Citizens United Frees Corporations to Spend on Elections, But Increases Scrutiny

August 12, 2010 | Last updated: July 31, 2020

37621686 0dcd0e12e5 o In January, the Supreme Court decided Citizens United vs. Federal Election Commission, changing campaign finance laws. (Wikimedia Commons)

When the Supreme Court decided Citizens United vs. Federal Election Commission in Jan., 2010, supporters of campaign finance reform warned that a torrent of corporate money and corruption would soon flow throughout the country. At his State of the Union address in January, President Obama attacked the Court’s ruling as the Justices sat in the audience. “With all due deference to separation of powers, last week the Supreme Court reversed a century of law that I believe will open the floodgates for special interests — including foreign corporations — to spend without limit in our elections. I don’t think American elections should be bankrolled by America’s most powerful interests, or worse, by foreign entities,” Obama warned. Democratic officials circulated a memo last month, alerting party supporters that they will likely be outspent this cycle, with outside conservative organizations set to spend upwards of $300 million.

[Law1] Twelve weeks out from the midterm elections, the apocalyptic warnings are receding and the realities of the decision are becoming more apparent. With increased attention in the post-Citizens United world, it may in fact prove more difficult for prominent companies to engage in political campaigning, but a rise in a culture of obscured financing looms.

In Citizens United, the Court struck down restrictions on corporate or labor spending as long as it is uncoordinated with politicians. In a 2007 case, the Court ruled that corporations could sponsor issue ads, but Citizens United took that a step further, allowing companies to tap into their general treasury funds to directly advocate for candidates. Since the Court’s decision, FEC rulings have further clarified that groups are now free to receive unlimited contributions from corporations and individuals as long as none of the money goes directly to a candidate or is coordinated with a campaign.

The most visible instance of businesses injecting funds into a political race this cycle occurred in Minnesota last month. Target and Best Buy contributed a combined quarter of a million dollars to MN Forward, a new Chamber of Commerce-affiliated group, which in turn used those funds to produce ads backing the Republican gubernatorial candidate Tom Emmer. LGBT organizations attacked the donations, as Emmer is known for opposing gay marriage and for his ties to a controversial anti-gay group. National liberal organizations such as MoveOn.org and The Human Rights Campaign (HRC) quickly latched onto Target’s donation and organized a boycott against the big-box store.

For corporations such as Target, the Citizens United world offers mixed blessings. Companies can now spend more freely, but at the price of increased scrutiny. If a company wishes to support a candidate on specific policies, it ties itself to the full spectrum of the candidate’s beliefs. In the instance of Target, the company was criticized for Emmer’s views on social policy even though it claimed to have supported him solely for his economic policies, with MN Forward’s ad dealing with Emmer’s job policies.

Target has entered damage-control mode since their contributions became public. Their CEO sent a letter apologizing to company employees which said the company would review its political donations practices, while simultaneously the company is negotiating with the HRC to end the boycott movement. At the height of Target’s public backlash, Goldman Sachs changed its policies on political activities, adding the statement, “Goldman Sachs also does not spend corporate funds directly on electioneering communications.”

“The business community is going to be very cautious and probably reluctant to provide funding for this type of purpose,” says Jan Baran, a campaign finance lawyer and author of The Election Law Primer for Corporations. “I think the number one reason is the recession, and the other reasons include avoiding controversy, not getting overtly involved in politics because they’re not sure it’s good for their business, and they may not want to upset customers and clients.”

But not all companies share the same spotlight. Even as Target and Best Buy are criticized for their contributions to MN Forward, other less well-known Minnesota businesses continue to fund the organization. Progressive organizations can rally people against the store where they buy their TVs, but it is much harder to organize against a corporation out of the public eye that earns its profits from fluid handling systems, Graco Inc., which has contributed $50,000 to MN Forward. The $250,000 donated to MN Forward by Target and Best Buy has received the most scrutiny, but other corporations or trade associations have contributed over $900,000 to the same group this year.

For high profile companies who still wish to influence campaigns, there are other avenues available beyond independent expenditures that allow them to circumvent disclosure requirements. 527s have captured the imagination of reporters and voters alike over the past decade, but these groups will become more rare, as the groups need to file monthly reports with the FEC that reveal both their expenditures, and their sources of income. Instead, there is a rising class of non-profits, 501(c)4s, that have taken their place. Unlike 527s, 501(c)4s are not required to provide the FEC with donor information. Conservatives have organized a network of 501(c)4s prepared to run ads before November.

These organizations currently exist in a window of opportunity for producing political ads with even fewer disclosure requirements than usual. Commercials that contain the name of a candidate for federal office must be reported to the FEC if they air within 30 days of a primary election or within 60 days of the general election. Most states have held their primaries or will do so in the next few weeks, while the 60-day window does not begin until early September, creating a gap where organizations are free to air ads without reporting to the FEC as long as they do not directly advocate for candidates. This is one reason why some groups still produce issue-ads, a style of commercial that does not directly deal with upcoming elections, but instead describes a candidates’ stance in relation to specific policies, usually in a negative light.

The Chamber of Commerce, which has pledged to spend $75 million on the midterm elections, continues to produce issue ads attacking various candidates. Over the past month, the Chamber has aired ads against Democratic Senate candidates Alexi Giannoulias in Illinois and Joe Sestak in Pennsylvania that are not electioneering communications outside of the 60-day window. By ending each ad imploring the viewer to call the candidate rather than vote against him, the Chamber has skirted disclosure requirements.

Once the disclosure requirements kick in at the 60-day mark, issue ads will likely be replaced with ads encouraging the viewer to vote against specific candidates. Though the difference between direct advocacy and issue ads may seem minor, in the deluge of ads produced near elections, that subtle difference can affect how voters process the ads. “When your call to action is not, ‘Call Congress and tell them this is a bad bill,’ and the action is show up on Tuesday and vote against congressperson X, that has a much more direct impact. It connects the dots for voters,” says Evan Tracey, President of the Campaign Media Analysis Group. “I suspect as you move a lot closer to the Election Day, the call to actions are going to get much more direct, and the ads themselves are going to be, not linked necessarily to policies and bills in Congress, as much as they are going to be linked to getting voters to the polls.”

Instead of donating for the specific purpose of crafting ads, companies and individuals contribute to these organizations’ general funds so that even within the 60-day window the source of funding is not reported to the FEC. “Corporations are more likely to give to the Chamber or their own 501(c)s or other trade association type groups because those can kind of show up basically as standard operating procedure,” Tracey says.

All of this could quickly change if Congress decided to pass the DISCLOSE Act. The legislation does not restrict corporations from funding political ads (except companies that are foreign owned or received TARP money or large government contracts), but would require new levels of disclosure when political ads are produced. Though the direct limitations on the source of the funding is minimal in the legislation, the increased transparency would likely deter many would be donors. The only reason Target’s contribution to MN Forward became public knowledge was because it affected a state rather than national candidate, and the state of Minnesota has more stringent disclosure laws for its elections than the federal government.

Corporations and their affiliated trade associations have the most to lose with stringent disclosure requirements. “Unions are a little bit different because they control their own money, they raise their own money and they can put it in their own efforts. And it’s not a big secret as to who the unions are and who they are going to target,” Tracey says. Corporations on the other hand, have to respond to  shareholders and maintain a public image amongst a consumer base that may not share the same beliefs as corporate America. Oddly though, the DISCLOSE Act was opposed by groups across the spectrum, including the AFL-CIO.

When the bill was last put to a vote, it fell one supporter short of the 60 necessary to achieve cloture. The bill could still be reworked in order to gain the backing of one Republican when the Senate reconvenes, but even if the Senate passes the bill in September, the House would still need to vote on the measure again. The way the bill is currently written, disclosure requirements must go into effect 30 days after it’s signed into law, so even if Congress manages to pass the bill, it would only impact the very end of the election cycle, leaving plenty of time for organizations to spend freely.