The First Amendment and Corporate Governance
| Citation | Vol. 27 No. 4 |
| Publication year | 2010 |
Georgia State University Law Review
Article 6
3-13-2012
The First Amendment and Corporate Governance
Larry Ribstein
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Recommended Citation
Ribstein, Larry (2010) "The First Amendment and Corporate Governance ," Georgia State University Law Review: Vol. 27: Iss. 4, Article 6.
Available at: http://digitalarchive.gsu.edu/gsulr/vol27/iss4/6
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THE FIRST AMENDMENT AND CORPORATE GOVERNANCE
Larry E. Ribstein*
Corporations' right to participate in political debate is one of the most contentious current constitutional and political issues. The debate has intensified in recent years as government seeks to rein in corporations' increasing global reach and corporations react by stepping up their participation in politics. The debate came to a head with the Supreme Court's decision in Citizens United v. Federal Election Commission that the First Amendment restricts laws aimed at corporate political campaign activities.
The case concerned a documentary criticizing then presidential candidate Hillary Clinton by Citizens United, a nonprofit corporation financed in part by general treasury funds of for-profit corporations. Section 203 of the Bipartisan Campaign Reform Act of 2002 (BCRA) prohibits corporations and unions from using their general funds to finance certain publicly distributed communications referring to identified candidates for federal office. The Court overruled prior law upholding these limits and invalidated BCRA's restrictions on corporate and union expenditures. The majority reasoned that the provision was a ban on speech that could be upheld under the First Amendment only if it "furthers a compelling interest and is narrowly tailored to achieve that interest." The provision at issue failed to pass this test.
The majority bluntly opined that the First Amendment makes no exception for corporations, noting that it "protects speech and speaker, and the ideas that flow from each,"4 and "does not permit
* Mildred van Voorhis Jones Chair, University of Illinois College of Law. Thanks for helpful comments by participants in the Georgia State University College of Law Symposium on Citizens United, Kurt Lash and Stefan Padfield.
1. Citizens United v. Fed. Election Comm'n, 130 S. Ct. 876 (2010).
2. 2 U.S.C. § 441b (2006).
3. Citizens United, 130 S. Ct. at 898 (citing Fed. Election Comm'n v. Wisconsin Right to Life, Inc., 551 U.S. 449, 464 (2007).
4. Id. at 899.
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Congress to make these categorical distinctions based on the corporate identity of the speaker and the content of the political speech."5 Justices Scalia, Alito, and Thomas added that the text of the First Amendment
offers no foothold for excluding any category of speaker, from single individuals to partnerships of individuals, to unincorporated associations of individuals, to incorporated associations of individuals-and the dissent offers no evidence about the original meaning of the text to support any such exclusion. We are therefore simply left with the question whether the speech at issue in this case is "speech" covered by the First Amendment. No one says otherwise . . . . Indeed, to exclude or impede corporate speech is to muzzle the principal agents of the modern free economy. We should celebrate rather than condemn the addition of this speech to the public debate.6
Perhaps most importantly, the Citizens United majority rejected corporate speech's potential distorting effect on political debate as a rationale for regulation. The Court reasoned that regulation under the anti-distortion rationale would potentially muffle a large segment of the population, concluding that
[w]hen Government seeks to use its full power, including the criminal law, to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought. This is unlawful. The First Amendment confirms the freedom to think for ourselves.
5. Citizens United, 130 S. Ct. at 913.
6. Id. at 929.
7. For a critique of the anti-distortion argument and of other justifications for restricting corporate political speech under the First Amendment, see Larry E. Ribstein, Corporate Political Speech, 49 Wash & Lee L. Rev. 109 (1992).
8. Citizens United, 130 S. Ct. at 908.
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Citizens United, in short, was more concerned with the potential excesses of government power than with those of private corporations.
Citizens United did not, however, end the debate over corporate speech anymore than did Austin v. Michigan Chamber of Commerce,9 and McConnell v. Federal Election Commmission,10 which Citizens United overruled. Many believe the Supreme Court unleashed a corporate monster that will drown out the rest of the populace. For example, one commentator opined on the eve of the 2010 election that "[u]nder this system [unleashed by CU], the game is over. Our democracy is dead."11 The author concluded that corporations could use their spare cash to buy elections and noted
that money is flooding into "right-wing groups." The public reaction to the Citizens United case suggests that the controversy over corporate speech was not quelled by the Court's narrowly divided vote.
The Court's holding arguably left an opportunity for its opponents to erode its protection of corporate speech despite the majority opinion's absolute language. The opinion upheld the disclosure and
disclaimer provisions of the law in question and suggested that regulation of corporate governance might pass constitutional muster.14 Congress quickly sought to exploit these loopholes with the DISCLOSE Act,15 which passed the House in June 2010, and the Shareholder Protection Act,16 which passed the House Financial Services Committee the following month. Passage of such laws could set up yet another Supreme Court decision on this divisive issue.
This article shows that Citizens United shifted the debate over corporate speech from corporations' power to distort political debate
9. Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990).
10. McConnell v. Fed. Election Comm'n, 540 U.S. 93 (2003).
11. Brett Arends, Death of a Democracy, Market Watch, Oct. 19, 2010, http://www.marketwatch.com/story/death-of-a-democracy-2010-10-19?pagenumber= 1.
12. Id.
13. Citizens United, 130 S. Ct. at 913-16.
14. See infra text accompanying notes 30-31.
15. H.R. 5175, 111th Cong. (2nd Sess. 2010).
16. H.R. 4790, 111th Cong. (2nd Sess. 2010).
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to the corporate governance processes that authorize this speech. The corporate governance move is a facially plausible strategy. It seems to be a content-neutral pursuit of objectives other than restricting speech and, therefore, to escape strict scrutiny under the First Amendment. This move also recognizes that corporations, as artificial entities, cannot speak in the same sense as humans do, and that the First Amendment is more properly concerned with the expressive rights of the individuals who speak through corporations than with the rights of artificial entities. Jurisprudentially, looking through the corporation to its owners and agents arguably reconciles the majority's concern for liberty with the dissent's concern with
equality and the corporation's potential to distort public debate.
Despite the corporate governance strategy's apparent advantages, it provides a weak basis for regulating corporate speech under the First Amendment. Regulation of the corporate processes that produce corporate speech is still speech regulation even if it sails under the corporate governance flag. Whether the regulation survives First Amendment scrutiny under Citizens United thus depends on whether corporate governance regulation reasonably effectuates expression of shareholder beliefs. Testing the corporate governance theory in light of the realities of corporate finance and governance, this paper finds that the dispersed, passive, and anonymous shareholders that corporate-governance-based regulation purports to protect are unlikely to have much expressive interest at stake in corporate activities. Moreover, regulation protecting this interest is likely to have little value and to pit various stakeholders against each other. Thus, any expressive interest shareholders have is more likely to be thwarted than promoted by corporate governance regulation. This paper also discusses the uncertain implications of the corporate governance theory for regulation of corporate governance, non-election-related commercial speech, and speech outside the context of publicly traded corporations.
It is important to clarify the limits of my analysis. I do not claim that the corporate governance basis for regulating corporate speech
17. See Kathleen M. Sullivan, Two Concepts of Freedom of Speech, 124 Harv. L. Rev. 143 (2010).
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can never survive First Amendment scrutiny. I seek only to analyze the specific question of whether regulation of corporate governance can be sustained on the ground that it vindicates shareholders' expressive rights. This claim has significant problems because of the inherent limits on the efficacy of government regulation in this area, such regulation's potential for actually harming expressive rights, and the uncertain implications of this rationale for contexts beyond that involved in Citizens United. Claims that shareholders' expressive rights can sustain regulation of corporate governance under the First Amendment must...
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