Equal Treatment: Union and Corporate Politics

Published August 8th, 2013 -  - 08.08.132


In an opinion piece yesterday, the Wall Street Journal attacks a proposal that the SEC require public companies to disclose political spending.  One prong of the Journal’s attack is that “no such regulation” applies to labor unions.  But this statement, like many in the public debate about political disclosure, rests on the flawed assumption that current law treats unions and corporations equally.  The assumption is flawed because while there is no legal requirement – either in campaign finance law or corporate law – that corporations disclose political spending, labor law mandates that unions make such disclosures.  So, contrary to the WSJ’s claim, an SEC disclosure rule for corporations would level the playing field between firms and unions.

Here’s how this all works.  Campaign finance law requires neither unions nor corporations to disclose their political expenditures.  But the Labor Management Reporting and Disclosure Act of 1959 (LMRDA) requires extensive reporting by unions, including reporting of political expenditures.  In fact, the Department of Labor’s LM-2 form requires unions to disclose a dizzying array of information regarding their finances.  On the LM-2, unions must disclose not only aggregate figures regarding political activities and lobbying, but also detailed breakdowns of this spending including “political disbursements or contributions” which are defined to include spending “intended to influence to selection, nomination, election, or appointment of anyone to a Federal, state, or local executive, legislative or judicial public office . . . and support for or opposition to ballot referenda.”  Unions must also report all “disbursements for communications with members . . . and their families for registration, get-out-the-vote and voter education campaigns, the expenses of establishing, administering and soliciting contributions to a union [PAC], disbursements to political organizations as defined by the IRS . . . .”  These financial disclosure forms are publicly available and can be searched on the DOL website either by labor union name or by payee.

So, while campaign finance law requires neither unions nor corporations to disclose political spending, labor law imposes this requirement on unions but corporate law does not impose an equivalent regulation on corporations.  The end result: unions have to disclose; corporations do not.

This asymmetry in disclosure regulations is emblematic of the broader terrain of campaign finance law that, again, privileges corporations over unions.  As I have written about elsewhere, Citizens United famously freed both unions and corporations to spend their general treasuries on federal electoral expenditures.  But this equal treatment masks a less visible, but equally important, way in which the law treats union and corporate political spending differently.

This asymmetry arises out of, again, a labor law rule (applicable in both the private and public sectors) that prohibits unions from spending any general treasury money on politics when individual employees object to such use.  In contrast to the union rule, corporate law permits corporations to spend their assets on politics even in the face of individual shareholder objections.  Stated simply, the law gives employees the right to opt out of funding union political speech, but shareholders get no right to opt out of funding corporate political speech.

And there is no good reason for this differential treatment of unions and corporations:

A union’s general treasury is made up of dues paid by employees.  Under current law, a union can require employees to pay these dues in order to get a job at a unionized firm.  But, labor law mandates that any employee who pays dues to the union gets the right to insist that the union not use any of her dues for politics.  Why?  Because we think it is wrong for a union to withhold access to an economic opportunity – a job – unless employees provide support for the union’s political agenda.

Although we might not be used to thinking about it this way, the corporate context presents a similar kind of problem.  Just as employment in a unionized firm can be conditioned on an employee’s willingness to pay union dues, investment in corporate stock is conditioned on the shareholder’s willingness to give firm management the authority to decide how to spend corporate assets.  Under current corporate law rules, this means if you want to take advantage of the economic opportunity to invest in a corporation and reap the profits that come with that opportunity, you have to surrender your share of the corporate assets to the firm’s political agenda.

The most common objection to treating unions and corporations as equivalents is that workers are “forced” or “compelled” to pay union dues, while investing is always voluntary.  But this turns out to be not quite right either.  No one is actually “forced” to pay union dues because no one is actually ever forced to take a job with a unionized employer.  In fact, in the U.S. today, less than 7% of the jobs in the private sector (and only 12% of jobs if you include the public sector) are union.  So, avoiding union dues requires you to work in any one of the (vast majority of) jobs that doesn’t have a union.

This is not to deny that avoiding union employment has very real costs.  Indeed, these costs can be significant.  Working in the nonunion sector can mean lower wages and benefits, and changing jobs can also lead to losses in lifetime earnings (not to mention the stress and incumbent costs of changing careers).  So, its fair to say that avoiding union dues can be very costly.

Now compare the shareholder context.  Just like in the union context, no one is actually forced to buy stock.  But if, in order to avoid corporate politics, you choose not to invest in the stock market, you will bear some significant costs too.  That’s because stocks are a critical investment vehicle that should be part of any well-advised investor’s portfolio.  For example, although past performance is no guarantee of future results, over the last seventy years or so, the average returns on stocks was about 11%.  For Treasury Bonds it was only 5%; T-bills brought in 3.7%.  These figures vary depending on the period of time we pick – and at times stocks underperform other vehicles – but giving up stocks because you do not want to support corporate politics means giving up very real money.  For, say, the middle class investor trying to put her kids through college, it can be a make-it or break-it difference.

If there were enough corporations willing to swear off politics, then we might see investment funds that could cater to investors who don’t like corporate politics.  But those corporations and funds just don’t exist in significant enough numbers today.  And there are good reasons to question whether they’ll ever constitute a viable option.

Given the significant costs involved in avoiding both union jobs and the stock market, its simply not right to say that employees are compelled to pay dues while investment is voluntary.  So, if its wrong to let unions spend employee money on politics, the current corporate set up is wrong too: if we don’t want to make job opportunities available only to those employees willing to support the union’s politics, we shouldn’t make investment opportunities available only to those willing support the corporation’s politics.

Bottom line: to understand the regulation of political activity by unions, we have to look beyond campaign finance law and to labor law.  When we do that, we can see that the law imposes a number of obligations on unions that corporations do not face.  If we want equal treatment – when it comes to disclosure or finance – election law (or corporate law) will need to impose obligations on corporations that labor law already imposes on unions.

2 recommended
115 views
bookmark icon