With the Supreme Court’s decision last week in Citizens United v. Federal
Election Commission, businesses suddenly find themselves free to engage in
substantially more political advocacy and spending. However, before businesses
rush out to take full advantage of their new freedom, they should be mindful
that the landmark decision also brought with it new uncertainties and risks.
Citizens United struck down laws restricting corporate spending on
advocacy of specific political candidates and positions. Broadly, corporations
are no longer barred from using general treasury funds to fund political
communications or from promoting candidates and positions close to elections.
However, Citizens United did not alter restrictions on direct
contributions to candidates. It also left intact disclosure and disclaimer
requirements. The Court even highlighted the role disclosure requirements play
in reinforcing internal controls and democratic processes within the corporation
to monitor expenditures.
Opponents of the decision are already planning their response. Potential
legislative responses include additional disclosure requirements, especially for
public companies. Also being proposed are tighter regulations on expenditures
that are independent as opposed to coordinated, reforms promoting public
financing, shareholder vote requirements, and limitations on political spending
by foreign companies and recipients of federal funds.
However, given the slow pace of legislation, reformists are also likely to
utilize other tools in combating corporate political spending. One such tool is
the threat of shareholder lawsuits challenging political expenditures. Now that
businesses have greater freedom to engage in political spending, public
companies in particular should expect close scrutiny of that spending.
In light of this scrutiny, public companies contemplating additional
political spending would be wise to consider first revisiting their corporate
governance structure. For example, one way to promote the integrity of political
expenditures is to distribute appropriately the authority for such expenditures
between the board of directors and management. In general, companies should
ensure that expenditures do not make them vulnerable to shareholder lawsuits.
While such suits do face significant legal hurdles, reformists are already
discussing trying to use them to curb political spending by businesses.
Shareholders also might challenge political expenditures through other methods,
such as voting out directors, proposing disclosure resolutions, or selling
stock. Sound corporate governance can best equip corporations to handle these
outside pressures on spending decisions. Companies should also be mindful of the
impact state law, organizational documents, and contractual terms could have on
their spending options.
McGuireWoods has experience advising clients regarding corporate governance
issues, defending against shareholder lawsuits, and representing businesses
under investigation by the state or federal government. McGuireWoods also can
assist businesses working through the many implications of the Citizens
United decision. For further discussion of the implications of Citizen