Citizens United: The Aftermath

The TakeAway: This year’s Supreme Court decision in Citizens United opened the floodgates of money in politics, eroding public trust in government as well as shareholder value.

“Oyez, Oyez, Oyez!” the Marshal of the Court called out today, marking the beginning of the Supreme Court’s 2010 term.  In addition to a new Justice, the Court has a new website with user-friendly features that help keep track of Court information.  (We’ve bookmarked that, as well as the OYEZ Project, which archives audio recordings of Court proceedings, and the American Bar Association’s preview of SCOTUS cases.)  While this term promises controversial cases on, for example, protests at military funerals, illegal immigration, support for religious schools, violent video games, DNA evidence, and prosecutorial misconduct, none will likely match the impact of last term’s blockbuster Citizens United case, which opened the floodgates of corporate money into political campaigns and continues to reverberate throughout public life.

Last week, Politico revealed that News Corp. (the parent corporation of Fox News) recently contributed $1 million to the US Chamber of Commerce (which recently joined the Business Roundtable in asking the DC Circuit Court to overturn proxy access) – the latest example of unregulated campaign spending.  In late June, News Corps made a similarly controversial $1 million contribution to the Republican Governor’s Association.  Next month’s midterm elections reveal the political impact of Citizens United, while a less understood area looms in the background: the effect of Citizens United on shareholder value.

First, the politics.  Thanks to Citizens United, some call it Wild West time in political spending; others such as legal scholar Lawrence Lessig say it’s eroded public trust in Congress.  On Friday, reported that, with the Gulf of Mexico mess as a backdrop, the oil and gas industry poured more than $17 million this election season into the coffers of congressional candidates and national political committees, “a number on pace to easily exceed that of the most recent midterm election four years ago.”  OpenSecrets provides a chart listing the top 10 Senate and House candidates who’ve indirectly benefited from oil and gas industry funding.  OpenSecrets also maintains a “Campaign Countdown” widget (you can add it to your website) that provides real-time spending tallies for candidates, parties, and issue groups.  ( is the website for the Center for Responsive Politics, which tracks, on a nonpartisan basis, the influence of money in politics.)

The Citizens United ruling triggered a new political weapon known as the “Super PAC”.  One of the biggest: American Crossroads, a pro-Republican group founded with the help of Karl Rove, which has spent $5.6 million this year on conservative causes (it plans to spend $50 million).

Meanwhile, some beneficiaries of the financial bailout appear to be showing a bit of restraint in political spending.  Last Thursday, American International Group (AIG) announced its plan to repay the $182.3 billion bailout by converting the preferred shares owned by the Treasury Department into common stock.  AIG joins other recipients that have repaid the (now-expired) Troubled Asset Relief Program (TARP) rescue funds, including JPMorgan Chase, Bank of America, and Goldman Sachs.  According to OpenSecrets, AIG has cut 2010 lobbying and campaign donations to zero.  Last August, Goldman Sachs pledged to stop spending on political advertising, as did JPMorgan and a number of other firms.

As for shareholder value, a recent paper by Harvard Law School’s John Coates published on the Harvard Law School Forum explores the relationship between corporate governance and corporate political activity, and finds strong negative correlations between political activity and firm value.  Coates examined existing data from 1998 to 2004 on governance and political activity among S&P 500 companies along with empirical studies of corporate political activity.  (He also acknowledges the limits of his analysis, given untold amounts of undisclosed political activity.)  Coates supports new laws restoring shareholder protections, such as the DISCLOSE Act (H.R. 5175)—which fell victim last month to a Republican Senate filibuster.

Bottom line: unfettered corporate political activity isn’t just bad for America.  It’s bad for shareholders, too.

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