Can the SEC prohibit publicly-traded corporations from making political expenditures (and, eventually, direct campaign contributions) unless the corporation first gets approval from a majority of shareholders?

It’s already become something of a favorite parlor game among liberals, especially among liberal law geeks, to speculate about when the Supreme Court will strike down state and federal statutes that prohibit corporations from making direct campaign contributions to candidates and political parties. In Citizens United, the court killed statutory bars to corporate and union political so-called-independent expenditures, and, in McCutcheon, removed aggregate limits to human beings’ direct contributions to candidates and parties.  But, for now, state and federal laws prohibiting direct corporate and union contributions–some of these laws dating back to the early part of the last century, as I understand it–remain intact.

To the surprise of some (but not me), the Court refused last week to hear a challenge by an incorporated nonprofit political organization.  The most obvious likely reason that they declined is that, as a public relations matter, it simply is too soon after McCutcheon for them to take this step in what everyone by now recognizes as a juggernaut.

Richard Hasen, the most high-profile liberal election-law expert, thanks in part to his Election Law Blog and to his prolific writings for mainstream media outlets–and who has already written numerous articles on the McCutcheon opinion–said in a post on his blog last Friday that he believes that “Roberts’ preferred order is (1) strike down federal soft money ban (for reasons explained in the Slate piece); (2) strike individual contribution limits: (3) strike corporate ban.”

Another favorite guessing game since the McCutcheon opinion was issued is trying to discern what newly enacted campaign-finance laws–theoretically speaking, at least on the federal level, since Congress will not enact any–could possibly pass muster with the current Supreme Court.  I believe that one possibility, although I’ve not seen it mentioned anywhere (other than earlier by me), is a federal statute or even possibly an SEC regulation that actually relies upon the Citizens United opinion to prohibit publicly traded corporations from making political contributions or political expenditures unless the corporation first obtains approval from a majority of shareholders.

As I wrote here recently, the widespread belief that Citizens United declared corporations and unions people for purposes of First Amendment rights, that is not quite accurate. What the court said in that opinion is that corporations are associations of citizens and therefore have First Amendment rights that are purely derivative of the First Amendment rights of their shareholder citizens.

This issue–whether corporations themselves have First Amendment rights, or instead only have First Amendment rights derivative of their shareholders–is front-and-center in the Hobby Lobby/Conestoga Wood free-exercise-of-religion challenges to the ACA’s employer contraception-coverage mandate.  And in those cases, the corporations and the shareholders of these two secular, non-publicly traded corporations are arguing that the corporation indeed derives its First Amendment free-exercise-of-religion rights from the First Amendment rights of its shareholders.

At argument in those cases late last month, John Roberts indicated that a resolution of the cases based upon the distinction between closely-held, non-publicly-traded corporations and publicly traded ones would remove the problem of corporate CEOs effectively co-opting the First Amendment religious-freedom rights of unwitting shareholders who do not share their religion and are not sympathetic to the particular religious dictate.  In McCutcheon, issued eight days later, he said:

When donors furnish widely distributed support within all applicable base limits, all members of the party or supporters of the cause may benefit, and the leaders of the party or cause may feel particular gratitude. That grati­tude stems from the basic nature of the party system, in which party members join together to further common political beliefs, and citizens can choose to support a party because they share some, most, or all of those beliefs. … To recast such shared interest, standing alone, as an opportunity for quid pro quo corruption would dramatically expand government regulation of the politi­cal process.

This strikes me as a tacit, if inadvertent, recognition that the derivative nature of corporate First Amendment rights must be limited to authorized use.  Political decisions, like religious decisions, are by nature personal, and surely cannot be presumed, like managerial decisions, to be delegated by shareholders to those who manage the corporation.  The corporation-labor union analogy in campaign-finance law is inapt, because by law employees at union shops are entitled to opt out union membership, and even members can (I believe) opt out of having their dues used for political purposes. Shareholders, including institutional investors such as pension funds, by contrast, too should be entitled, if they are not now, under the Securities Exchange Act and SEC regulations, to approve or veto corporate derivative invocation of their personal First Amendment rights.

As of now, the most prominent influx of money in American politics is from a few hundred, or even maybe just a few, extremely wealthy individuals. But I assume that corporate political “expenditures” make up most of the contributions to PACs such as Karl Rove’s Crossroads; after all, donations to those PACs have metastasized in the four years since Citizens United was unleashed upon us.  And clearly, the Chamber of Commerce does not receive most of its political war chest from mom-and-pops.

As a political matter, a statute of this sort should be a popular proposal for Democrats. And the SEC may already have the authority under the SEA to institute a regulation to accomplish this.  The upcoming opinion in Hobby Lobby and Conestoga Wood may well tacitly support such laws, and in my opinion the quote above from McCutcheon already does.  This is not to say that John Roberts and friends feel obligated to appear consistent rather than just plain overtly political; they demonstrate repeatedly and unabashedly that they don’t.  But their petards can hoist only so much before shrapnel lands so visibly in unintended places that it becomes impossible to hide it.


*Just a word of caution: I have no expertise whatsoever in securities law; basically all I remember from my one law school class on it is (vaguely) SEA Section 10b-5, and a doctrine called ultra vires, which is:

Latin, meaning “beyond the powers.”  Describes actions taken by government bodies or corporations that exceed the scope of power given to them by laws or corporate charters.  When referring to the acts of government bodies (e.g., legislatures), a constitution is most often the measuring stick of the proper scope of power.

Ultra vires.  Hmmm.

I do know a bit about what’s known as the Chevron doctrine, named for Chevron U.S.A. v. Natural Resources Defense Council, which is the key Supreme Court opinion setting out federal-agency law and therefore pertains to the breadth of the SEC’s regulatory authority under the Securities Exchange Act.

So now you know.

**Cross-posted at The Law of the Jungle.