American corporations today are like the great European monarchies of yore: They have the power to control the rules under which they function and to direct the allocation of public resources. This is not a prediction of what’s to come; this is a simple statement of the present state of affairs. Corporations have effectively captured the United States: its judiciary, its political system, and its national wealth, without assuming any of the responsibilities of dominion. Evidence is everywhere.

• The “smoking gun” is CEO pay. Compensation is an expression of concentrated power — of enterprise power concentrated in the chief executive officer and of national power concentrated in corporations. Median US CEO pay for 2010 was up 35 percent in the midst of a lingering recession, while CEO pay over the last decade has doubled as a percentage of pre-tax corporate income. Yet there has been no justification for current levels of CEO pay based on economic value added.

When Lee Raymond retired as CEO of ExxonMobil at the end of 2005, after six years at the helm of the merged firm and another six as head of Exxon before that, he walked away with more than a quarter billion dollars in realizable equity. In his final year alone, Raymond received in excess of $70 million in total compensation — an hourly wage of about $34,500 calculated at 40 hours a week for 50 weeks. No metric can justify such a raid on the corporate treasury and shareholder equity, but Raymond is only a particularly egregious and early example of what has since become common practice. Little wonder that the driving concern of banks receiving TARP “bailout” money was to pay it back so as to escape any restriction on executive pay.

• Retirement risk has been transferred to employees. During the same period that CEOs were doubling their own compensation, the “best” CEOs of the “best” companies abrogated the century-old commitment by employers to provide pensions to their workers. IBM has been the corporate leader in abolishing a “real” pension system for its employees. The 2006 elimination of on-going defined benefit plans will “save [IBM] as much as $3 billion through the next few years and provide it with a more ‘predictable cost structure’,” TK said at the time. Translation: The worker bees are on their own.

This is the essence of “capture” – CEOs are enriched, while all other corporate constituencies, including government, are left with liabilities. A relatively few autocrats have taken control over the policies and wealth allocation of the United States.

• The financial power of American corporations now controls every stage of politics — legislative, executive, and ultimately judicial. With its January 2010 decision in the Citizens United case, the Supreme Court removed all legal restraints on the extent of corporate financial involvement in politics, a grotesque decision that can have only one effect: maximizing corporate – not national — value. Today’s CEOs have been granted the power to direct political payments and organize PAC programs to achieve objectives entirely in their own self-interest, and they have been quick to use it.

More than $300 million was “invested” by corporations in the 2008 Presidential elections. The totals will be vastly higher in 2012 when the full impact of Citizens United is expressed, and the distribution will be politically agnostic. As Bill Moyers recently noted, President Obama “has raised more money from banks, hedge funds and private equity managers than any Republican candidate.”[1]

• Capture has been further implemented through the extensive lobbying power of corporations. Abraham Lincoln’s warning  about “corporations enthroned” and Dwight Eisenhower’s about the “unwarranted influence by the military/industrial complex” have been fully realized in our own time. Reported lobbying expenditures have risen annually, to $3.5 billion in 2010. Half of the Senators and 42 percent of House members who left Congress between 1998 and 2004 became lobbyists, as did 310 former appointees of George W. Bush and 283 of Bill Clinton.

Capture has focused on particular industries. Two powerful Democratic administrations have not been able even to propose a system of “single payer” health insurance.  Meanwhile, business interests have assured that whatever program of “universal coverage” emerges will lock in the interests of the insurance and the pharmaceutical industries.

History has yet to sort out whether the second Iraq War served any national objectives beyond military and industrial ones, but the suspicion that oil interests played a critical role in the rush to battle is enhanced by Vice President Cheney’s refusal to reveal the names of the participants in his energy transition committee. Simultaneously, the inability to force public disclosure of those participants offers a window into how thoroughly the energy industry controls its own agenda, destiny, and information flow. Not only has the industry succeeded in achieving and maintaining special regulatory and tax treatment; in multiple other ways, it functions virtually as an independent state.

• Capture has placed the most powerful CEOs above the reach of the law and beyond its effective enforcement. Extensive evidence of Wall Street’s critical involvement in the financial crisis notwithstanding, not a single senior Wall Street executive has lost his job, and pay levels have been rigorously maintained even when, as noted earlier, TARP payments had to be refinanced in order to remove any possible restrictions.

While several financial firms have paid civil penalties for their abuses, the amounts involved bear little relation to the malfeasance. US District Judge Jed S. Rakoff recently — and rightly — rejected the $285-million settlement agreed to between Citigroup Inc. and the Securities and Exchange Commission as “neither fair, nor reasonable, nor adequate, not in the public interest.”

Worse, such fines as have been imposed on the financial industry are basically being paid by the government itself. At the same time that various regulatory agencies boast of record setting penalties assessed against banks, the Federal Reserve pays banks interest on money that is not being lent, resulting in an “interest margin” realized by U.S. banks in the first six months of this year of $211 billion — more than ample funding for any penalties suffered.

• Finally, capture has been perpetuated through the removal of property “off shore,” where it is neither regulated nor taxed. The social contract between Americans and their corporations was supposed to go roughly as follows: In exchange for limited liability and other privileges, corporations were to be held to a set of obligations that legitimatized the powers they were given. But modern corporations have assumed the right to relocate to different jurisdictions, almost at will, irrespective of where they really do business, and thus avoid the constraints of those obligations.

As Nicholas Shaxson writes in Treasure Islands, “The privileges have been preserved and enhanced, but the obligations have withered.” Meanwhile, the U.S. Treasury is estimated to be losing $100 billion annually from off-shore tax abuses.

Government cannot and will not hold corporations to account. That much is now obvious.  Indeed, the dawning realization of this truth is what has informed the Occupy movement, but only the owners of corporations can create the accountability that will ultimately unwind the knot of government capture.

The essence of the problem is quite straightforward: a failed system of corporate governance. So is the cause: the unwillingness of trustee owners of America’s corporations to assert their responsibility, legal duty, and civic obligation to monitor and oversee the corporations they invest in. Fiduciary institutions own 80 percent of the outstanding shares of corporate America and thus bear at least 80 percent of the responsibility for present circumstances as well as 80 percent of the onus for saving the system itself. And the largest institutional investors — the Bill and Melinda Gates Foundation, Harvard University, and others — must take the lead because (a) they should and (b) all other courses have failed.

Urban park by urban park, campus by campus, the Occupiers are bearing sometimes inchoate witness to America’s capture by corporate interests. Now, men and women of conscience need to reoccupy the boardrooms of America’s corporations. The boardroom is where the takeover began, and it’s where capture can finally be undone and a government of, by, and for the people, not the corporations, restored to the land.

Robert AG Monks is a shareholder activist and corporate governance adviser who has written widely about shareholder rights & responsibility, government capture, corporate impact on society and global corporate issues.

Mr. Monks is an expert on retirement and pension plans and was appointed director of the United States Synthetic Fuels Corporation by President Reagan, who also appointed him one of the founding Trustees of the Federal Employees’ Retirement System.  Mr. Monks served in the Department of Labor as Administrator of the Office of Pension and Welfare Benefit Programs having jurisdiction over the entire U.S. pension system.

Mr. Monks was a founder of Institutional Shareholder Services (ISS), now the leading corporate governance consulting firm.  He also founded Lens Governance Advisers and co-founded The Corporate Library (now Governance Metrics International).  He is a shareholder in and advisor to Trucost, the environmental research company.

Any professional boxer worth his salt will tell you the rules of the game matter. Fighters box in weight classes with specific rules like no hitting below the belt. It's boxing after all; not a gladiator match. Democracy could take a few lessons from boxing, especially now that corporations have the same First Amendment rights as living, breathing citizens. Over the past few weeks, a growing consensus among shareholders, corporate leaders and corporate law experts has emerged. All are urging increased transparency for corporate money in politics.

What are the key rules of the game in a modern American election? Who can be a candidate, who can vote, and who can spend money on the election. It was this third rule that changed last year. Before 2010, corporations were barred from spending in federal elections and in roughly half the states. The Supreme Court changed this in Citizens United allowing them to purchase as many political ads as they could afford. So if democracy were a boxing match, now we have flyweights in the ring with super heavy weights. This is why so many election watchers consider Citizens United to be an electoral game changer.

But election wonks are not the only ones worried about the impact of corporate dollars in American elections. Corporate law experts have also voiced their objections. Corporate law professors including Bebchuk and Coates at Harvard, Jackson and Gilson at Columbia and Klausner at Stanford have expressed concern that the Supreme Court has fundamentally misunderstood how corporate democracy works. Or as Former Chancellor William T. Allen stated at a recent symposium called Accountability After Citizens United, "normatively, I believe business corporations should not be in the business of making political contributions. It's not what the institution is designed for."

While the Supreme Court in Citizens United envisioned a world where shareholders could hold managers accountable for political spending, corporations have several clever legal ways to hide their role in politics from the public. This lack of transparency has been noted by Professors Schepers and Gardberg at Baruch who recently released a corporate political disclosure index. They found that on average those companies spending the most on politics were disclosing the least.

Our capital markets are premised on transparency of information so that investors can compare firms apples-to-apples and invest in the best fit. Keeping big corporate political expenditures hidden from investors may distort markets. Furthermore, shareholders can't hold managers accountable for political spending that they don't know about. The ability of shareholders to object to spending that they can't see is like asking them to box blindfolded.

This week the Committee for Economic Development (CED) is urging companies to stay out of the political thicket. CED is a nonpartisan organization of more than 200 business executives and university presidents, and is a thought leader in the business world. CED is also urging that if companies engage in politics then, they should do so transparently.

Meanwhile shareholders have also quickly engaged on the issue of corporate political spending post-Citizens United. One problem is corporate political spending may trigger costly objections from customers or business partners. The boycotts of Target over its political expenditures in the 2010 Minnesota governors race showed this to be true. Nearly a year later, shareholders were still voicing their objections to this spending at Target's annual meeting in 2011. The reason why Target's shareholders knew about this spending was Minnesota has some of the best political disclosure laws in the country. (Minnesota's good law was recently upheld by the Eighth Circuit, but it was reheard en banc last week).

This is why we need common sense corporate law solutions to address the multiple problems created by Citizens United. There is legislation which would address this problem called the Shareholder Protection Act. It has been introduced in both Houses of Congress and it would give shareholders not only the ability to see corporate political spending, but also the ability to have a say through a vote at annual meetings. The bill is based on the UK's Companies Act, which requires shareholder authorization of corporate political expenditures before the money is spent, as well as clear disclosure of where the money went. And this will have an impact not just on corporate law. If the investing public can see the source of corporate political spending, then so will voters who could take this information into account at the ballot box.

Of course, legislation can take a long time to come to fruition especially with our current fractured Congress. In the meantime, investors can file shareholder proposals (under Rule 14a-8) directly with companies requesting more transparency and accountability. One such proposal won over 53% of the vote this year at Sprint. Another approach is to send the Securities and Exchange Commission (SEC) petitions requesting a new rule for publicly traded companies. A petition was recently filed by 10 corporate law professors urging the SEC to adopt a new disclosure rule on corporate political spending.

With corporations on the American political scene for the foreseeable future, we need to adopt new sensible rules of the game so that we have fair, clean fights in elections to come.

Ciara Torres-Spelliscy is an Assistant Professor at Stetson University College of Law and the co-author with economist Kathy Fogel of "Shareholder-Authorized Corporate Political Spending in the United Kingdom".  This article was first published on the Huffington Post and is republished with the author's permission.

The Supreme Court’s January 2010 Citizens United decision to permit corporations to spend unlimited sums to influence federal elections was premised on a pair of yet-unfulfilled promises: Corporations would disclose their expenditures, and shareholders would be able to police such spending. The best chance to fulfill those promises may now rest with the Securities and Exchange Commission. The SEC could require disclosure of political spending by public companies and facilitate action by shareholders to sign off on such spending.

Contrary to the consensus view, however, SEC action may prove to be a favor to the owners of the affected corporations. Despite reflexive opposition to the disclosure of political spending from many self-appointed business advocates, research we have published suggests that disclosure of political activity might benefit corporate valuations and, at the least, mandatory disclosure would pose no threat of a detrimental effect.

For decades, conservatives opposed regulation of campaign spending in favor of unlimited spending with full disclosure. Post columnist George F. Will once proposed boiling down campaign regulation to “seven words: no cash, full disclosure, no foreign money.” In Citizens United v. Federal Election Commission, Justice Anthony M. Kennedy embraced this vision, writing for the majority: “With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters.”

But when Citizens United was decided, FEC rules did not require disclosure of corporate political spending. Of $266 million spent by outside groups in 2010, nearly half was spent by groups that revealed nothing about their funders. The undisclosed portion amounted to double the total spending by outside groups in 2006, the previous midterm election.

So far, efforts to close the disclosure gap have failed. Comprehensive disclosure reform should come from Congress, but congressional action may be hard to achieve. Last year, a bill requiring the reporting of any donor giving $1,000 or more for a campaign ad passed the House, but the legislation fell one vote short of overcoming a filibuster in the Senate. The FEC is deadlocked. A draft executive order aimed at government contractors was leaked but not issued. The SEC, then, looks to be the best bet for fulfilling Justice Kennedy’s promise that corporate political activity would be disclosed.

Amid these developments, a common assumption has been that, whether corporate political activity is good for the country, it is good for corporate shareholders. Why else would corporations want to get involved in politics?

Counter to those perceptions, however, several studies suggest that companies seeking political advantage may not be doing their shareholders any favors. Rather, such activity may reflect the interests of corporate managers and benefit shareholders less than other possible uses of their money. Politically active public companies are less valued by the market, and companies with better corporate governance — including the presence of large, active shareholders — are less politically active.

What about disclosure? We analyzed market valuations of 80 companies in the Standard & Poor’s 500 that have policies calling for disclosure of electioneering activities. In particular, we compared the price-to-book ratios of those companies with other S&P 500 companies in the same industries. After controlling for size, leverage, research and development, growth and political activity, we found that companies with disclosure policies had a 7.5 percent higher industry-adjusted price-to-book ratio than other firms.

Given data limitations, we cannot claim disclosure policies cause higher price-to-book ratios, only that companies with pro-disclosure policies are generally more valuable. But our data, which are from 2010, are inconsistent with claims that disclosure will harm corporations, and they are consistent with the idea that well-managed companies responsive to shareholder concerns tend to be valued more highly than other companies.

The voluntary disclosure policies that provided the basis for our analysis are encouraging. But such policies are inconsistent, sometimes incomplete and lack enforcement mechanisms. For a typical investor, the question is whether corporate political activity overall is valuable. Voluntary disclosures by a small fraction of public companies cannot answer that question.

Citizens United opened up a brave new world in which corporations could spend unlimited sums to influence federal elections in exchange for having their expenditures monitored by their shareholders and the public at large. Only half of this promise has been fulfilled. It’s up to the SEC to make good on the other half.

John C. Coates is a professor of law and economics at Harvard Law School. Taylor Lincoln is research director of Public Citizen’s Congress Watch division.  This article was first published in The Washington Post and is republished with permission of the authors.

The Shareholder Protection Act,  introduced today in the U.S. House and Senate, addresses corporate governance problems left in the wake of the Supreme Court’s 2010 decision in Citizens United v. FEC, which enables corporations to spend an unlimited amount of money on political advertising.

The bill is modeled on the U.K. Companies Act, which requires prior shareholder approval of corporate political donations.  The Shareholder Protection Act would bring this requirement to publicly-traded American companies, as well as implementing quarterly reporting to investors of all corporate political expenditures.

The Shareholder Protection Act was introduced by Rep. Michael Capuano (D-Mass.) and Sens. Robert Menendez (D-N.J.) and Richard Blumenthal (D-Conn.); in total the bill has forty-two House and eight Senate co-sponsors.  A broad coalition of socially responsible investors and good governance groups support the legislation.

Here are 11 reasons why we need this new bill to become the law of the land:

11. Post-Citizens United, corporate managers can spend other people's money in politics.

10. Boycotts after the fact won't get the political expenditures back for investors.

9. The “business judgment rule” shields managers from liability for buying political ads in all but the most extreme fact patterns.

8. Corporations can hide their role in politics by spending through opaque trade associations--thwarting accountability.

7. The Securities and Exchange Commission has no disclosure requirements for corporate political spending.

6. Delaware (where a majority of US corporations are incorporated) has no disclosure requirements for corporate political spending.

5. We have a presidential election in 2012 where corporate money could play a determinative yet secret role.

4. Unlike investors in U.K. companies, shareholders in U.S. companies cannot cast a binding vote to stop corporate political spending.

3. The U.S. Supreme Court ruled that disclosure of corporate political spending is fully constitutional.

2. Voters need to know who is funding elections to cast a fully informed vote.

1. Investors need to know which companies are engaged in political fights to make sound financial investments which are aligned with their deeply-held personal values.

For these eleven reasons and many more, I support the proposed federal Shareholder Protection Act to provide shareholders a chance to see past corporate political spending as well as have a say about future corporate political spending. I also support a rule-making at the SEC to require full disclosure of political spending by allpublicly-traded companies.

7/15/2011 - This article has been updated to reflect the final number of legislative co-sponsors in the House and Senate.

Ciara Torres-Spelliscy is an incoming Assistant Professor at Stetson University College of Law and co-author of "Shareholder-Authorized Corporate Political Spending in the UK".

Shareholders of Home Depot Inc. rejected a closely watched shareholder proposal seeking to expand the amount of information investors may seek about corporate political spending.

Fred Blake, Home Depot chairman and CEO, reported the results at the company's annual meeting, based on preliminary figures, but didn't announce any numbers; final figures will be filed next week, he said.   (6/9/2011: See this update for final vote results.)

Although the measure was defeated, it is considered to be a template for similar proposals at other corporate annual meetings.

The proposal by NorthStar Asset Management, a Boston money manager, requested that the company annually report on its political policies and contributions, disclose future anticipated spending, and provide an analysis of how such spending matches company values or policy.  It asked Home Depot to give shareholders an advisory vote on those policies and plans, although the vote would be non-binding.

Julie Goodridge, NorthStar CEO, told the Home Depot annual meeting that the resolution was "an opportunity to cast an historic vote" for shareholder democracy.

NorthStar's proxy material said the proposal was needed to minimize “risk to the firm’s reputation and brand through possible future missteps in corporate electioneering.” It noted that Target Corporation last year was threatened with boycotts and received negative publicity after donating $150,000 to a Minnesota political group that backed a Republican candidate for governor who opposed same-sex marriage.  Target, which said it made the contribution to support economic growth and job creation, apologized and revised its policies for approving political contributions.

Sanford Lewis, a Massachusetts attorney who represented NorthStar, told the Securities and Exchange Commission that while Home Depot has a “clear and firm non-discrimination policy,” political contributions by the Company or its PAC have gone to candidates who oppose same-sex marriage or various policies protecting gay individuals.

The SEC’s division of corporation finance in March rejected Home Depot’ s effort to exclude the proposal; the company said the proposal was vague and indefinite, sought seeks to micromanage the company, and declared the company has substantially implemented the proposal – all arguments companies often make in
justifying exclusion of shareholder proposals.

Asked about the significance of the SEC ruling, Mr. Lewis said “Although disclosure proposals are routinely filed and found nonexcludable, to our knowledge this was the first time the SEC ruled directly on a proposal providing an annual shareholder advisory vote on electioneering spending…This first time decision has cleared the way for further efforts, building upon the model established by the Home Depot proposal.”

The website CampaignMoney.com, which tallies records filed with the Federal Election Commission, says that in 2010 the Home Depot PAC raised $2.2 million and distributed $1.99 million.  Political action committees raise money from individual contributions.

Shareholders have voted on political disclosure resolutions at 28 companies this year, according to Bruce Freed, president of the Center for Political Accountability, receiving an average of more than 30% support.

In May, New York City Comptroller John C. Liu claimed a victory on the issue when 53% of the votes cast at the Sprint Nextel annual meeting endorsed the NYC Pension Funds’ proposal that the company report its policies and procedures for political contributions and identify the people who make the decisions. (However, the company – which counts abstentions as “no” votes – says the resolution lost by 59% against and 41% in favor.)

The Home Depot proposal was crafted as part of the national response to the 2010 Supreme Court Citizens United decision finding that limits on independent corporate and union political spending violate free speech provisions of the Constitution.

The decision involved spending by corporations on advocacy campaigns; corporate contributions to federal candidates is still illegal, although a federal judge in late May in Virginia threw out an indictment against two people charged with illegally reimbursing donors to Hillary Clinton campaigns, citing Citizens United as his reason.  Judge James Cacheris seems to be having second thoughts, however; he has asked the parties to submit additional briefs on whether he should reconsider his ruling, the Associated Press reported.

Democrats in Congress last year tried to lessen the impact of the Citizens United ruling via the DISCLOSE Act – Democracy is Strengthened by Casting Light on Spending in Elections Act -- which would require that donors to political campaigns and political advertising be identified.  It passed the House, which at the time had a Democratic majority, but failed in the Senate.  Some politicians have proposed a Constitutional amendment to reverse the decision.

Earlier this year, President Obama proposed an executive order requiring that federal contractors disclose their political contributions, a move Republican leaders said would intimidate contractors.

Political observers, meanwhile, expect the Citizens United case to result in an unprecedented flood of political spending between now and the 2012 elections – much of its done invisibly through aggregated contribution sites or through trade associations.

GOP strategist Karl Rove has set up a pair of fund-raising entities, American Crossroads and  Crossroads Grassroots Political Strategies; Crossroads GPS will accept contributions while keeping donor identifies secret. Federal filings record more than $15 million of spending by Crossroads GPS last year.  In response, Democrats are organizing similar  groups called Priorities USA and Priorities USA Action

John C. Bogle, founder of the Vanguard Group of mutual funds, widened the debate in a  May 14 New York Times column, declaring: “Shareholders – not self-interested corporate managers – should, and can, decide policies on corporate political contributions.”  In view of the Citizens United case, he said, “the institutional investor community has an obligation to act,” and urged that that corporations have shareholders vote on a resolution that “the corporation shall make no political contributions without the approval of the holders of at least 75 percent of its shares outstanding.”

He said the Home Depot and other votes “this proxy season will be a powerful indication of whether our money managers are observing their fiduciary duty and putting the interest of the small investors and pension funds that are their clients before their own.”

Photo by Ildar Sagdeje via Wikimedia

The Supreme Court heard oral arguments today on a case between AT&T and the Federal Communications Commission, revisiting the legal concept of “corporate personhood” last strengthened under the court’s Citizen United ruling on corporate campaign spending. (That controversial ruling has its first anniversary this week.)

The case before the court focuses on whether AT&T, a corporation, can stop government agencies from releasing information obtained for law enforcement purposes by claiming such disclosures would violate the company’s “personal privacy.”

The phrase is included as an exemption in the text of the Freedom of Information Act, a federal law that instructs government agencies on what information to make public. As the SCOTUS blog notes, however, there’s no specific definition of the words “personal privacy,” so it’s not clear whether a corporation can qualify as a person in this case.

The lower court, the Third Circuit in Philadelphia, sided with AT&T in an earlier ruling, stating that corporations are capable of being embarrassed, harassed and stigmatized by public disclosures. If the Supreme Court agrees, it could limit how much information federal agencies are able to release about the companies they've investigated. (Here's Bloomberg, with more background.)

In the appeal before the high court, a review of the briefs in support of each side shows a number of news organizations and government openness and watchdog groups backing up the FCC. Major business groups—namely the National Association of Manufacturers, the Chamber of Commerce and the Business Roundtable—have filed briefs in support of AT&T.

Justice Elena Kagan, it’s worth noting, was solicitor general at the time when the FCC and U.S. government petitioned the Supreme Court to review the AT&T case. She has had to recuse herself from considering it, and should the court split 4-4 without her, the lower court’s decision would stand.

Kagan’s successor as solicitor general, Neal Katyal, has argued that “a corporation itself can no more be embarrassed, harassed, or stigmatized than a stone.”

According to early reports on the day’s proceedings, the high court showed signs that it agreed.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.   This article is republished with permission under a Creative Commons license.

As Professor Barry Friedman and Dahlia Lithwick noted in a recent piece, the Roberts Supreme Court is usually pretty savvy about gauging public opinion and acting accordingly, but when they decided Citizens United, they grossly misread the mood of the American public. They must have thought that this would be a little-noticed change to campaign finance minutia. Instead headlines from all over the country howled about the invitation of corporate money into American elections. Unwittingly, Citizens United, roused a sleeping giant, the American investor.

Maybe it’s the backdrop of the Great Recession juxtaposed with another record year for Wall St., but for whatever reason, Citizens United hit a raw nerve. One of the reasons that this is such an objectionable decision is it allows corporate managers in publicly traded companies to spend what Justice Brandeis called “other people’s money.” And as the Brennan Center noted in Congressional testimony right after the decision was announced, this raises a host of corporate governance issues.

Citizens United allows unlimited corporate and union spending in local, state and federal elections. Now that the 2010 election is in full swing, we can see the jump in outside money. And when they know about corporate political spending, shareholders are objecting. For example, Target’s institutional investors wanted to know how $150,000 got into the Governor’s race in Minnesota. Meanwhile, investors such as the Nathan Cummings Foundation are objecting to spending from News Corp. and the Investor Network on Climate Risk is focusing on spending by oil companies.

But frustratingly, much of the money being spent in the midterm election is secret– masked through the use of tax-exempt non-profits like trade associations. This secretive corporate political spending leaves voters and shareholders equally in the dark about the source of the funds. And this study from Investor Responsibility Research Center shows how far we need to go, finding 86% of the S&P 500 does not have stated policies on indirect political spending via contributions to trade associations and non-profit interest groups.

If American shareholders track likely voters who object to the holding in Citizens United by a margin of 4-1, then a goodly portion of shareholders are probably also displeased with the right of corporate managers to spend corporate money in this way. With roughly one out of every two American households invested, that is a lot of potential anger about the use of corporate funds in elections.

More than in any election since Watergate, in the 2010 midterm election obfuscation is winning over transparency. This was not inevitable and it needs to be fixed before the 2012 presidential election. We can address this by getting serious about changing state corporate law and federal securities law.

As Professor John Coates has noted, Citizens United has radically unsettled the expectations of corporate managers, shareholders and creditors alike. And as Professor John Coffee has argued corporate spending through trade associations thwarts accountability to shareholders. Both professors agree that at the very least, we need more transparency surrounding corporate political spending.

But is this where we should end the discussion of corporate governance after Citizens United? I think not. Here the problem is not just that shareholders are unwittingly funding corporate political expenditures, it is that there is no mechanism under corporate law for them to register their consent or objection, short of selling their shares. As I have argued here and here, we need something akin to the British approach which allows shareholders a vote on political spending. And Professors Lucian Bebchuk and Robert Jackson contend, states can adopt even more stringent controls like requiring approval of political expenditures by independent directors or requiring super-majority shareholder votes to protect the interests of minority shareholders.

Legislation to address this problem is waiting in the wings. Both disclosure and a shareholder vote could be addressed by the Shareholder Protection Act (H.R. 4790). This bill would require shareholder approval before publicly-traded corporation can spend money on politics. Furthermore, corporations are required by the Act to report where they have spent the money. Congress can adopt this bill in the lame duck session after the election.

It is not too late to act to protect shareholders. We still have time to fix this problem before the 2012 election. Because once a presidential race is at stake, even the corporate managers who sat on the sidelines this time around, may find the new Citizens United authority to spend other people’s money in politics too irresistible to pass up.

Ciara Torres-Spelliscy is Counsel at the Brennan Center for Justice at NYU School of Law and Adjunct Professor of Constitutional Law at Rutgers University.

Three leading sustainability investment firms said they filed shareholder resolutions at Target and Best Buy seeking to have independent board members review the companies’ political contributions and spending processes.

Human Rights Campaign Ad

The two national retailers, both headquartered in Minnesota, have been under fire since the disclosure last month of their political contributions to an organization that backs a state gubernatorial candidate who opposes gay marriage.

Target has contributed $150,000 and Best Buy $100,000 to MN Forward, an independent expenditure committee that has taken out ads in support of Tom Emmer, a Republican state lawmaker.

The contributions have drawn widespread media coverage and criticism from customers and organizations such as Human Rights Campaign, a national advocacy group for lesbian, gay, bisexual and transgender (LGBT) rights.

Investment firms Walden Asset Management, Trillium Asset Management Corporation and Calvert Asset Management Company, Inc. said they joined together to file a proposal at Target Corporation that asks the company's independent board members to undertake a "comprehensive review of Target's political contributions and spending processes including the criteria used for such contributions" and "oversight processes by management and the Board." Calvert and Trillium have filed a similar resolution at Best Buy, Trillium on behalf of the Equity Foundation, which works to eradicate prejudice towards the sexual and gender minority communities of Oregon.

Collectively, the firms said they control more than 1.1 million shares of common stock in Target worth $57.5 million, and 344,000 shares of Best Buy worth $11.3 million.

Target and Best Buy have both previously stated that their contributions were aimed at supporting candidates whom they felt would foster economic growth in Minnesota. Target has since issued apologetic statements directed toward employees and customers.

The investment firms noted that Target and Best Buy have traditionally had “exceptionally strong workplace policies” for LGBT employees.   They said their shareholder proposals were intended to draw “attention to the misalignment between the donations and the companies' corporate values.”

Human Rights Campaign has sought to have Target and Best Buy make contributions to groups supporting gay-rights candidates in Minnesota.  However, “after two weeks of good-faith discussions – and two tentative agreements,” the organization said this week, Target has declined “to take corrective action.” Discussions with Best Buy continue, according to Human Right Campaign.

The controversy involving Target and Best Buy is the most high-profile since the U.S. Supreme Court’s decision last January in Citizens United, which gave corporations and unions new freedom to support political candidates through contributions to Independent expenditure committees.

Tim Smith, senior vice president at Walden, said, "It is unclear how frequently companies will decide to spend shareholder monies in controversial political races. But if the Best Buy and Target contributions are any indication, imprudent donations can potentially have a major negative impact on company reputations and business if they don't carefully and fully assess a candidate's positions. Funding ballot initiatives or ‘issue ads’ can similarly backfire."

Shelley Alpern, vice president at Trillium, said, "Tom Emmer has made it no secret that as governor he would deny members of the LGBT their full civil rights. No company can credibly claim that it continues to support the LGBT community if at the same time it is financing a deliberate effort to keep it in second-class citizenship."

Stu Dalheim, Director of Shareholder Advocacy at Calvert, said, "We continue to call for increased transparency and disclosure of corporate political spending. The absolutely wrong conclusion for companies to draw from this controversy is that everything will be all right as long as they conceal their political contributions."

Moveon.org, the national advocacy group, has announced an effort to organize boycotts of Target and Best Buy.

The U.S. Supreme Court’s decision last January in Citizens United – giving corporations and unions new freedom to contribute to political campaigns - is beginning to have an impact.

Human Rights Campaign Ad

Retailers Target and Best Buy, both headquartered in Minnesota, are among the first companies to encounter public controversy following their political contributions to an organization that backs a state gubernatorial candidate who opposes gay marriage.

Target has contributed $150,000 and Best Buy $100,000 to MN Forward, an independent expenditure committee that has taken out ads in support of Tom Emmer, a Republican state lawmaker.

The contributions have drawn widespread media coverage and criticism from customers and organizations such as Human Rights Campaign, a national advocacy group for lesbian, gay, bisexual and transgender (LGBT) rights.

Human Rights Campaign took out an ad in the Minneapolis StarTribune addressing the two companies: “With the Supreme Court’s decision in Citizens United, the landscape for political contributions has changed in ways that no one fully appreciates yet. Your foray into this uncharted water has proved choppy and should serve as a warning to other corporations mindful of the perceptions of LGBT and allied consumers.”

In an email to Target employees, CEO Gregg Steinhafel said the contribution to MN Forward was based on the company’s desire to foster economic growth in the state.

“Target has a history of supporting organizations and candidates, on both sides of the aisle, who seek to advance policies aligned with our business objectives, such as job creation and economic growth,” he said.  “MN Forward is focused specifically on those issues and is committed to supporting candidates from any party who will work to improve the state's job climate.”

In a statement, Target said it has had "multiple conversations" with the Human Rights Campaign in recent weeks and hoped to "continue to work with the HRC in a spirit of mutual cooperation."  Referring to its employees and customers, the company added, "We are committed to doing better and regret that we have let down our team members and guests. We are evaluating ways to make sure they know the high value we place on our relationships with them."

Best Buy, in a statement, said: “Best Buy’s political giving strategy – and our decision to support MN Forward – is based solely on the need to help elect candidates who will make jobs and economic issues a top priority this election.  We are a business in an industry highly sensitive to consumer uncertainty, unemployment and market instability; a successful economic recovery is critical to Best Buy.  Best Buy joined other Minnesota businesses in supporting the objectives of MN Forward."

Best Buy said because it believes "employees, shareholders and customers have a right to know how Best Buy engages politically," it informed employees of the MN Forward contribution.  It said it also posts its political policy and annual activity report on a section of the company web site that focuses on advocacy initiatives.

Ironically, both Target and Best Buy have been considered “model employers” by the Human Rights Campaign and have consistently received a 100 percent rating on the organization’s Corporate Equality Index, a measure of workplace equality.   Human Rights Campaign called on Target and Best Buy to make similar campaign contributions in support of candidates who support gay marriage.

The Supreme Court’s January decision in Citizens United allows corporations, unions and other organizations to spend unlimited amounts to influence political campaigns, although they still can’t contribute directly to candidates or their organizations.

Recent filings by independent expenditure groups with the Federal Election Commission (FEC) suggest that aggressive fundraising is likely on behalf of candidates for both parties – and on behalf of particular interests.

The Los Angeles Times reported that Democratic leaders on Capitol Hill believe that more than $300 million has been budgeted by business and conservative groups for a campaign to wrest control of Congress from Democrats.

Commonsense Ten, an independent expenditure organization being organized by Democrats, reportedly has a budget in the millions. “"With our majorities in both houses in play -- and with them President Obama's agenda -- and talk of a hundred million dollars plus being raised by Republican independent groups, we're optimistic that our funding base will rally," one of its organizers told the Washington Post.

Another group just registered with the FEC is Californians for Fiscally Responsible Leadership, a fundraising organization reportedly backed by Native American Indian tribes which represent prominent California gambling interests.

Several major coal companies are reportedly exploring plans to form to create a non-profit organization to pool their money to defeat Democratic Congressional candidates they consider “anti-coal.”   One member of the group is said to be Massey Energy, owner of the Upper Big Branch mine in West Virginia where 29 miners died in an accident in April.

The Lexington Herald Leader reported that a senior vice president of International Coal Group recently sent a letter to other coal companies.  “A number of coal industry representatives recently have been considering a 527 (non-profit) entity with the purpose of attempting to defeat anti-coal incumbents in select races, as well as elect pro-coal candidates running for certain open seats,” the letter said. “We’re requesting your consideration as to whether your company would be willing to meet to discuss a significant commitment to such an effort.”

This article has been updated from the original published version to include comments from Target and Best Buy.

Photo of Target Store by Jay Reed via Wikimedia Commons

Shareholder support for disclosure of corporate political support continues to build.

The Center for Political Accountability, examining results of disclosure proposals for the 2010 annual meeting season, found that shareholder support for disclosure rose to a record 30.25% at 28 meetings.

Since 2004, about 200 disclosure resolutions have been submitted on corporate proxies.

Disclosure support at four companies was particularly strong: Coventry Healthcare, 46%; Express Scripts, 42%; CVS Caremark, 41.35%; Sprint Nextel, 41.2%, and Allstate, 39.7%.

Bruce Freed, President of the CPA, says the results indicate that “more and more (investors) are calling for an end to the secrecy that has cloaked corporate political spending and want accountability.”

He added: “When you consider that the majority of votes side with management as a matter of course, the substantial support from retail and institutional shareholders shows the broad support for political disclosure.”

The Center recently launched an online database that allows users to examine how specific companies treat political accountability and disclosure.

Corporate political campaign support has become a hot button issue this year, particularly in view of the January 5-4 decision by the U.S. Supreme Court removing limits on corporate and union spending on political ads.

Critics of the decision fear a deluge of corporate spending, prompting Democrats to seek to limit the decision and to require contributors to disclose their identities.  The legislation, labeled the DISCLOSE Act, passed the House 219 to 206 in late June, but backers had to make key concessions to achieve passage.  One change would exempt the National Rifle Association from the bill’s disclosure requirements. And opponents, led by the U.S. Çhamber of Commerce, have labeled the measure an assault on free speech.

Similar legislation introduced in the U.S. Senate faces an uncertain future, particularly in an election year.