ALEC Fumes: Transparency Threatens Corporate Free Speech!

After spending hundreds of millions of undisclosed funds on state and federal elections, the corporate members of the American Legislative Exchange Council are demanding that state legislators preserve their "right" to anonymously spend money on politics and curry favor with elected officials, and to thwart shareholder efforts to hold the corporations they own accountable.

A December 3 workshop titled "Playing the Shame Game: A Campaign that Threatens Corporate Free Speech," held at ALEC's meeting this week in Washington, DC, warned of "an increasing chorus of anti-business activists calling for an end to corporate political participation in the name of ferreting out so-called 'dark money," according to an agenda obtained by the Center for Media and Democracy. Panelists set their sights on campaign finance disclosure laws and shareholder proposals aimed at promoting transparency in corporate political spending.

It is little surprise that corporate interests would peddle secrecy to the hundreds of Republican state legislators at ALEC.

ALEC's funders, like the billionaire Koch brothers, have spent millions in "dark money" -- electoral spending that evades donor disclosure laws -- in recent years, secret spending which has increased exponentially since the U.S. Supreme Court's 2010 Citizens United decision.

And, ALEC itself has faced an exodus of corporate members thanks in part to shareholder pressure from socially responsible and faith-based investors like Walden Asset Management and the Unitarian Universalists. In fact, ALEC, attacked the Unitarians as "professional activists" in a fundraising email earlier this year. A powerpoint presentation from Wednesday's workshop, titled "efforts to restrict political speech" warned that, "this year, ALEC was directly named in over two thirds of lobbying shareholder proposals."

ALEC Funders among Biggest Dark Money Spenders

Some of ALEC's top financial backers have been among the biggest "dark money" spenders in state and federal elections since Citizens United.

The Koch funding network spent at least $77 million on TV ads in the 2014 elections through groups like Freedom Partners and David Koch's Americans for Prosperity (AFP), and at least twice that amount on organizing. Koch Industries has long been a member and funder of ALEC (and has a representative on the ALEC corporate board), as have Koch-backed electoral players like AFP.

Other ALEC funders are also major dark money players. The U.S. Chamber has long been an ALEC member and spent more than $35 million on anonymously-funded election ads in 2014. (In fact, on the same day as the ALEC "Shame Game" workshop, the U.S. Chamber hosted a separate presentation on a similar topic featuring the same speakers.) Longtime ALEC member PhRMA, a sponsor of this week's meeting and a major donor to the ALEC "scholarship" fund, has also funneled money to electoral groups that keep their donors secret, such as $1.5 million to the American Action Network in 2012 and $50,000 to American Commitment in 2014.

Transparency in electoral spending has widespread support among the public, even among many Republican legislators. But groups like the Center for Competitive Politics (CCP) -- whose founder and chair, Brad Smith, addressed the ALEC meeting -- have tried to recast disclosure of the interests trying to influence voters and elected officials as an attack on "corporate speech."

At Wednesday's workshop, CCP handed ALEC legislators a document titled "Five Misconceptions About 'Dark Money'" and a report warning state legislators that "disclosure requirements harm First Amendment rights" and, oddly, that "there is more disclosure of political spending in the U.S. than at any time in history."

An additional pitch to ALEC legislators might be that they stand to benefit from secret spending by ALEC's corporate members.

A state legislator's participation in ALEC meetings connects them to a network of high-powered corporations and funders that they may be loathe to cross. ALEC's agenda boasts that twelve ALEC alumni moved from state legislatures to the U.S. Congress in 2014, with many of those politicians making their way to higher office with backing from tens of millions in undisclosed spending from the same interests that bankroll ALEC.

The three ALEC alums newly elected to the U.S. Senate this year -- Joni Ernst in Iowa, Cory Gardner in Colorado, and Thom Tillis in North Carolina -- were also the three most expensive races in terms of outside money in 2014.

ALEC board member and 2011 ALEC "legislator of the year" Thom Tillis, for example, was elected to the U.S. Senate with huge spending from groups that keep their donors secret, such as $7 million in support from AFP, plus millions more from the Koch-backed Freedom Partners and the U.S. Chamber. (Tillis also addressed this week's ALEC meeting, advising members to stick with ALEC despite what he described as the "thug like tactics" of the group's critics.) Joni Ernst, who paid for her ALEC membership with taxpayer funds, saw her fundraising skyrocket after she attended a Freedom Partners donor summit in August 2013, and received at least $4.5 million in backing from the group plus support from ALEC members like AFP, the U.S. Chamber, and the National Federation of Independent Business. Gardner was elected with millions in spending by Freedom Partners and AFP.

"Onslaught of Shareholder Activism"

Although some states have proposed more robust campaign finance disclosure laws, action around political transparency has also taken place in the corporate governance world.

Overone million requests have been filed with the Securities and Exchange Commission (SEC) asking that it draft rules requiring corporate CEOs tell shareholders -- who actually own corporations --- how they are spending their money. Investors have been increasingly demanding that corporate management voluntarily disclose not only their electoral political spending, but also their donations to lobbying groups like ALEC, their record on the environment or diversity, or other governance concerns.

"Hundreds of companies understand full well that good governance and a positive approach to the environment and social issues are good business as important for long term profitability,” said Tim Smith of Walden Asset Management, which has engaged with companies about their ALEC membership and other issues on behalf of shareholders. "Investors with close to $7 trillion in assets under management are actively supporting adding environmental, social and governance issues into investment decision making," he said.

Thanks in part to shareholder pressure from socially responsible and faith-based investors -- in addition to grassroots activism led by CMD, Forecast the Facts, Common Cause, and others -- the notoriously secretive ALEC has suffered an exodus of high-profile tech industry members throughout the fall, including Google, Microsoft, Yelp!, Yahoo, and AOL.

This has ALEC and its allies spooked. Two of the speakers at Wednesday's ALEC workshop, Jim Copeland of the Manhattan Institute (an associate member of the State Policy Network) and Paul Atkins, CEO of Patomak Global Partners, asserted that shareholders are given too much influence in corporate governance. Copeland's powerpoint warned that "shareholder activists have gained power relative to boards in recent years," and called for governance authority to be taken out of the hands of the shareholders who own publicly-traded companies.

"They conveniently ignore the fact that investors, including some of the largest pension funds in the country, are raising these issues with companies because they have a direct impact on the bottom line," Smith said.

In addition to Wednesday's presentation on threats to "corporate free speech," the ALEC Civil Justice Task Force on Friday considered a presentation on “The Onslaught of Shareholder Activism and Its Implications."

Yet, shareholder oversight over corporate political activity was anticipated by the majority opinion in Citizens United, which supported disclosure even as it opened the floodgates to corporate political spending. Justice Anthony Kennedy made the questionable argument that a corporation is merely an association of citizens with free speech rights -- “an association that has taken on the corporate form” -- but also asserted that shareholders would be able to control political expenditures made by executives “through the procedures of corporate democracy.”

This isn't ALEC's first foray into this issue. Its 2010 "Resolution in Support of Citizens United" opposes both the disclosure and shareholder participation endorsed by the majority in Citizens United. In 2011, ALEC lobbied legislators in states like New York urging them to reject a proposal requiring corporations get shareholder approval for political spending. Legislation imposing “oppressive and impractical requirements on corporations” restricted corporate free speech, ALEC said in the email to its legislative members. "Legislation punishing speech stifles uninhibited public debate and undermines the very purpose of the First Amendment,” ALEC wrote.

Center for Media and Democracy Research Director Nick Surgey contributed to this article.