After the Supreme Court decided Citizens United v. Federal Election Commission, 558 U.S. 310 (2010), there were a flurry of articles pointing out its flaws as a matter of corporate theory (and those are only a very limited sample). 

The problem is, the Supreme Court accepted a kind of simplistic view of the corporation as an association of citizen-shareholders, imbued with free speech rights by the transitive properties of the First Amendment.  But corporations are not spontaneously-formed groups of private citizens; corporations themselves are creatures of law, and law in the first instance sets the ground rules for their structure and powers, including who has authority to speak, the purposes for which they may speak (i.e., wealth maximization), and the procedures for deciding what speech will be made. 

In other words, the First Amendment can rationally be said to confer rights on natural persons, who exist outside of law; they are not constituted by law.  Corporations, however, must be created by law before they exist as entities for the First Amendment to act upon, and it’s not clear how much that law – the law that creates them – has to be informed by constitutional principles.

For example, there are lots of ways in which corporate and securities law use the structure of the corporate form to restrict speech.  Everything from limits on who may have access to the corporate proxy to offer shareholder proposals (or who may offer shareholder proposals at all), to recent claims that Target Corporation’s managers breached its fiduciary duties to shareholders by offering Pride Merchandise, can be viewed through a free speech lens.  Right now, the Attorney General of Florida – through its state pension fund – is suing Target, claiming that by marketing to an LGBTQ+ customer base, it misled shareholders about its management of ESG risks.  In any other context, we might call that retaliatory action by the State of Florida in response to Target’s exercise of its free speech rights (the Attorney General is even arguing that an Ohio fund, and its counsel, would be inadequate to lead a class action because they favor diversity initiatives, as Mike Levin and I discussed in a Shareholder Primacy podcast a while back).  But because it’s filtered through the securities laws, it isn’t viewed in First Amendment terms.  (Though, of course, that isn’t always true; hence, Glass Lewis and ISS are suing over Texas’s attempt to regulate ESG proxy advice, and one of their arguments is that Texas’s law unconstitutionally restricts speech, which is a claim that had success against a similar Missouri law).

Well, one group in Montana has decided to put all this to the test with what it calls the Transparent Election Initiative. They propose to amend Montana’s constitution to provide that corporations chartered by the state do not have the power to spend money to advance political causes. 

It’s a bold attempt to confront Citizens United’s theoretical challenges, although, to be honest, the Supreme Court has never had much use for corporate theory.

Of course, leaving aside how the Supreme Court might eventually rule, we still have the problem of charter competition.  Founders aren’t going to choose to organize in jurisdictions that restrain their political activities if they can help it, and right now, Delaware, Texas, and Nevada – running a full-on race to the bottom – will happily offer an expanded set of corporate rights as part of their efforts to lure incorporations.

And another thing.  In this week’s Shareholder Primacy podcast (the last one for a couple of weeks): Mike and I talk about the near-$30-billion worth of stock options that the Tesla board granted to Elon Musk, and about ESG and anti-ESG shareholder proposals.  Here at Apple, here at Spotify, and here at YouTube.