Corporate Governance: More Important than Ever with Supreme Court Decision

As the New York Times put it, “Sweeping aside a century-old understanding and overruling two important precedents, a bitterly divided Supreme Court on Thursday ruled that the government may not ban political spending by corporations in candidate elections.” (Justices Overturn Key Campaign Limits, 1/22/10)

Off to the right on the blog site of CorpGov.net, we quote from Power and Accountability by Robert A.G. Monks and Nell Minow, “Corporations determine far more than any other institution the air we breath, the quality of the water we drink, even where we live. Yet they are not accountable to anyone.” When I’ve quoted that statement in the past, I’ve often prefaced it with something like, “with the slight exaggeration suitable for book covers…” Not anymore. Now, whoever rules corporations rules the United States of America.

“With its ruling today, the Supreme Court has given a green light to a new stampede of special interest money in our politics. It is a major victory for big oil, Wall Street banks, health insurance companies and the other powerful interests that marshal their power every day in Washington to drown out the voices of everyday Americans,” said President Obama, who most certainly would not have been elected if the ruling were in force when he ran.

“This is the most radical and destructive campaign finance decision in the history of the Supreme Court,” said Fred Wertheimer, President of Democracy 21. “With a stroke of the pen, five justices wiped out a century of American history devoted to preventing corporate corruption of our democracy.” (Supreme Court’s “Radical and Destructive” Decision Hands Over Democracy to the Corporations, AlterNet.org, 1/21/10) I think Mr. Wertheimer is being too cautious; this decision may turn out to be the most destructive decision in the history of the Supreme Court, period. We look to the courts to protect our rights, not to give them away. Corporations are not people.

Back in August of last year Bob Monks and Peter Murray wrote an essay addressing judicial activism and its likely impact on our election system. “It’s difficult to conceive at this time of corporate overreach and abuse of power that the United States Supreme Court would go out of its way to remove all obstacles to ‘corporate speech’ in the social and political life of our country,” Monks said. “Corporate speech is not derived from the language of the Constitution, and is in fact, a conjury of the Court. There is something grotesque about our Supreme Court having a special hearing so as to expand the already questionable legitimate category of ‘corporate speech’.” Read the essay and weep for democracy.

Over the course of history, there has been toward democracy. As Pierre-Yves Gomez and Harry Korine wrote in their wonderful book Entrepreneurs and Democracy, “the more the entrepreneurial force becomes concentrated in ever larger corporations, the greater the need for social fragmentation to maintain the legitimacy of governance – so as to ensure that corporations are governed according to the liberal spirit.” Democracy has begun to spread into every sphere. They asked a key question, “does it serve economic performance or is it imposed by political attitudes against the economic interests of society?” Their conclusion gives some hope. “There are good economic reasons to think that democratization of corporate governance and the growth of economic performance go hand in hand.” (my emphasis)

We can thank God that, at least up until now, more democratic economies have generally had better economic performance. Therefore, it is in the best interests of business to continue democratizing itself and to maintain democracy as a system of governing civil affairs.

Corporate control of government will introduce a more integrative effect. Elected officials may soon be a lot more like managers… technocrats, whose legitimacy is based on their special competences. As our corporations and government become more integrated and monolithic, will we still have the agility to deal with the increasing complexity of the problems we face, like global climate change? Have we turned our destiny over to the masters of public opinion? Aren’t those the same folks who drive us at an ever increasing pace toward each speculative bubble? Corporate crowd control, will it work?

Think of the deliberation that now occurs in Congress and in your state legislature. Now think of the highest deliberative body of corporations… the annual meeting. We’re obviously headed for trouble. We, as shareowners must begun to look at concepts like fiduciary duty with renewed vigor. Further democratization of the structures of representation within the corporation takes on new urgency. What about the nationality of corporations and their shareowners, what part will that play? Which corporations are really American or does it make a difference?

Whereas corporations are largely global, we are not. We have to work, live, breathe the air of one country or another. The flexibility of labor isn’t nearly as great as the flexibility of our capital. While countries can knit themselves together into the United States, the United Nations, etc. to resolve differences, will corporate combinations be viewed with the same legitimacy… especially if they join together to battle parochial concerns, like ours?

Frankly, I’m a little frightened. However, I’m also resolved that transforming corporations into more democratic entities is more important than ever. So, for me that means going back into the weeds of proxy mechanics… how democratic are corporate voting systems, even if we accept that those with more shares get more votes?

A recent study of more than 12,000 companies, led by University of Minnesota professors Rajesh Aggarwal, Felix Meschke, and Tracy Wang, found that corporate political expenditures were typically linked with lower shareholder value. The survey suggested that donations were based in part on managers’ political preferences, not on what might benefit their businesses. see Corporate Political Contributions: Investment or Agency? http://papers.ssrn.com/sol3/papers.cfm?abstract_id=972670 Shareowners get a very limited version of proxy access soon; managers get unlimited corporate funds to buy more politicians. Who’s winning?

We either need a law like in the UK so that companies must get permission from their shareowners in advance to make political contributions in excess of some amount or we need a massive number of shareowner resolutions at each company to accomplish the same.

“More than 70 companies, including Microsoft Corp., Time Warner Inc., and Campbell Soup Co., have adopted disclosure policies. This year, shareholders have filed disclosure resolutions at 47 companies, said Bruce Freed, president of the Washington- based Center for Political Accountability, a nonprofit organization that works with shareholder groups.”

“Companies now will be under tremendous pressure from Republicans and others to pony up,” Freed said. “The corporate governance route now is the only way for companies to avoid this pressure.” (‘Free at Last,’ Business Says as Court Opens Campaign Spending, Business Week, 1/21/10)