Corporate Personhood and Citizens United
Part III
Corporate personhood is essential to the discussions on Citizens United because critics who rightly oppose the result in that case wrongly attack it on the basis of corporate personhood. You may see from Parts I & II in this series that corporate personhood plays an essential part in the economy and will not be ended for that reason. The argument directed at corporate personhood is a misdirection to keep critics headed in a mistaken direction and ignore the real issue: protecting democracy- as the courts in other countries have said.
Recall that in Citizens United a bare majority of the United States Supreme Court (5–4) removed monetary restrictions on contributions by all collective entities such as corporations and unions and others to political action committees because the Court said those contributions did not present a substantive threat of corruption, provided they were not coordinated with a candidate’s campaign.
Courts in other countries, such as the UK and Canada, have upheld legislation that restricts campaign contributions from any source including corporations. They are referred to as third-party sources rather than ‘independent’ because these sources are not independent but usually biased in favor of a candidate. The Supreme Court of Canada correctly identified that the issue is protection of democracy. It is not a matter of corruption that can be prevented by lack of coordination as the US Court chose to frame the issue. The Canadian court properly saw the issue: it is that letting the wealthy have unlimited political contributions to fund advertising campaigns means rule by the rich. There must be limits on all sources. In the court’s words:
“Paragraph 109. Limits on third party advertising expenses foster confidence in the electoral process in three ways. The limits address the perception that candidates and political parties can circumvent their spending limits through the creation of special interest groups. The limits also prevent the possibility that the wealthy can dominate the electoral discourse and dictate the outcome of elections [Emphasis added]. Finally, the limits assist in preventing overall advertising expenses from escalating.”
The five majority judges in Citizen United are anti-democratic in a country that believes it is a protector of global democracy. And they should be exposed as such.
Ending corporate personhood would not end the harm of Citizens United. The focus of criticism on corporate personhood as remedy to Citizens United is a misdirection as corporate personhood is a foundation of our economy. It will not be ended for that reason, and it is irrelevant to the real issue of restricting political contributions, which is the anti-democratic allowance of elite domination of elections.
How To Stop the Abuse
According to economist Thomas Piketty, a major cause of the present economic inequality is executive pay. From the 1950s until the last couple of decades, a family could afford a house, a car, a yearly vacation, and save for a comfortable retirement. But until the 1970s, the pay gap between executive and worker pay was about 20 to 1. Sometime in the late 1970s it began to widen. And a share of the profits that had once gone to workers’ wages were taken by the executives. It increased every year to the present state where executive pay is at least 300 to 1 median worker pay in major corporations while workers’ pay has stagnated.
There is sufficient money in the excessive executive pay, the buybacks, and the imprudent dividends to provide significantly better worker pay without increasing product prices for the consumer. It would mean returning the executive worker pay gap to the historical measures and stopping buybacks of executive shares.
Reforms such as Dodd Frank failed to stop excessive executive pay from a complete misunderstanding of the corporate structure, the role of the proxy, and the willingness of equity hedge funds to unite with executives in approving outsized executive pay, as long as those executives would strip the company’s yearly profits by dividends and cooperate with overpriced buybacks. Present reforms suggesting taxing corporations where the ratio is greater than 100 to 1 will also be unsuccessful. The executives and the equity/hedge funds won’t care about the corporation paying that tax.
The goal is not only to reign in executive pay and stop predatory buybacks, but also reign in the idea that corporations must strip out all yearly profits by way of dividends (shareholder value).
Once this is achieved, then ensure that sufficient benefits get to the workers as it once was. However, the executives and the equity/hedge funds will do everything in their power to try and prevent any increase in wages.
As there would be no increase in product prices, you might ask why these groups, that have so much, are so opposed to sharing with workers. But they are.
Effective Reform Proposals
* Tax executives directly (not the corporation) where the executive pay ratio is beyond 20 to 1 at 70%, and ensure this tax benefits the salaried classes. For example, reduce the taxes of those that make under $60,000 by the amount collected.
* Repeal SEC Rule 10b-18. Recognize that permitting the executives to sell their shares to their corporation is insider trading and absolutely prohibit it as once was the case before the Reagan safe haven amendment. Executives could sell their shares in the open market, but never to their corporation.
* Abolish the Freidman theory of shareholder value. Declare by legislation that the directors do not have an obligation to pay shareholders the complete yearly profits of a company as other countries have done.
I can offer very little on the Citizens United issue. That will not be solved until there is a different composition of the US Supreme Court. However, it may help the discussion to recognize that all the arguments about corporate personhood are a misdirection. While maintaining corporate personhood, courts in other countries have correctly identified that this is an issue of giving wealthy people inordinate political influence and have applied the same restrictions on political contributions to corporations and Super PACS.
Originally published at https://jandweir.substack.com.
