Shareholders Can End Political Ad Secrecy

This month marks the first anniversary of the landmark Supreme Court Citizens United decision striking down restrictions on independent political spending by corporations and unions. But heated national debate continues. Major controversy has erupted over independent or third party organizations channeling secret donations into the elections. President Obama strongly criticized the decision, stating that it would “open the floodgates for special interests, including foreign corporations, to spend without limit in our elections.”

Polls showed that 80 percent of Americans opposed the decision.

In reaction, the House passed disclosure legislation but it failed in the Senate. As a result, millions of dollars in undisclosed donations poured into the 2010 elections. The Chamber of Commerce alone spent a reported $75 million to unseat primarily Democratic members of Congress who opposed Chamber policies.

With government stalled, it will be up to private citizens to take action. Some groups have called for companies to disclose their donations. But since the largest share of these secret donations goes to buy expensive TV ads, the focus should be on the major broadcast and cable TV companies. There is another way to end donor secrecy:

Shareholders should file resolutions requesting television companies to refuse ads from groups which don’t provide full disclosure of donors.

Ironically, the concentration of TV ownership makes this approach practical. A handful of publicly traded companies dominate the US media landscape. These include GE/Comcast (NBC), Disney (ABC), CBS, News Corp (Fox),and Time Warner

People assume that stations must run these ads since the Communications Act of 1934 requires that broadcasters grant “reasonable access” to airwaves for political speech. However, that rule has typically been applied to candidates for political office, not independent groups. Regulations governing direct candidate advertising don’t apply. The FCC has no rule prohibiting stations from refusing such ads.

Stations frequently do refuse political ads. In a case involving anti-war ads, the Supreme Court ruled that “the Communications Act…does not require broadcasters to accept editorial advertisements.” Indeed, during 2008, some TV network affiliates refused to run anti-Obama ads.

Further, since stations have the discretion to refuse the ad, they are no longer shielded from liability for the accuracy of the ads, just as with a commercial product.  In a Congressional race, a Denver TV station stopped running a third party ad stating that the sponsor failed to substantiate its claims.

Given this legal liability risk, shareholders must weigh the possible financial impact to their company of running such ads without full transparency. Currently, third party ads only have to disclose the sponsor’s name, contact information and key officers.

A second issue for shareholders is that the station’s association with ads funded by secret donations could harm the company’s reputation and potential profits. This happened to the Target Corporation, which became the object of a boycott after disclosure of a donation to an organization running ads supporting an anti-gay marriage candidate.

Finally, public distaste for secrecy, combined with the potential for foreign influence over US elections, is more reason for the media to adopt disclosure policies. Without full disclosure, shareholders can clearly claim that there is no way for companies to eliminate legal and financial risk. This shareholder claim is expressly affirmed in the proposed Congressional DISCLOSE ACT,

The American people have a compelling interest in knowing who is funding independent expenditures …to influence Federal elections… (D)isclosure of the funding sources… can provide shareholders, voters, and citizens with the information needed to evaluate the actions by special interests seeking influence over the democratic process. (emphasis added.)

It is time for shareholders to stake their claim AND FILE shareholder resolutions.

© Copyright Ron Freund  January 2011. Ron Freund is Director of Corporate Responsibility for the Social Equity Group, a California socially responsible investment firm.