JURIST Guest Columnist Ciara Torres-Spelliscy of the Stetson University College of Law discusses the proposed statutory and regulatory reforms that could curb the rising levels of spending by corporations in political campaigns…

The US has just gone through its most expensive election ever. The projected price tag for the 2012 federal election is expected to top $6 billion. This is no way to run a democracy.

This was the first presidential election since Citizens United v. Federal Election Commission, the 2010 US Supreme Court case that allowed unions and corporations to spend as much as they wanted on political ads. A lesser-known case from the US Court of Appeals for the District of Columbia Circuit called SpeechNow.org v. Federal Election Commission gave a green light to the creation of super PACs, which can take in unlimited donations from wealthy individuals, corporations and unions so long as they spend the money independently of federal candidates.

The combination of Citizens United and SpeechNow has changed the way US elections work. Before these two cases, corporations and unions had to spend in federal elections through PACs known as separate segregated funds (SSFs). The funding for SSFs was restricted to affiliated groups like union members and corporate employees. SSFs were also required in roughly half the states before Citizens United. Those old rules no longer apply in state or federal elections. Now big money can come straight from union and corporate treasuries and can be aggregated with money from the rich to be spent on political ads at a new alarming pace.

There was a ton of corporate money in the federal election. According to the Center for Responsive Politics: Contran Corp., a holding company, was a top donor to the American Crossroads super PAC to the tune of $2 million; Oxbow Corp., a Koch company, gave the Restore Our Future super PAC $3.75 million and Specialty Group Inc. gave $5,275,000 to the Freedom Works super PAC. These are privately held companies.

Publicly traded companies also flexed their muscles in the election. Again, according to the Center for Responsive Politics: Chevron gave $2.5 million to the Congressional Leadership Fund super PAC; Clayton Williams Energy, Inc. gave $1 million to American Crossroads super PAC; Chesapeake Energy gave $250,000 to the Make Us Great Again super PAC; CONSOL Energy and Hallador Energy each gave $150,000 to Restore our Future super PAC; Scotts Miracle-Gro gave $200,000 to Restore our Future super PAC and Pilot Corp. gave $100,000 to the American Crossroads super PAC.

Public companies are also likely putting their money into politically active and confidential nonprofits like the US Chamber of Commerce and other trade associations. The US Chamber spent over $36 million in this election cycle. Meanwhile, the American Petroleum Institute gave $2 million to the Republican Convention in Tampa. These trade associations have members who are both public and private companies. Which company gave to which trade association is not in the public record.

The stockholders in politically active companies are faced with two distinct problems. Those who invested in companies that went the surreptitious route of giving through a trade association have no way of knowing that the corporate spending even took place. There is no Securities and Exchange Commission (SEC) rule which currently requires public companies to tell investors that they are spending in politics. This is why the SEC should act on Petition No. 4-637 [PDF] from ten corporate law professors to promulgate a new rule requiring transparency of corporate political spending immediately.

This petition to the SEC has already gained a record-breaking 300,000 public comments in favor of a new rule — including comments from investors of public pension funds such as the comptroller for the state of New York, the public advocate for the city of New York and the state treasurers of California, North Carolina, Oregon and Pennsylvania. The new rule is also supported by private investors such as Walden Asset Management, Zevin Asset Management and Wespath Investment Management, among many others.

But even for those shareholders who can discover the corporate political spenders by looking at webpages like www.opensecrets.org, which tracks money in federal races, and www.followthemoney.org, which tracks spending in state races, still have little recourse short of selling their shares after the money is gone.

One power shareholders do have is to keep their shares and to file shareholder resolutions that ask companies to refrain from political spending in the future. Expect more of these in the next proxy season as shareholders across the nation consider whether spending corporate resources on partisan politics was wise.

Corporate law was ill-prepared for the new Citizens United/SpeechNow rights. To give shareholders more control over corporate political spending will take changes in statutory law. The Shareholder Protection Act, which has been introduced in the past two US Congresses, would give shareholders a say on corporate political spending. The Act, which is modeled on the UK Companies Act, provides shareholders in public companies with transparency for corporate political spending, requires board approval of large political expenditures and requires shareholder authorization before public companies spend in politics. The 113th Congress, which starts in January, should take up this legislation and pass it this time around.

The public is ready to curb this type of spending. Recent polling has shown how sick American voters are of corporate money in politics. Nearly nine in ten Americans agree that there is too much corporate money in politics, according to a poll released by Bannon Communications on behalf of the Corporate Reform Coalition in late October 2012.

This poll also found overwhelming support for corporate governance reforms in light of Citizens United. According to the poll, 81 percent of Americans agree that companies should only spend money on political campaigns if they disclose their spending immediately, while 80 percent agree that companies should only spend money on political campaigns if they get prior shareholder approval.

There are so many ways companies could have spent the money that was squandered on the 2012 election, including funding research and development, improving physical plants, hiring new workers or paying dividends for investors. But voters and shareholders can agree that less corporate money in politics would be a step in the right direction.

Ciara Torres-Spelliscy is an Assistant Professor of Law at Stetson University College of Law. She is the author of “How Much is an Ambassadorship?” as well as co-author, with economist Dr. Kathy Fogel, of “Shareholder-Authorized Corporate Political Spending in the United Kingdom.”

Suggested citation: Ciara Torres-Spelliscy, What a Waste of Corporate Money, JURIST – Forum, Dec. 3, 2012, http://jurist.org/forum/2012/12/torres-spelliscy-campaign-finance.php .