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Thursday, January 21, 2010

Supreme Court Campaign Finance Ruling Will Boost Corruption, Help Corporatist Interests

The Supreme Court earlier this morning issued an opinion in the Citizens United v. FEC case, striking down some long-standing limits on corporate/organizational free speech (namely, political speech) and in the process expanded the scope of the First Amendment.  Entities are now recognized to have free speech rights.   This is an extension of the right to association under the First Amendment; the right to associate becomes more "real" when the association can speak, or speak with a stronger voice.  

But beware of the unintended consequences -- although dealing with those is first the proper province of Congress, not the courts.   I like the decision -- but I am also fearful of these unintended consequences, some of which will surprise you.

Corporations and other entities will now be able to spend and speak more freely (and much more) on issues of interest to them.   These entities, which already speak plenty through various lobbyists and industry organizations (which in turn have their own lobbyists), will now be able to speak that much more.   Theoretically, this should in the end help shareholders of the companies which are the biggest, most powerful and most influential.   However, the enhanced ability to speak will lead to more competition to be heard.   As with any competition, there will be winners and losers, and the "losers" whose speech may be drowned out will tend to be those innovative and too-new (or too-controversial) companies.   In addition, I can see companies whose products, services or business models are too effective in taking market share away from the established players being attacked with this enhanced speech, or even suffering enhanced state scrutiny through the arbitrary and capricious (and unequal) imposition of results-oriented, regulatory and prosecutorial "scrutiny."  (Read: You threaten the big boys.  Close up shop or we'll destroy you.)

As for shareholder interests, they will be protected only if corporate management and the boards of directors act responsibly with this new power.   History tells us that the range of reactions is all over the map.   There are always bad apples, and you will soon read stories of wayward corporations abusing this new spending power and wasting their shareholders' money.   Down the road, call this a stimulus for the securities fraud plaintiffs' bar.

On the purely political candidate side, the enhanced speech of corporate players will mean that candidates on both sides (sorry, third parties, this doesn't include you) will have the ability to raise more money, but the need will grow even more.   The pressure to keep up with the competition will increase substantially.   This pressure will lead, in short order, to greater malfeasance and eventually, to outright corruption.   It is an unintended consequence.   Raw ambition will drive this trend, with corporate money being the rocket fuel. 

SPECIAL NOTE FOR NEW JERSEY:  The day before Citizens United was issued, new New Jersey governor Chris Christie signed an executive order banning unions from making political contributions.  This is simply antithetical with basic Constitutional values upholding free speech and expression and is a transparent attack on certain speakers for the presumed content of their speech.   This is fundamentally unconstitutional.   Any "conservatives" with a conscience -- or a brain -- should realize this.   It only took days for the Republican governor Christie to show himself to be on the wrong side of the conservative, "Roberts" Court.  

Eric Dixon is an attorney practicing in New York and New Jersey.   He practices in, among other things, the field of ballot access election law and also is knowledgeable on securities compliance and corporate governance matters.  Mr. Dixon is available for consultation or further comment at 917-696-2442.

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