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How will the Supreme Court’s recent ruling impact corporate campaign finance laws?

In Citizens United v. FEC, a divided U.S. Supreme Court struck down portions of 2 U.S.C. § 441b, which prohibits corporations and unions from making independent expenditures for electioneering communications. As a result, Citizens United makes it permissible for corporations and unions to spend unlimited dollars on independent advertising intended to influence federal elections at any time before a primary or general election. Because the Court’s holding deals primarily with First Amendment issues, it does little to clarify practical matters germane to corporations and unions, such as how independent expenditures may be restricted in the future or the manner in which corporations and unions may make independent expenditures in state elections. So, before spending your organization’s dollars on political advertisements, three key issues to consider are as follows: (1) the decision’s immediate effect on federal law; (2) the decision’s impact on state campaign spending; and (3) the decision’s potential effect on organizational governance.

From a federal law perspective, Citizens United invalidated restrictions on independent corporate and union expenditures on “electioneering communications.” An electioneering communication is defined as “any broadcast, cable, or satellite communication…[that]…refers to a clearly indentified candidate for Federal office,” made within 30 days of a primary election or 60 days of a general election. In addition,Citizens United only applies to independent campaign spending. Corporations and unions are still prohibited from collaborating directly with any particular candidate or political group.

The Court’s ruling did not invalidate several key areas of campaign finance regulation. First, the ruling does not remove restrictions on direct corporate contributions to a particular candidate, party or political group during federal elections. Second, the Court upheld current disclosure requirements related to corporate campaign expenditures, specifically those associated with independent electioneering. Finally, the Court’s ruling does not affect a corporation’s or union’s ability to use political action committees to promote political speech. 

No less than twelve House and Senate bills addressing the Court’s ruling are currently before U.S. Congressional Committees. All bills introduced to this point are aimed at limiting the immediate and long term effects of Citizens United. Several bills seek to reduce foreign influence in U.S. elections by preventing foreign corporations or other companies with foreign ownership from running electioneering ads. Others, such as H.R. 4537, seek to amend the Securities Exchange Act of 1934 by requiring shareholder authorization prior to an electioneering expenditure not related to a corporation’s products or services. Taxpayer protection bills, such as H.R. 4550, would prevent companies from spending federal bailout money on electioneering communications. One joint resolution, H.J. Res. 68, would amend the U.S. Constitution to prohibit corporations and labor organizations from using operating funds for advertisements in connection with any federal election. These legislative efforts to diminish Citizens United may drag on for months and possibly years. Those who prefer to bypass the “wait-and-see” approach may instead choose to file legal actions challenging the remaining restrictions on corporate campaign finance.

At the state level, Citizens United calls into question many laws that prohibit independent electioneering expenditures on state elections. Currently, 24 states ban or restrict corporate and union spending in state elections. For example, the Kentucky Constitution and the Kentucky Revised Statute (KRS) directly forbid all corporate and union spending aimed at influencing state elections. The only exception to Kentucky’s ban on corporate and union campaign spending are funds used to support ballot initiatives, including constitutional amendments. No bills currently before the Kentucky General Assembly directly address Citizens United. Thus, while amendments to Kentucky’s law during the current legislative session are unlikely, constitutional challenges against portions of the Kentucky Constitution or the KRS that prohibit independent electioneering expenditures are likely.

Unlike Kentucky, the Ohio Constitution does not address corporate or union campaign spending, and the Ohio Revised Code contains limited restrictions similar to those overruled in Citizens United. Ohio currently permits corporate and union expenditures for independent electioneering communications that occur no less than 30 days prior to a primary or general election. As with Kentucky, no bills addressing this restriction are before the Ohio legislature, but constitutional challenges are likely. Ohio does place restrictions on direct corporate contributions to both candidates and political parties, and similar to Kentucky, Ohio’s direct contribution laws are likely not invalidated by the Supreme Court ruling.

Finally, corporate and union leaders must be prepared for potential changes in organizational governance as a result of Citizens United. Corporations particularly should be aware of possible shareholder-protection legislation as both state and federal governments may attempt to enact laws that increase shareholder power over electioneering expenditures. For example, shareholder-protection measures could potentially take the form of opt-out laws, whereby a corporation may, by default, finance independent electioneering communications. To prevent electioneering expenditures, the corporate charter would have to include a provision prohibiting such activity, thereby causing the corporation to “opt-out” of its spending privileges. Conversely, laws currently being proposed at the federal level would, by default, prohibit corporations from making independent electioneering expenditures. To make such expenditures, corporations would have to “opt-in” to such activity by charter provision or shareholder vote. Legislators may also attempt to condition corporate or union benefits, such as tax breaks or government subsidies, on an entity’s abstention from independent electioneering. Like opt-in laws, however, legislation creating conditional benefits based on independent campaign expenditures will be closely scrutinized regarding their restrictions on free speech. Corporate and union leaders should also note that, because campaign disclosure requirements remain in effect, shareholders and union members must still be informed about organizational campaign spending activities. Public disclosure alone may prevent many organizations from engaging in independent campaign spending for fear of public relations problems or, for corporations, shareholder derivative actions. 

Citizens United is a landmark case in the area of free speech and First Amendment rights, but the ruling has created more questions than answers in the area of campaign finance law. Until these questions are answered, corporations, unions and their respective counsel should track the fallout by monitoring legislation and litigation related to the Court’s ruling. Regardless of potential new developments, corporations and unions with a desire to spend funds to influence candidate elections should continue to carefully adhere to all applicable disclosure requirements and take precautions to ensure that all advertising is truly independent. 

  • Partner

    Buck is a primary member of the Business Services Department, secondarily of the Real Estate Practice Group and was formerly Chair of the Finance and Development Practice Group. His practice focus in these groups is upon commercial ...

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