Last month marked the one-year anniversary of the U.S. Supreme Court’s landmark Citizens United decision, which struck down restrictions on independent political spending by corporations. President Barack Obama strongly criticized the ruling, saying “I don’t think American elections should be bankrolled by America’s most powerful interests, or worse, by foreign entities.” And although the ruling also allows unlimited independent political spending by unions, Anna Burger, chair of the labor federation Change to Win, said, “the Court has given corporate managers the green light to … use unlimited amounts from the general treasury – funds that should be used to increase the value of the business or pay dividends to shareholders.”
In the wake of the decision’s impact on the 2010 elections, a major controversy erupted over the use of independent or third party organizations to channel millions of dollars in secret political donations. Among the largest recipients of undisclosed corporate donations was the U.S. Chamber of Commerce, which spent at least $32 million in the 2010 elections, much of it in advertising campaigns against pro-labor Democrats.
After legislative efforts to require organizations like the Chamber to disclose the source of donations failed in the Senate in September 2010, several large investors unveiled an effort to pressure public companies to “review and disclose… expenditures…made to trade associations, such as the U.S. Chamber of Commerce, or political and other organizations that can hide any contributions.”
In late January, a larger group of institutional investors, including the AFL-CIO, sent letters to many of the public companies represented on the Chamber board of directors, urging them to “evaluate their role and to assess the risks and benefits of Board membership.” Representatives of more than 100 companies sit on the Chamber’s board. Given this large number, it will be a daunting task to get a critical mass of companies to change their practice on political contributions.
Part of the problem with this latest shareholder effort is that it focuses on only half of the political ad equation: the buyers – third-party organizations like the Chamber. But what about the sellers – the media companies that provide the airtime to third-party organizations?
Given that the largest share of secret donations goes to buy expensive TV ads, another approach may offer a quicker path toward public disclosure of third-party donations: Shareholders of media companies owning broadcast and cable stations should file resolutions asking stations to refuse ads that don’t provide full and public disclosure of their funding sources.
Ironically, the television ownership oligopoly could benefit a shareholder effort for full disclosure. There are only a handful of corporations that control the vast majority of television stations. These include General Electric Co. and Comcast Corp. (which own NBC Universal), Walt Disney Co. (ABC), Viacom, CBS Corporation, News Corp. (FOX) and cable operator Time Warner Inc.
Such a strategy would be consistent with other union shareholder initiatives on corporate governance. In 2010, the AFL-CIO and AFSCME sent a letter to Dell Inc. shareholders asking them to withhold their vote from CEO Michael Dell at the company’s annual meeting, citing excessive pay and poor performance. And on January 24, 2011, the AFSCME Employees Pension Plan announced it would file shareholder proposals with 27 companies to foster greater transparency, including reports on the risks to shareholders of corporate lobbying.
It is widely believed that stations must run such independent political ads, whether or not their funding sources are disclosed. The Federal Communications Act of 1934 (updated in 1996) requires that broadcasters grant “reasonable access” to airwaves for political speech. That rule, however, has typically been applied to candidates for political office, not political groups. Regulations that govern direct candidate advertising do not apply to such independent ads.
In fact, the Federal Communications Commission has no rule prohibiting stations from refusing to air such ads without stating a reason. Stations frequently refuse political ads, and the Supreme Court upheld this practice regarding ads opposing the Vietnam War, holding in 1973 that “[t]he ‘public interest’ standard of the Federal Communications Act…does not require broadcasters to accept editorial advertisements.” More recently, in 2008, local affiliates of ABC and CBS stations refused to run anti-Obama ads.
Furthermore, since TV stations can refuse ads, they are no longer protected from liability for airing inaccurate ads, as with commercial product ads. For example, in a 2004 congressional race, a Denver TV station stopped running a negative third party ad, saying that the advertiser failed to substantiate its claims.
Given this liability standard, shareholders should consider the financial impact on their corporation caused by running such ads without full transparency. Currently, third party ads only have to disclose their sponsor’s name, contact information and key officers.
A second issue for shareholders is that the station’s association with secret third party donations could negatively impact the company’s reputation and potential earnings. This happened to Target Corp., which was boycotted by progressive groups after disclosing a donation it made to an independent group running ads supporting an anti-gay marriage candidate.
Finally, public distaste for secrecy combined with the real potential for foreign influence on U.S. elections would further the case for media outlets enacting full disclosure policies. Without complete disclosure of ads’ funding sources, shareholders can claim that there is no way for companies to eliminate liability issues and potential negative publicity. This claim by shareholders is expressly identified in the DISCLOSE Act, which was blocked by Senate Republicans after passing in the House last June:
The American people have a compelling interest in knowing who is funding independent expenditures …to influence Federal elections,…. the disclosure of the funding sources… can provide shareholders, voters, and citizens with the information needed to evaluate the actions by special interests seeking influence over the democratic process.
It is time for shareholders, including labor organizations, to stake this claim.