Political Contributions by Corporations – A Comparative Study (Part I)

Written by  //  August 26, 2010  //  Law & The Judiciary  //  2 Comments

In January this year, the United States Supreme Court decided an important issue concerning the personhood of corporations. The short question which had arisen for the Court’s consideration was whether there could be a ban on corporations using their general treasury funds for elections-related expenditure. Departing from past precedent, a majority (5-4) of the Court ruled that such a ban was violative of the right to free speech guaranteed by the First AmendmentToronto. The impact of this ruling is that corporate entities in the United States are free to use their general treasury funds to incur election-related expenditure. Although the case turned on the precise scope of the First Amendment, the divisive issue was the extent to which the personhood of a corporation can be recognised. Notwithstanding its tumultuous ride since the seminal House of Lords decision in Salomon v. Salomon, the concept of independent legal personality enjoys fairly widespread acceptance in common law jurisprudence. However, the translation of this legal personality into Constitutional rights has been far from straightforward. It is against this backdrop, that the decision of the United States Supreme Court in Citizens United provides a good opportunity to re-examine this jurisprudential debate. In this first post, I shall examine the facts and the decision in Citizens United, elaborating on how the crux of the decision is the degree of recognition afforded to a corporation’s Constitutional rights. In a subsequent post, I shall examine the Indian law on the issue, concluding with some observations based on a comparison of the two legal positionsToronto.

Part I – The American Approach in Citizens United

Under the United States Federal Law, political speech by corporations is prohibited. There are broadly three forms of political contribution- (i) direct contribution to a candidate or a party; (ii) independent expenditures expressly advocating the success or defeat of a candidate, and (iii) referring to a clearly identified candidate for federal office (“electioneering communication”). Prohibiting the first and the second of these has been recognised as Constitutionally permissible by several Supreme Court decisions, and was not doubted by the majority in Citizens United. However, it is the prohibition of expenditure for electioneering communication over which there has been much disagreement, and which fell for the Court’s consideration. The Federal Law prohibited the use of the general treasury funds of a corporation for electioneering communication, requiring that a separate segregate fund be established for this purpose. There was also the requirement of communications being accompanied by a disclaimer and a disclosure that the advertisement was sponsored by the said corporation hulk water slide house.

Citizens United is a non-profit organization that had released a short documentary about Senator Hillary Clinton, and feared that its action would be hit by the Federal Law. In order to avoid this, Citizens United sought declaratory and injunctive relief, challenging the vires of the law. This relief was denied by the District Court of the District of Columbia, against which an appeal was entertained by the Supreme Court. Although denying the right to free speech on grounds of identity has been held to be Constitutionally impermissible, the United States Supreme Court in Austin, subsequently affirmed in McConnell, held that free speech could be curtailed on grounds of corporate personality. Thus, in keeping with Supreme Court practice, the opinions of the judges in Citizens United are divided into two parts- a consideration of whether the case could be disposed off on narrower grounds (without disturbing past precedent); followed by an examination of the vires of the law, and a reconsideration of the prior decision of the Court. The first of these is not relevant to the matter currently under discussion, and need not detain us. Moving on to the Constitutional issue, the Court by a majority of 5-4, held that the ban on electioneering communication was Constitutionally impermissible sumo suits for sale. From the view of corporate personality however, there are three approaches that can be seen across the opinions delivered.

Justice Kennedy in his Opinion for the Court (as also Justice Roberts in his concurring opinion), does not discuss the bearing which corporate personality had on the question before the Court. He seems to proceed on the assumed premise of corporate personality, focussing his decision on how the rationales proffered for banning all forms of political speech fail to pass muster. The Court in Austin had held that allowing corporations an uninhibited right to free speech would distort the political sphere (anti-distortion rationale), justifying a curtailment of the First Amendment rights. However, the Government, in Citizens, largely abandoned this line of argument, relying instead on two new rationales- anti-corruption, and protection of minority shareholders. Justice Kennedy dismissed these rationales, observing that none of them made a persuasive argument against extending free speech rights to corporations. He observed that corruption, while a valid concern for direct contributions, cannot be relied on for prohibiting independent expenditure. On the issue of minority shareholders, he contents himself with observing that there is “little evidence of abuse that cannot be corrected be shareholders ‘through the procedures of corporate democracy’”. One factor that weighs heavily with Justice Kennedy (which is relevant from the comparative Constitutional angle to be examined in the next post), is the implications that Citizens United would have on the rights of media corporations. While disposing of the Austin anti-distortion rationale, as well as the minority protection rationale, he observes that accepting those rationales could open the floodgates for impinging on the rights of media corporations, and could not be allowed. Thus, the logic of Justice Kennedy’s opinion is fairly straightforward- (i) the Constitution does not permit the denial of free speech rights on grounds of the speakers identity; (ii) the rationales offered by the Court in Austin and the Government in its arguments, for carving an exception to (i) in the case of corporate identity are not persuasive; (iii) hence, corporations should enjoy the right to free speech.

Justice Scalia, in an opinion characterised by his usual vehemence and vitriol, attempts to debunk the concerns voiced by the minority opinion of Justice Stevens. In so doing, he also unwittingly expresses his view on rationale behind granting corporations Constitutional rights. However, since large parts of Justice Scalia’s opinion are rebuttals of views expressed by Justice Stevens, it would be apposite to first discuss the minority view, before moving onto Justice Scalia’s concurring opinion. As opposed to the Justice Kennedy and Justice Roberts’ opinions, which focussed largely on the political implications of prohibiting political expenditures by corporations, Justice Stevens sought refuge in the drafting of the first amendment, to argue that corporations were not intended to be granted Constitutional protections. The minority does not deny the concept of independent corporate personality, however, it asks for an explanation as to why “corporate personality demands the same treatment as individual personality”. It also challenges the idea of political expression by an independent corporate entity- suggesting that it is nothing more than a reiteration of the views of its stockholders. Since these stockholders retain the right to political expression, the minority sees no problems with political speech by corporations being curbed. It draws on factors like the possibility of foreign ownership, conflicts between the views of the corporation and that of some of its shareholders, chances that the same corporation will fund more than one candidate; to argue vehemently against treating corporation on par with natural persons for the purposes of the First Amendment. In sum, the minority structures its dissent on two prongs- (i) that the burden is on the majority to establish why corporate entities should be treated like normal persons, which has not been discharged; and (ii) in any case, there are strong arguments for why corporate entities should be treated warily.

Justice Scalia, in refuting the minority opinion, begins with its reliance on the drafters’ intent underlying the Constitution. He points out that the intent of the drafters cannot be divorced from the text of the First Amendment, which draws no distinction whatsoever adult water slides for sale, between artificial  and natural persons. He argues against relying on the Founding Fathers distrust of corporations to deny modern day corporations the right to free speech. Finally, in what is the most important part of his opinion from the viewpoint of its implications for corporate personality, observes that “the individual person’s right to speak includes the right to speak in association with other individual persons” (emphasis in original). He likens political speech by a corporation to political speech by a party, or any association of persons, which gives the leadership of the party or the association the right to speak on behalf of the members of the entire party/association. The validity of this analogy aside, it thus appears that the basis on which Justice Scalia affirmed the Constitutional rights of a corporation militate against its independent personality. This is also a view impliedly espoused by Seervai (Vol. I (4th edn.)), when he observes that it is the independent personality of a corporation that has hindered the grant of Constitutional rights in India.

As is pointed out in the official headnote to the decision, the majority is composed of Justice Kennedy (delivering the opinion of the court), Justice Scalia (with whom Justice Thomas concurred), and Justice Roberts (with whom Justice Alito concurred on this point). Thus, the reasoning adopted by Justice Scalia in arriving at his decision forms a crucial part in forming the majority on the Court. It may be argued that not much should be read into Justice Scalia’s reasoning; since his aligning with the completely liberal minority (composed of Justices Stevens, Ginsburg, Breyer and Sotomayor) was not even a distant possibility. However, the political accuracy of this argument apart, from a strictly legal viewpoint, the fact that his opinion hinged on a negation of the separateness of a corporation from its members is significant. This is especially so given that neither the opinion of Justice Kennedy, nor the opinion of Justice Roberts, has much to say on the sanctity of the corporate form.

The outlines of the Indian law, and the possible implications of the decision in Citizens United on Indian jurisprudence, will be examined in a subsequent post.

2 Comments on "Political Contributions by Corporations – A Comparative Study (Part I)"

  1. Shantanu September 30, 2010 at 10:22 pm ·

    One of the interesting, extra-legal outcomes of Citizens United is reported here- http://blogs.wsj.com/law/2010/09/30/the-brothers-monahan-two-guys-who-really-dislike-citizens-united/

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