forces or the American people. Instead of protecting democracy and the right of the People to control their government, this misreading turns the First Amendment into a threat to democracy and capitalism alike.
This constitutional amendment overturns Buckley, Bellotti (which first declared that corporations have rights -- separate from those of their employees or shareholders -- to make campaign contribution) and Citizens United (which vastly extended those rights as
if ours were a government of the corporations, by the corporations and
for corporations). Instead, it returns campaign finance reform to the legislatures. The Amendment is not a full solution to the campaign finance
problem -- it leaves the basic structure of campaign finance to
legislatures, which means that they will have plenty of room to make
elections undemocratic and unfair. However, it does solve the immediate
problem of a Court that has perverted the First Amendment into a
protection for corruption.
- The Congress, and the states, shall have plenary power to
regulate the financing of elections, the lobbying of legislatures, and
attempts to influence the content or enforcement of any law, regulation
or governmental action.
- This power shall include but not be limited to
however, that all such regulation shall be general in character and no
such limit may be contingent on the views expressed by any such person
- to set spending and contribution limits;
- to make any
convenient distinctions between citizens and non-citizens or between
citizens and entities or among types of entity; and
- to entirely bar
business corporations and similar economic enterprises from such
spending, contributions, lobbying or attempts to influence.
In Citizens United v. FEC, five members of the Supreme Court granted
business corporations First Amendment rights on the ground that
corporations are "associations of citizens," that corporate money is
speech, and that restrictions on corporate electioneering are a form of
censorship. This reasoning is stunning in its disregard of the
realities of politics and the foundations of corporate law.
In fact, large corporations are not associations of citizens, or even
of human beings. The actual humans associated with our multi-national
corporations are unlikely to all be citizens. But more to the point,
they are employees, with no membership rights whatsoever under standard
corporate law. Outside of some university faculties, employees don't
elect their bosses, and even in the universities, they have no vote for
the board of directors.
Corporate law is quite clear: directors are elected by the shares,
on a basis of one share one vote, and they represent the interests of the institution itself, not any of its human participants or affiliates.
Shares are not citizens; they are
legally defined bundles of rights. In the modern economy, most of them
are held and voted by institutions, not human beings. The actual people
who decide how to vote the shares are, by and large, fiduciaries under
legal obligation and intense market pressure to use their votes in order
to maximize share value, without regard to any other value that a
citizen might care about. In the case of our largest shareholders, the
pension funds, the voters are under a legal obligation to ignore even
the actual financial interests of the human beings behind the fund:
they are supposed to act on behalf of a purely imaginary beneficiary who
is always on the edge of retirement, with no loyalty to the firm, its
neighbors or the countries in which they operate. Pension managers are specifically
barred by law from considering the possibility that young pension
beneficiaries (or older ones with children or a sense of social
solidarity) might care more about job quality or job security today than
about maximizing the size of a pension sometime in the distant future.
Even when the law does not force these fiduciaries to work for a
purely imaginary legal construct instead of representing real people in
all their complexity, the market does. Any mutual fund manager who
sought to learn, let alone vote in accordance with, the actual values of
her customers would necessarily under-perform the market and quickly be
out of business.
Moreover, all corporate participants other than shareholders are entirely disenfranchised. Corporate assets, of course, belong to the corporation, not its shareholders; that is the most important rule of corporate law. They are produced by the joint effort of everyone who participates -- mainly the employees, of course, but also the investors -- whether labeled shareholders or not -- and the customers and suppliers. Until the assets have left the corporation in the form of lower prices, higher pay, interest or dividends, they are belong to and are the joint product of all the human beings involved. If the corporation is now to become a political forum, all those human beings must be represented.
The corporate system is designed to suppress, not reflect, the full
complexity of actual citizens' values and commitments. Real people
generally like their stock prices to go up and the corporations they
work for to make money, but they have many other, and more important,
values as well. All those other values -- justice, decency, patriotism,
getting home to see your children, survival of the species, beauty and
humor -- drop out in internal corporate decisionmaking as our laws
structure it. This is entirely appropriate in the economic sphere: by focusing on the very limited goals of economic success, our corporations have more likelihood of succeeding in those limited but essential goals. They should be concerned with creating good jobs at good pay, producing useful products and services at a reasonable price with acceptable side-effects, and producing a profit for investors -- not the far more difficult issues of democratic politics. But the very focus that makes corporations successful in economics disqualifies them from political debate.
The Citizens United decision, then, is very wrong.
But it can easily
be made irrelevant by the legislatures. All that is required is a statute that demands that
politically active corporations in fact be what Justice Kennedy's myth claims they are: associations of citizens.
Like any association of citizens in a democratic society, politically
active corporations should meet minimally democratic standards. That
is, they should make their decisions by democratic voting (direct or
indirect). Or, if they are not going to be democratic, at least they
should be funded entirely by voluntary contributions, so that
contributors can control them by withholding support. That's not
democratic -- it's one vote per dollar, not per person -- but at least
it gives the donors control.
At the Federal level, to correct the problem for the whole country,
the following Amendment to the '34 Securities Act would do it. This proposal relies on well established Federal securities law and is clearly permissible under existing Supreme Court precedent including Citizens United and Buckley v. Valeo, which extended First Amendment free speech protection to contributions and expenditures of money in campaigns.
Each of the provisions is designed to ensure that money spent by corporations reflects the views of the human beings who created or are the source of those funds, and not simply the views of fiduciaries who may be acting under misapprehension of the true interests of the institution they represent or in defiance of those interests or the will of those they represent.
Note that the statute respects Buckley v. Valeo and does
not attempt to limit the impact of private wealth on our political
processes. Any group of citizens who wish to organize to lobby or
campaign may do so in corporate form under clause 4. Any owner of a
closely held corporation--or individual or group that controls a
corporation--is completely free to cause the corporation to pay a
dividend, in which case the money will be individual and not corporate,
or to form a Political Corporation. Any corporate employee is
free to spend his or her own money and to organize with other corporate
affiliates so long as they do so in the proper legal form. Thus, the
only individual whose "freedom" to spend money to lobby or influence an
election is restricted is the person who wishes to spend money that is
not his or her own. That freedom -- the freedom to steal -- is not
worthy of constitutional protection.
We are probably better off having business corporations focus on business and political institutions focus on politics -- the division of labor makes it more likely that two difficult tasks will be performed acceptably if managers are allowed to specialize in one or the other. Many, perhaps most, successful business corporations would probably respond to this statute by opting out of politics in order to retain their current, anti-democratic, decision-making structures. If so, that would merely vindicate the original point: business corporations are designed to do business, not to participate in political speech. If citizens want to use corporate money to organize politically, the right way to do it is for the corporation to pass the money out to citizens -- as wages, dividends, interest, higher prices to suppliers or lower prices to customers -- and for those citizens to organize institutions that are designed to represent them in our democracy.
- All corporations subject to the Act shall disclose all expenditures made with intent to influence any election, referendum, or the content or enforcement of any statute, regulation or governmental action ("Electioneering/Lobbying Expenditures").
- a. All such disclosures shall include the source from which the corporation obtained the funds used for Electioneering/Lobbying Expenditures.
- b. If the source of Electioneering/Lobbying Expenditures is general treasury funds or other corporate property which could be converted into general treasury funds, the corporation shall further disclose the source of such funds, including its best estimate of
- (i) which corporate participant(s) or role(s) are the ultimate source of the funds
- (ii) which corporate participants would be likely to receive them if they were not used for Electioneering/Lobbying Expenditures.
- c. All such disclosures shall detail the positions or candidates or governmental action for or against which the corporation advocated and its rationale for believing that such advocacy or positions were in the corporate interest.
- d. False or misleading disclosure shall be subject to the criminal and civil sanctions of the Act, including section 10(b).
Clause 1 is a disclosure requirement, the central focus
of the Federal
securities laws. It provides that those whose money enriched the
corporation should know what use the corporation made of it. It is
likely to have some shaming effect on corporations, particularly with
respect to relatively controversial lobbying exercises.The Citizens
United court explicitly urged Congress and the legislatures to use
disclosure to mitigate the impact of its decision.
Any corporation subject to the Act may make Electioneering/Lobbying Expenditures from corporate treasury funds. The corporations shall decide whether to make such expenditures and what position to take as a corporation by following the procedures of this Clause 2.
- a. Only the corporation's board of directors or its express delegates may initiate the process for approving an Electioneering/Lobbying Expenditure under this Clause 2.
- b. Any human being affiliated with a corporation subject to the Act shall have a right to speak in favor of, or in opposition to, any proposed Electioneering/Lobbying Expenditure. The corporation shall pay reasonable costs associated with disseminating such speech to other corporate affiliates. No person shall be disciplined, fired or otherwise retaliated against for exercising her or his right to speak under this sub-clause.
- c. All proposals for the corporation to incur Electioneering/Lobbying Expenditures must be approved by a process satisfying ordinary democratic norms, including, at a minimum, direct approval by majority vote of the Affected Individuals on a one-person-one-vote basis, or indirect approval by representatives elected by such a vote.
- d. Affected Individuals shall include investors, employees, suppliers and customers who have contributed towards the funds used, purchased goods at above the corporation's costs (not taking into account any Electioneering/Lobbying Expenditures) or sold labor, goods or services to the corporation for less than the corporation could have paid (not taking into account any Electioneering/Lobbying Expenditures).
- e. The corporation shall bear the burden of proof to demonstrate effective, universal enfranchisement of Affected Individuals.
- f. Any corporation with a board of directors the majority of the voting members of which are elected by employees on a one person one vote basis shall be exempt from sub-clauses c and d.
Clause 2 makes clear that any corporation may participate fully in
the democratic debate (satisfying Bellotti and Citizens Union) providing
that it uses democratically legitimate internal decision making
processes. Business corporations that use the provisions of clause 2 will be restrained by ordinary democratic norms -- the positions they lobby for will have support of the actual citizens whose money or work made the corporation's expenditures possible.
Clause 2 is an internal governance rule similar to the
regulation of corporate elections under the Williams Act and other
long-standing provisions of the securities regulatory regime. It adds
ordinary Free Speech protections to internal corporate decision-making
when such decisions are intended to affect wider American politics, in
order to ensure that ordinary American freedoms are not destroyed by
moving politics "inside" the corporate shield and to fully protect the
corporation's assets from seizure by fiduciaries or agents acting beyond
their permitted roles.
In reality, we assume that few business corporations would choose to avail themselves
of clause 2, because most business corporations are not run along
democratic lines and would not choose to introduce internal democracy.
Any corporation funded only by contributions directly from human beings acting in their individual capacities (a Political Corporation) is exempt from Clause 2, provided that it receives no material part of its budget from sale of goods or services, investment income or contributions from entities or non-citizens.
This provision makes clear that organizations that are created to lobby or electioneer, such as political parties or committees of correspondence, are important parts of our political system. Citizens should be free to use associations and organizations to coordinate and amplify their voices. Corporations that are created specifically to influence politics, unlike business corporations, do not expropriate money dedicated for economic growth in order to unfairly manipulate the political system. The key defining characteristic of a Political Corporation is that it can clearly demonstrate that the money it spends came from citizens who were aware they were dedicating their money for this purpose -- not from customers who were simply buying a product, employees trying to make a living, or abuse of trust by fiduciaries using money with no clear owner at all. So long as the Political Corporation is funded only by identifiable human citizens, those citizens are free to organize in any way they choose and provide for any method of decisionmaking permitted by general law.
Any corporation subject to Clause 2 may create a Political Corporation to accept contributions from such of its affiliates (defined as affected individuals under clause 2) as may choose to participate. The costs of creating and administering the Political Corporation may be assumed by the creating corporation and, if provided in kind with no cash component, shall not be deemed a contribution to the Political Corporation.
Clause 4 provides a simple alternative, modeled on
existing PAC law, to fully protect the ability of managers, employees
and investors to use their connections in the corporation for collective
action. Any corporation that chooses not to comply with Clause 2 can nonetheless create a separate legal entity -- with any decisionmaking procedure its creators choose -- to coordinate the political activities of its affiliates.
Note that Political Corporations ordinarily would not be
subject to the Act, or, therefore, to the disclosure requirements of
Clause 1. To the extent that corporate affiliates have genuine desires
to take collective political action, the Political Corporation route
protects them, even accepting the equality of dollars reasoning of
Buckley v. Valeo.
This statute directly challenges the assumption of Citizens United that corporations are representative institutions entitled to speak and spend in politics as representatives of some unspecified "members". In reality, corporate managers control money that is the result of charging customers more than the corporation pays its suppliers, employees, investors and in taxes -- money, that is, that does not come from an identifiable citizen or reflect any citizen's view of politics or the law. Moreover, corporate managers are answerable only to a board that is elected on the anti-democratic principal of one share one vote, in a system in which votes are freely bought and sold on an open and anonymous market. In practice, both boards and managers are largely self-selecting and autonomous. When unanswerable managers are allowed to spend money that is not their own in order to influence the very law that enables them to control the funds they use, the result is not republican freedom but its opposite: government for sale.
The statute reflects the traditional view that internal corporate governance and the scope of corporate powers are matters for state law, not the Federal judiciary. It also reflects the traditional view, supported by economists since Adam Smith and political theorists since Moses, that law and economics must be separated: law should never be for sale in the market.
The Supreme Court is likely to view this statute as contrary to the spirit of its precedents, as indeed it is. However, in order to overturn it, the Court would be required to explicitly confront the central conceptual problems of Citizens United: the Court has declared that an entity that is entirely the product of state law nonetheless has unalienable rights that do not stem from the state and may serve purposes entirely alien to the law that created them. The Court is unlikely to be willing to pursue this precedent to its logical limit -- the full constitutionalization of corporate law. Accordingly, the statute seeks to reassert the previously unquestioned right of states to create corporations, to control the purposes for which they are formed, and to control the powers of their fiduciaries.
- It is the policy of the State of [State] that for-profit
corporations act within the constraints of law and not evade legal
regulation by lobbying, electioneering or otherwise intervening in the political and
- Because for-profit corporations are required by law and market
pressures to pursue profits beyond the point at which citizens would
decide that other values are more important, it is the policy of the
State of [State] that for-profit corporations are not adequate representatives of
their members or participants in political processes.
- The purposes of any for-profit business corporation organized under the laws of this State or licensed to do business in this State shall be limited to pursuing lawful activities within the law as determined by the citizenry and shall not include electioneering or lobbying to change that law or its interpretation by political processes.
- No manager, director or agent of any for-profit corporation incorporated in this State or licensed to do business in this State shall spend, directly or indirectly, corporate funds to:
This Act shall not be applicable to any corporation the
board of directors of which is elected on the basis of one human one vote.
This Act shall not affect the right of the news media to report news or editorialize on any issue.
This Act shall not affect any right of any corporation to
expend corporate funds to prosecute or defend any action in a court of
law.This Act shall not affect any right of any corporation to distribute corporate funds to any corporate participant, including investors or employees, nor shall it affect any right of any human being to speak, lobby, electioneer or spend his or her own money, whether or not derived from corporate sources, for any purpose whatsoever.
- (a) influence or attempt to influence any [State] election,
referendum, legislation or proposed legislation, agency policy or rule
making or interpretation, or
- (b) otherwise to lobby the State of [State] or any subdivision thereof, or
- (c) to participate in any political campaign or election in the State of [State].
Breach of this Act shall be a breach of the duty of legality and the duty of loyalty.
This Act may be enforced by private suits by affected
persons brought for damages or for equitable relief, or by suits brought
by the Attorney General or his designee.
The Corporate Religious and Political Freedom Act
In Hobby Lobby v. Sibelius and other recent litigation, a number of business corporations have asserted that the corporation itself practices a religion and is entitled under the Constitution to Free Exercise thereof.
Whose religion does a corporation have? If a corporation has rights to exercise religion, how do we know what religion the corporation has? When a group of people come together to form business, and then sell stock to outsiders, do the founders and employees lose their religious rights? When an employee joins a corporation does that person have to adopt the corporation's religion so long as they are employed?
Corporations are composed of human beings. Most of those human beings, however, are disenfranchised under current corporate law: current law makes the corporation's board of directors the ultimate authority in the corporation, but gives employees no vote for directors. Instead, the board of directors is elected by shareholders, typically on the basis of one vote per share owned. Shareholder voting is profoundly anti-democratic on a number of levels: First, voting is per share, not per person, so one voter may have many more votes than others. Second, shares may be held (and voted) by persons with little or no connection to the corporation -- diversified portfolios more interested in the profits of the corporation's competitors or suppliers, hedge funds that may arrange their affairs to profit if the corporation does poorly, investment funds managed for foreign sovereigns that may be more interested in their own national interests than the corporation or the American economy. Third, shares -- and therefore votes -- are freely bought and sold. And finally, the actual human beings who depend on and compose the corporation are not necessarily shareholders and have no vote at all unless they are.
The current share-based voting system is defensible so long as business corporations remain largely economic institutions devoted to producing useful products and services to sell in the marketplace. Generally, we depend on the profit motive as directed by the rules of the marketplace (including contract, tort, anti-fraud, safety, truth-in-advertising, environmental and zoning laws) to direct corporate activities in useful directions. Shareholder voting weighted by investment is a reasonable mechanism to press corporations to pursue profit within this system even if some corporate officeholders might be more inclined to preserve their positions or increase their personal status. The stock market, we expect, will constantly assess company profits and prospects and quickly reward and punish relative success and failure in that.
But the stock market has no special expertise in religion or politics. We generally do not believe that political loyalty, the public good, or religious commitments should be freely bought and sold, or that those with more money to invest have a special incentive to monitor corporate religious actions. Nor do we expect that religions must be profitable to be socially worthwhile. Moreover, when the rules that govern markets are put up for sale, we know that the result is corruption: the rules will quickly serve simply to further enrich those who can pay to buy rules that benefit them or those who have rules to sell.
So the stockmarket-based corporate governance system becomes radically inappropriate -- a violation of the ordinary norms of democratic, self-governing, republics -- when business corporations enter politics and religion. In those areas, equal citizens -- not money -- must rule.
The time has come for the states to reform corporate governance to satisfy basic democratic republican norms. If a corporation is to have a religion, the establishment ought to have majority support, and dissenters should have the right of tolerance. The same is true for corporate political advocacy: if the corporation is going to represent the people associated with it, they should have a say in determining what position it takes.
This corporate governance statute reforms corporate governance to reflect the recent expansion of corporate importance. If business corporations are going to act as associations of citizens asserting a joint religious or political view, they ought to follow minimum democratic norms.
The Corporate Religious & Political Freedom Restoration Act
- Whereas, citizens do not forfeit their fundamental rights to their religious consciences, political commitments or moral views, by associating with a business corporation as an employee or investor,
- Any business corporation organized in or doing business in this state, may exercise a religion, participate in politics, lobby or electioneer.
- The corporation shall determine the religious tenets to which it subscribes and the political positions or candidates for which it will advocate by majority vote of the persons affected, including at a minimum all employees and investors.
- Voting shall be in a free and fair election conforming to the ordinary norms of democratic governance, including the principle of one human being one vote.
- Voting may be direct, in the form of a binding referendum on the issue at hand, or indirectly for a democratically elected representative body that will make determinations for the corporation.
- Any corporation that adopts a religion shall provide for the rights of dissenters, including the dissenter's right to freely exercise a dissenting religion or no religion at all.
- Before corporate funds are used to promote any religion or exercise of religion, to advocate for any change in law or regulation, or to support or oppose any candidate for political office, such expenditure shall be ratified by a majority vote of the persons affected, including at a minimum all employees, investors and other persons with a potential claim to such funds.
- If corporate funds are used to promote any religion or exercise of religion, to advocate for any change in law or regulation, or to support or oppose any candidate for poltical office, any person affiliated with the corporation as an employee or investor who dissents from such expenditure shall be entitled to a rebate of such person's pro-rata share of such expenditure.
In Citizens United and other cases, the Supreme Court has
held that state-chartered business corporations are entitled to
participate in the political process by contributing and spending money
(or threatening to do so) on the same terms as citizens, even though
they are not citizens and even though the Constitution no where mentions
If corporations are to become participants in our
politics, they should do so on behalf of the actual citizens they purport to represent. That is, they ought to decide whether to enter politics and what positions to take by ordinary democratic procedures, not by dictatorial fiat or simple diktat of the privileged or powerful. This statute requires that corporations that choose to participate in
American politics determine their political positions using American governance norms.
This State law proposal is carefully designed to fully respect the
First Amendment rights that the Supreme Court has granted to
corporations and is clearly constitutional under current Supreme Court
does not restrict corporate participation in politics in any way -- under the statute, every business corporation is allowed to participate as fully in politics as if
it were a citizen rather than an instrument of the People's
self-governance. Thus, it raises no First Amendment issue at all.
Instead, the statute addresses only the issue of internal corporate governance -- how the corporation acts, who determines the corporation's political positions and what the processes are for determining the collective position in the event of internal dissent. Internal corporate governance has always been a matter of plenary state power, and states have repeatedly changed the rules and regulations without any suggestion that the First Amendment might be implicated.
Current state law determines the powers and obligations of fiduciaries governing the corporation on the assumption that the corporation is obligated by external (non-corporate) law to act in specified ways within market incentives that we believe make it likely that corporate behavior will be socially useful. Traditionally, the business of business was business, and the existing rules for corporate governance were written with the understanding that corporate fiduciaries would act only within that narrow framework. The law grants corporate decisionmakers great discretion to use corporate resources in any way they deem likely to be profitable on the assumption that they would respond to competitive challenges and changes in consumer preference by business innovations.
Under Citizens United, however, corporations and corporate decisionmakers are now entitled to use their position to attempt to change the very rules under which they play. Instead of responding to innovation with more innovation, incumbent corporations may seek to legally bar innovation, using government created monopolies such as patent or copyright, hidden or open subsidies, or changes in tax and regulatory regimes to disadvantage newcomers to the business. Instead of responding to customer demand, incumbent corporations may seek to disempower consumers, by, for example, denying them the information they need to make intelligent decisions, by changing their rights and remedies to respond to corporate abuses, or by creating rights to pollute, endanger others, take extraordinary financial risks, demand that the taxpayers absorb the costs of their failed decisions, or otherwise impose externalities on the nation as a whole.
If the powerful are able to use their power to permanently entrench themselves in positions of power, and the wealthy to increase the ease with which they extract wealth from others, our capitalist and democratic system of republican government is at risk.
Corporate law, therefore, must reform to accommodate the new constitutional reality and to ensure that the First Amendment is not transformed into an incumbent protection device. Corporations that engage in political activity, therefore, must be governed by the usual politicial norms designed to prevent incumbents from abusing the powers of their office for their own personal interests or the corrupt interests of their backers.
State law has always determined who speaks for a corporation and what
the restrictions are on such spokesmen and fiduciaries. This statute
strictly respects that traditional allocation of power, because it only
affects the internal decisionmaking procedures of corporations.
This statute is quite similar to the Federal statute above, but is designed to be enacted at the
state level as an amendment to the State Business Corporation Act. This statute, which could be passed by any state to protect its own
political processes, would permit business corporations to intervene in
local politics freely so long as they do so via
(a) a locally incorporated membership organization governed
by majority (human) vote or by a board elected by majority (human) vote,
with membership open to all corporate stakeholders broadly defined, or
(b) a side-fund that is funded only by voluntary contributions, not
endowment income or sale of goods or services. Section 7 is meant to
track pre-Citizens United PAC law, allowing wealthy individuals to band
together to increase their influence, and would leave any existing
restrictions on PACs in place.
Note that the statute respects Buckley v. Valeo and does not attempt to limit the impact of private wealth on our political processes. Any group of citizens who wish to organize to lobby or campaign may do so in corporate form under clause 7. Any owner of a closely held corporation--or individual or group that controls a corporation--is completely free to cause the corporation to pay a dividend, in which case the money will be individual and not corporate, or to form a Political Action Corporation under clause 8. Any corporate employee is free to spend his or her own money and to organize with other corporate affiliates under clauses 7 or 8. Thus, the only individual whose "freedom" to spend money to lobby or influence an election is restricted is the person who wishes to spend money that is not his or her own. That freedom -- the freedom to steal -- is not worthy of constitutional protection.
- Every corporation is free to make expenditures to
influence elections, educate the public on matters of public concern,
affect or influence governmental decision-making or otherwise affect the
political process in this State, or to affect the statutes, rules or
regulations governing corporate behavior ("Political Action").
- Decisions regarding Political Action are among the most important
and controversial actions a corporation can take, implicating the
values and interests of all corporate participants. Accordingly, each
corporate decision regarding a Political Action which
is made in this State or would have a substantial or significant affect
on the political process in this State must be approved by a majority
vote of every human corporate Stakeholder who is a US citizen and might be affected by the decision or expenditure.
- Stakeholders shall presumptively include
directors, managers, employees, human investors (or the human
beneficiaries of institutional investors), customers, suppliers and
taxpayers who might have to pay additional taxes as a direct or indirect
consequence of such decision, unless the corporation establishes, by a
preponderance of the evidence, that such individuals are not
significantly affected by the corporate expenditure or any election or
governmental action such expenditures may affect.
- Stakeholders may delegate this decision to
elected representatives, including the board of directors of a
corporation, so long as those representatives are elected on a fair
basis according to ordinary democratic norms, including but not limited
to one human one vote, limited terms of office, and enfranchisement of
all adult humans who are seriously affected by the representatives'
- This statute shall apply to every corporation incorporated in this State.
- Any foreign corporation is free to make expenditures designed to
influence elections or governmental actions in this state provided that
it does so by means of a subsidiary incorporated in this state and
complying with this statute. No foreign corporation shall be granted a
license to do business in this state unless it agrees that all Political
Action it takes in this State shall be by means of a corporation,
including a wholly owned subsidiary, that complies with Section 2 of
- Section 2 of this statute shall not apply to any corporation that
is funded solely by voluntary donations from human beings, and receives
no income from endowment , investments, or sales of goods and services
(a "Political Action Corporation").
- Any business corporation may sponsor an affiliated Political Action Corporation. If such Political Action Corporation restricts contributions and membership to Stakeholders of
the sponsoring business corporation, the sponsor may use general
treasury funds to pay for the reasonable costs of creating and
administering the affiliated Political Action Corporation.
The following proposals are intended to mitigate the impact of the Citizens
United holding that corporations have the same right as citizens to
make campaign expenditures (and presumably spend money in other ways
that the Court might characterize as "political speech"). They will not
eliminate the excessive influence of wealth in our political system.
Thus, they are not meant to overturn Buckley v. Valeo or to substitute
for effective campaign finance law.
They do, however, mean that the Electioneering/Lobbying Expenditures
will come from actual human beings who have made an actual decision to
spend their own money -- not corporate money with no clear owner -- to
support their own views or interests -- not interests that they believe
they are legally or ethically required to promote as fiduciaries for the
corporation regardless of their personal views.
In other words, they effectively reduce the power of corporate money
and corporate speech, which is never free speech, without challenging
the Buckley v. Valeo claim that money is speech and campaign spending
/contributions are protected by the First Amendment. It protects the
ability of the rich to use their own money, while protecting corporate
fiduciaries from the obligation to promote positions they might not
support as citizens or believe are in the national interest or further
the public good.
Possible state statutory solutions to the Citizens United problem include:
- The Consumer's Protection Opt Out Act
- Whereas, consumers purchase products and services without intending to support business lobbying efforts to change the rules of the market,
- No business, whether incorporated or
not, shall be authorized to do business in this State or sell any good or service in this State, unless it provides an effective means for
in-state customers to opt out of corporate electioneering/lobbying
expenditures where ever made, including full disclosure and a system for
This would give consumers the means of boycotting politically active
corporations and most likely would create some economic pressure on
corporations to avoid political activity. However, over time,
corporations would probably learn that few citizens are likely to
"opt-out" as increased disclosure makes corporate political activity
seem more normal.
- An Act to Prevent Corporate Waste
- Whereas, corporate assets are entrusted to corporate decisionmakers as fiduciaries for the good of the corporation, and
- whereas, the purpose of corporations in this state is to pursue lawful activities within the law as determined by the citizenry,
- whereas, political activity to influence the law or its application to a corporation's business is not in the interests of a business corporation properly understood,
- whereas, members of the corporation are entitled to assurance that their corporation's assets will not be used to promote political objectives with which they disagree, now therefore
- Any expenditure for lobbying or electioneering by any business corporations is hereby declared corporate waste, and may be authorized only by unanimous consent of the shareholders.
This Act would make directors and executives who approve such
expenditures personally liable unless the expenditure is approved by
unanimous vote of the shareholders.
- An Act to End Tax Subsidies of Corporate Lobbying and Electioneering
- The (state or federal) income tax statute
is hereby amended to declare that all corporate lobbying and electioneering expenditures
shall be deemed expenditures by the human beings who contributed the
- To facilitate tax reporting and paying, the corporation
shall be required to
- (1) identify such persons on a quarterly basis, and
- (2) to disclose to each such person the total expenditures made in
their name and the causes for which they made, and
- (3) to set out the
basis on which the corporation allocated the expenditures to that
- Each individual receiving such imputed income shall be
required to report such income for tax purposes and allowed to deduct
the associated expenditures to the same extent as if the individual had
made them in his or her personal capacity.
Imputing the income to individuals and requiring them to report it on
their income taxes would emphasize the Court's claim that the rights
being protected here are individual rights. Moreover, courts are
generally quite reluctant to interfere with the state's taxing
authority, so framing the statute as an income tax provision would
lessen the probability of a successful First Amendment challenge. This
is an effective disclosure statute that, presumably, would cause a good
deal of unhappiness among those who learn that "their" money was used
in this way. For at least a while, shame would inhibit companies from
- An Act to Limit Foreign Influence on US Elections
- No business corporation shall expend any funds to lobby or electioneer using funds that are in any part contributed by a non-citizen investor, employee or customer.
- In the case of
institutional investors, the institution is deemed to have the
citizenship of each of its associated participants, looking through all
institutions until a human being is reached.
Every publicly traded corporation has non-citizen investors, so in
practical terms this is the same as an outright ban for any publicly
traded corporation, but the Court seemed to leave open this route to vitiating its decision.
To restrain corporate constitutional rights more generally -- the
goal of the misnamed "corporate personhood" movement -- requires
reversing the Court's presumption that corporations are more like
citizens than government: that like individual citizens, they need
protection from the potentially overbearing power of the state, and that
unlike the state, they are not power centers themselves. In fact,
however, major corporations are, like the state, collective
organizations with great power for good or ill and plenty of
opportunities for abuse of that power.
We need Freedom of Speech or Due
Process rights against major corporations far more than they need such
rights against us. The following statute makes clear
that major corporations in fact pose the same threats of overreaching as
the state itself.
- Any corporation which employs more than 1000 employees, or
which has any security issued, outstanding and held by more than 100
people, or which has annual revenue exceeding $10 million, shall be
deemed a "state actor" for purposes of the Constitution and shall not be
entitled to claim rights under this Constitution except to the extent
that state agencies are.
This text reverses the presumption that public corporations are
"private" and so not bound by the Constitution but entitled to claim
rights under it against the government. Instead, it creates a
presumption that the legislature may regulate public corporations much
as it regulates other state agencies, such as the IRS or the EPA or
municipal governments, and that human beings have the same rights
against public corporations that they do against state actors such as
the DMV or the municipal water company: minimum rights to due process,
free speech, equal protection, privacy, non-discrimination and so on.
On first principles, characterizing corporations in this way should
be within the common law police power of any state, or the Commerce
Clause and XIV Amendment enforcement powers of the Congress.
Corporations, after all, exist only by action of the state; they are not
pre-legal beings with existences of their own. However, the notion of
corporate constitutional rights is deeply embedded in the precedents;
the Court may insist that a change of this degree be made by