When shareholder democracy trumps the real thing

May 7, 2012

By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. This column appears in the May 14 issue of Newsweek.

It’s worrying to think that shareholder democracy is needed to rectify shortcomings of the real thing. Yet this week two of the nation’s biggest corporations will give their investors precisely that opportunity. Motions on the ballots at the annual meetings of Bank of America and 3M will effectively act as referendums on the U.S. Supreme Court’s flawed decision in the Citizens United case to effectively hand companies the same freedoms of speech accorded to people. Happily, supporting proposals to restrict the use of corporate money in politics isn’t just good for democracy, it is good business.

In the Citizens United ruling of 2010, the court struck down limits on spending by corporations and unions in politics, holding that such restrictions were prohibited under the First Amendment. The ruling may undermine faith in the democratic process by opening the floodgates for an unprecedented flow of money into campaigns. Justice John Paul Stevens summed it up best in his dissent: “A democracy cannot function effectively when its constituent members believe laws are being bought and sold.”

The Supreme Court could get another crack at the issue thanks to Montana’s high court, which decided the ruling did not supersede state laws on political corruption. In the meantime, though, it will be up to shareholder-citizens to blunt the impact of Citizens United.

They can start on Tuesday in St. Paul and Wednesday in Charlotte when the shareholders of 3M and BofA, respectively, gather. In addition to choosing directors and auditors, they’ll be voting on proposals submitted by Trillium Asset Management of Boston to “request that the board of directors adopt a policy prohibiting the use of corporate funds for any political election or campaign.”

Unsurprisingly, both the maker of Post-it notes and the nation’s largest bank recommend that shareholders turn down the proposals. The companies say they need to have as free a hand as their competitors in, as 3M puts it, “supporting candidates whose views are aligned with the company’s business interests.”

But shareholders must also consider that playing politics can backfire, as the retailer Target <TGT.N> discovered two years ago. After the Citizens United ruling, Target donated $150,000 of its shareholders’ money to a political fund, MN Forward, which supported the gubernatorial campaign of an anti-gay Republican. That led to an embarrassing customer boycott supported by intense social media campaigns. At best Target shareholders received no benefit from company management’s use of their treasure in the political game. At worst, the bosses’ behavior hit the bottom line.  

The Supreme Court may have damaged democracy with Citizens United. Now, ironically, it’s up to the people who own corporations to make it right.

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