February 5, 2016
The False Equivalence of Shareholders and Employees
Abood v. Detroit Board of Education, Friedrichs v. California Teachers' Association, Kent Greenfield, shareholders
by Kent Greenfield, a Professor of Law and the Dean’s Research Scholar at Boston College, where he is the faculty adviser for the ACS student chapter. He is the author of the forthcoming Corporations Are People Too (And They Should Act Like It). Follow him on Twitter @Kentgreenfield1
If government employees can object to funding a union’s political activity, should shareholders have the right to object to a corporation’s? The Supreme Court has answered no, and a new case risks making the gap between the rights of dissenting employees and dissenting shareholders more stark.
But there is good reason to treat shareholders and employees differently.
The tension arises from two lines of free speech cases. One protects corporations’ right to spend money in elections while another allows government employees to opt out of their share of union dues. These cases have little in common at first glance. But the corporate spending cases assume that shareholders have no right to object, while the union cases enshrine the right to object as a constitutional value.
In January, the Court heard arguments in Friedrichs v. California Teachers Association. That case is a challenge to the 1977 case Abood v Detroit Board of Education, which allowed unions to charge employees they represent a fair share of the costs of collective bargaining. Objecting employees can refuse to fund a union’s political involvement, the Court said, but had to pay for non-political activity. Court watchers believe the justices will use Friedrichs to expand government employees’ rights to object to include the non-political.
Meanwhile, the Court’s protections of corporate speech pay little heed to the interests of dissenting shareholders. In Citizens United v Federal Election Commission six years ago (how time flies!), the Court rejected the argument that shareholders should be protected from corporate spending with which they disagreed. “Allowing government to use the excuse of protecting shareholder rights to stifle the speech of private, voluntary organizations undermines the First Amendment,” said the Court. Critics are already blasting the Court’s apparent inconsistency. Corporations can engage in political activities without concern for the views of shareholders, but unions must offer objecting employees an opt-out from paying even for collective bargaining?
But it is a false analogy.
Let me be clear. Overruling Abood would be a mistake, and Citizens United was a blunder. But shareholders and employees are not the same.
Unions are associations, united by a common and collective purpose. The union itself has a legal duty to represent the interests of its members and others in the bargaining unit. And the union is financed by contributions from its members and others who benefit from its representation.
Dissenting government employees have a legitimate argument that their forced payments amount to coerced speech, a problem under the First Amendment. But as Abood recognized, those concerns are outweighed by the benefits gained from having unions. And there is simply no dependable alternative for funding unions than asking all those they protect pay a fair share of the costs. The Abood balance -- that objectors have to pay for non-political activities but can opt-out of political ones -- is an appropriate constitutional compromise.
Shareholders in contrast do not “join” corporations; they invest in them, often unknowingly. Companies are not “associations of citizens,” as Citizens United wrongly put it, but aggregations of capital and other inputs used to create wealth. Directors of companies have a host of duties and broad discretion in how they fulfill them, including simply ignoring shareholder demands. As a brief filed by corporate law professors in Friedrichs explained, “directors … are not agents of shareholders, and owe shareholders no duty of obedience.” The money a corporation spends in an election does not belong to the shareholders any more than to the employees, creditors, or customers.
Citizens United was a mistake because it failed to protect our democracy from corporate money, not because it failed to protect shareholders.
Why care about this difference? Because looking at a corporation as the embodiment of shareholder interests will create constitutional harms in other cases. Remember the 2014 case Burwell v Hobby Lobby, where the Court granted a corporation the right to object on religious grounds to Obamacare’s contraceptive mandate. But the corporation itself had no religion. The Court assumed it borrowed the piety of its shareholders.
Also, a fixation on shareholder rights will not lead to a more egalitarian and inclusive politics. Most shares of American business are owned by the very wealthy -- the richest 5 percent own over two-thirds of all stock assets. To proclaim shareholder power is to sing Wall Street’s tune, whether the song be about politics or corporate strategy.
The Court deserves its skeptics, but the apparent inconsistency between the Court’s treatment of government employees and shareholders is not basis for critique. Instead, consider how in protecting corporate power and undermining unions the Court hardly bothers to cloak its political leanings. In this it has been remarkably consistent, and that merits criticism.