Debaters clash over allowing corporate free speech

by Dave Roberts | August 7, 2013 9:31 am

First Amendment[1]This is the first article in a two-part series on the battle against corporate political speech.

The U.S. Supreme Court’s Citizen’s United[2] decision in 2010 affirmed the right of businesses, associations and unions to freely engage in politics. Since then, leftist groups have increased the pressure on corporations to eliminate or at least disclose their spending on candidates, ballot measures, political action committees, trade associations and the like.

But when corporations cave in to such pressure, they open themselves to the possibility of boycotts and protests from leftist groups that disagree with something a candidate says or an association does.

Whether the pressure campaign has been effective — and whether corporations would be committing suicide by going along with it — were topics debated at a recent conference of the Society of Corporate Secretaries & Governance Professionals.

Bruce Freed, president and founder of the Center for Political Accountability[3], has been in the forefront of the corporate pressure campaign. His group publishes an annual index[4] that tracks large U.S. companies’ policies on political spending. CPA also pushes corporations to adopt its model political disclosure resolution[5]. It calls on companies to:

* Report soft money contributions, independent expenditures and payments to trade associations and other tax exempt organizations that are used for political purposes.

* Identify the titles of the individuals involved in the expenditure decisions.

* Disclose their political spending guidelines.

* Require the board of directors to conduct oversight of the company’s political spending.

Belly of the beast

Freed went into the belly of the beast on July 12 to urge a room full of corporate pros to do just that.

“Why has political disclosure become such an important issue to both companies and shareholders?” he asked. “I think it can be summed up in one word: risk. Over the past several years shareholders and companies have come to recognize that political spending using corporate treasury funds poses a range of risks. Those risks are reputation, business and legal. A serious problem exists today with the rise of 501(c)(4) groups[6]. We have a real threat of extortion and shakedown. Because those groups, the 501(c)(4)s, do not disclose their donors. They are really conduits for secret political spending.”

Freed assured his audience that their companies would not be the only ones disclosing their political spending.

“What’s interesting today is that political disclosure has become a mainstream corporate practice,” he said. “Companies in ever-growing numbers are adopting disclosure and accountability policies. As of today, 118 companies — these are large companies in the S&P 500 and over half of the S&P 100 companies — have reached disclosure agreements with CPA and its partners…. [A]bout three-fourths of the companies in the S&P 500 do have policies of some sort on political spending.”

And Freed argues that transparency is good for business.

“Our experience has been that there’s no question that disclosure is good for companies and shareholders,” he said. “It allows them to know what companies are spending directly and indirectly. We have found through our surveys that directors do not necessarily know their company’s political spending. We’ve also found in discussing with companies that political disclosure really has not had serious consequences, has not led to pressure from shareholders and various stakeholders. It hasn’t led to requests for more contributions. I think we are at the point now where we find that standardized disclosure creates a level playing field. That’s something that we are finding more companies are saying to us that they want.”

Focus is on corporate speech

Although Freed argued against political spending in general, it appears that it’s mostly corporate political spending that concerns him.

“We see political spending as distorting markets in policy making and creating a skewed playing field,” he said. “That’s one of the reasons why we have been pressing companies to disclose their political spending. To at least have it out there for shareholders, others, even for directors and management to know the full extent of the company’s political spending. I think you can look at political spending and see … that it really can create problems for a well functioning market economy.”

Freed summed up his opening statement with “two important takeaways. The first is that the steady growth in the number of companies adopting disclosure and accountability is making it a corporate governance standard. We have critical mass today.

“Secondly, it’s in a company’s self interest to have robust disclosure and accountability policies. With the rise of 501(c)(4) groups, with the rise of trade associations engaged in political spending and doing it with anonymous funding, disclosure is very important in helping to protect companies from risk and it also leads to considered decision making.”

Different planets

Freed’s debate opponent Brian Cartwright[7], a former general counsel at the Securities and Exchange Commission[8], opened by saying, “It may appear that Bruce and I come from different planets. We couldn’t diverge more in our views. There’s little that he said with which I agree. I just have to set the scene as to what is really going on here from my perspective.”

Cartwright argued that businesses would be crazy to kowtow to the pressure from what he called “the anti-business community.”

“I start from the premise that the government is large enough at all levels — local, regional, state and federal,” he said. “It’s pervasive enough, it’s intrusive enough that the business community has really little choice but to engage with the government. Whether business thrives, or sometimes whether it survives, often depends on what the government does and doesn’t do. We all know that. So as a pragmatic matter you have to engage with the government; the business community does.

“The folks who view themselves as usually adverse to business — not always, but usually; the big labor federations, the trial lawyers and others, you know who they are — have got lots of money. They have got lots of manpower. They are very sophisticated. And they are very aggressive, as you all know, in their involvement in electoral politics. So, the business community really can’t afford to cede the field to them. Because if it does, it’s just going to get rolled.”

Targeting Target

The 2010 boycott against the Target Corporation[9] is an example of what can happen when corporations engage in political spending and disclose it. The retail giant contributed $150,000 to Minnesota Forward[10], a pro-business group that supported the campaign of a gubernatorial candidate who opposed gay marriage. After gay-rights groups launched a boycott, Target apologized for the contribution and promised to make amends by focusing on diversity and inclusion in the workplace. The boycott then fizzled out.

“The anti-business community wanted to use this as an opportunity to send a message broadly as to what can happen to you if you participate in politics,” said Cartwright. “Target emerged unscathed. Undoubtedly they had an episode they had to manage that they would rather not have managed. And these incidents have been few and far between. So on a probability basis, your likelihood of having to face something like this isn’t too great. Nonetheless, you’re on notice. It’s kind of, ‘Nice business you have there — it would be shame if anything should happen to it.’”

The corporate pros nervously laughed.

Cartwright concluded his opening remarks:

“So if you want to, capital T, target companies in order to dissuade them from entering the political process at all, it poses at least a modest obstacle. So they would very much like to overcome that. I think it was Lenin who said a capitalist is the guy who will sell you the rope to hang him. Here they are suggesting, not that they buy the rope, but that you give it to them. Because they want the disclosure that will enable them to at least threaten to, capital T, target you.

“The ultimate goal here … is to remove the voice of business from the playing field. That strikes me as almost obviously not in the best interest of companies and therefore indirectly their investors and stockholders, at least those who are not conflicted with another agenda.

“So why would anybody do it? I don’t think anybody really would. But the pitch … is that ‘resistance is futile.’ That’s supposedly because of two things. First, all your peers are doing it. And then arguing in the alternative, second, ‘If they are not doing it now, they will be soon. This wave is unstoppable. So you don’t want to be an outlier, do you? That will expose you even more. So why don’t you get on board with the program?’ That is very much the pitch. I’m here to say that all your peers aren’t doing it, this wave is not unstoppable and it is not in the best interest of stockholders.”

Doing it

The largest part of the debate concerned whether everybody is in fact “doing it.” Freed said shareholder support for political disclosure policy proposals has risen from 9 percent in the 2004 proxy season to more than 30 percent now. Boeing jumped from 22 percent support in 2011-12 to 29 percent this year.

“The experience is that there has been a significant increase,” said Freed.

Freed’s numbers are based on counting just the “for” and “against” votes on disclosure resolutions. Cartwright countered that with a slide using statistics that also include abstentions on those resolutions. It shows that there is very little support (18 percent) for limiting corporate political speech, the same as what it was in 2006.

“These [anti-corporate] proposals get clobbered every single year,” Cartwright said. “The overwhelming rejection by shareholders of these proposals is manifestly evident.”

The debate ended with Cartwright stating something that both he and Freed could agree on.

“It does make sense for the board to have some monitoring supervision of this,” said Cartwright. “It does makes sense to have internal policies that guide the activity in this area as in many others.”

To listen to the debate, click here[11], or on the YouTube below.

Next story: Leftists seek SEC regulation of corporate speech.

Endnotes:
  1. [Image]: http://calwatchdog.com/wp-content/uploads/2013/07/First-Amendment.png
  2. Citizen’s United: http://en.wikipedia.org/wiki/Citizens_United_v._Federal_Election_Commission
  3. Center for Political Accountability: http://www.politicalaccountability.net/
  4. annual index: http://politicalaccountability.net/index.php?ht=a/GetDocumentAction/i/6903
  5. model political disclosure resolution: http://politicalaccountability.net/index.php?ht=d/sp/i/867/pid/867
  6. 501(c)(4) groups: http://en.wikipedia.org/wiki/501(c)_organization#501.28c.29.284.29
  7. Brian Cartwright: http://en.wikipedia.org/wiki/Brian_Cartwright
  8. Securities and Exchange Commission: http://www.sec.gov/
  9. 2010 boycott against the Target Corporation: http://abcnews.go.com/Business/target-best-buy-fire-campaign-contributions-minnesota-candidate/story?id=11270194
  10. Minnesota Forward: http://www.mnforward.com/
  11. click here: http://www.youtube.com/watch?v=o2H28dsA7Do&feature=youtu.be

Source URL: https://calwatchdog.com/2013/08/07/debaters-clash-over-allowing-corporate-free-speech/