Target Becomes a Target

The Los Angeles Times reports that investors are lashing out at Target Corp. for donating to an anti-gay politician in Target’s home state of Minnesota. The case highlights why the Citizens United decision–which struck down a federal law prohibiting may not have the pernicious effects its detractors fear.

In a nutshell, Target gave a donation to an organization supporting a Republican gubernatorial candidate in Minnesota. The candidate is not a supporter of gay rights, causing pro-gay rights groups to protest the donation and propose a boycott of Target stores. The bad publicity has not yet affected Target’s bottom line, so far as I’ve heard, but Target’s shareholders are concerned that it will, and so several large investment firms that hold sizable shares of Target stock are pressuring the company to reconsider its donation policy.

This is why corporations may be hesitant to rush into the political maelstrom and start backing candidates. Corporations will give donations not because there is a nefarious conspiracy among capitalists to control government, but because each individual corporation expects to receive value in return for its contribution. It is an individual cost-benefit decision, not a collective, class-based one. If the contribution results in losses, the individual corporation will be hesitant to make future contributions.

Keep in mind that Target is in one of the U.S.’s most competitive markets–clothing, sporting goods/toys, and home furnishings. There is no Target in my town, but I don’t lack for places to find those items, having a choice between Wal Mart, K Mart, Meijer, and Kohls. Target simply can’t afford to alienate customers, because they can so easily express their alienation by exiting. That’s why I fully support drawing public attention to Target’s donation, staging protests, and organizing a boycott. I’d even participate in the boycott, had I an actual choice about going to Target.* As one investor notes in the article;

“Imprudent donations can potentially have a major negative impact on company reputations and business if they don’t carefully and fully assess a candidate’s positions,” said Tim Smith, a senior vice president at Walden Asset Management.

A critic might object that this strategy won’t work if all those stores contribute to the anti-gay candidate. But a simple application of game-theory shows that it can. Assume, for simplicity, that the four stores mentioned above, plus Target, are all the relevant stores. Assume also that protesters can only effectively protest/boycott one store at a time. If the protesters randomly select one to boycott, then each store has a 20% chance of the negative publicity and possible lost sales; hence of investor backlash. No store can know that it is safe, and even if it is not selected as the target of protesters this time, it may be in the next election cycle. Investors will easily recognize this, and may demand a discount for investing in companies that regularly make campaign contributions.

The beauty of this approach is that it doesn’t depend on the investors having any sympathy for gay rights (or whatever the particular issue may be). This approach uses the profit-motive that drives the investor as a means of supporting political values the investors may not share. Another investor quoted in the L.A. Times article makes this point very clearly, in a not-so-veiled warning to other companies.

“Target should have carefully considered the implications that direct political contributions can have toward shareholder value,” said Ola Fadahunsi, spokesman for New York Comptroller Thomas DiNapoli, the pension fund’s sole trustee. “It’s troubling to think that they can fund controversial candidates without properly assessing the risks and rewards involved.”

Of course two can play that game, and right-wing organizations could similarly pressure corporations that give to liberal candidates and causes. Liberals should not object to that, however. If both sides play the game vigorously, the outcome will be what liberals want–no corporate campaign contributions.

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*Actually, in a small way, I have. There is a Target where we are vacationing at our in-laws’ in California. My wife wanted to go there to pick up a few items, but I steered us elsewhere. Our $30 or so did not go to Target. That’s my middle-class white academic blow at “the man.”

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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15 Responses to Target Becomes a Target

  1. Scott Hanley says:

    Unfortunately, there are two Targets where I live, which I think would dilute my boycott efforts and make it only half as effective against each store.

    I suspect this logic works most strongly on retail companies, who depend so heavily on their reputation and brand name. It could also work the other way, where an unpopular company’s support could be counterproductive (who wants to run as the Senator for Halliburton or Xe?).

    Perhaps there’s a middle ground of businesses, who aren’t so vulnerable to public opinion and aren’t the kiss of death to a politician, who might benefit the most from direct contributions to candidates. Trucking companies, just to throw out an example, might fall into that category?

  2. nadezhda says:

    Of course two can play that game, and right-wing organizations could similarly pressure corporations that give to liberal candidates and causes. Liberals should not object to that, however. If both sides play the game vigorously, the outcome will be what liberals want–no corporate campaign contributions.

    Bingo! Which is why disclosure of who’s donating or advertising on behalf of candidates is critical.

  3. James Hanley says:

    nadezhda,

    Indeed, I agree that disclosure is critically imporant, and I meant to note that in my post, but forgot to. Thanks for filling in my oversight.

    Let me ask the tough question now, though. Does Congress have the constitutional authority to require such disclosure?

  4. D.A. Ridgely says:

    [Mitch Hedberg] I tried walking into a Target , but I missed. [/Hedberg]

    Thank you, thank you very much.

  5. ppnl says:

    I’m not sure full disclosure by candidates really solves much. Corporations can spend massive amounts shaping public opinion without directly giving to any particular person or party.

    Forget the constitution for a moment. Is there any practical way to enforce full disclosure? There are so many ways to hide soft money that disclosure laws are a joke.

  6. nadezhda says:

    Let me ask the tough question now, though. Does Congress have the constitutional authority to require such disclosure?

    I don’t see why that’s a tough question. But then, I continue to find Citizens United incomprehensible, so I’m clueless as to what the Roberts Court would be likely to do re a Congressional disclsoure mandate.

    I always thought it was basic good ol’ Anglo-Saxon law that “legal persons” are fictional creations of government — originally by Royal charter — whose powers to act and legal rights are the creation of, and subject to modification by, the government. The principle, which has been applied in areas such as tax law and which I had assumed applied to campaign finance law, is that given that since “legal persons” are legal fictions, we don’t have to recognize a legislatively-authorized fictional personhood for purposes other than what the fiction was adopted for. And since a legislative body is the source of all rights and powers to which a fictional “legal person” is entitled, a legislature can establish limits to those rights and powers that are different from and less than the rights and powers of individual “real” persons.

    For example, we have different property rights regimes in bankruptcy depending on whether the “person” declaring bankruptcy is a human being or has been created according to various legislative authorizations of fictional “legal persons”. We have over the centuries applied to “legal persons” in various circumstances the notion of ultra vires (that a legal person’s actions are beyond its legal capacity to act, which suggests the very nature of legal personhood, including its powers and rights vis a vis the creating authority, is not only created, but defined and limited by law). We also occasionally can “pierce the corporate veil” for a variety of purposes (corporate, tax, securities fraud, etc), so it’s not as if legal personality is somehow sacrosanct. So I continue to believe that insisting a “legal person” is “someone” entitled to the human rights protections of the Constitution (as distinct from economic protections, that is, process and property rights) is sheer looney-tunes. I have a feeling that Citizens United is going to be one of those Supreme Court decisions that is looked back upon with something between bafflement and horror in 100 years.

    Setting to one side Citizens United, however, I’m not sure why Congressional disclosure mandates would raise significant constitutional issues. The Supreme Court has recognized Congress’ authority to regulate some aspects of the federal election process, including campaign finance. I have a hard time figuring out why it’s OK to set limits on the amounts of different types of donations to campaigns and not OK to require all persons, human and legal, who spend on political speech, either through campaign donations or independently in support of campaigns, to tell the world who they are (including piercing the veil of corporate shells as needed for substantively meaningful disclosure). That the Constitutional right is “enjoyed” by the “legal person” and not the persons whose interests are “embodied” in the “legal person” doesn’t make the corporate veil an impermeable iron door that shields those persons. The corporate veil should be maintained as impermeable in this instance only to the extent it is essential for the exercise by the “legal person” of its Constitutional rights, and it’s hard to argue that looking through the legal form would significantly interfere with the speech rights of the “legal person”. I also don’t see why regulating disclosure by “legal persons” in the realm of election advertising would raise radically different free-speech issues from commercial advertising which the government can require include health-and-safety-related disclosure.

    Our existing overall system of federal campaign finance, which the Supreme Court hasn’t (yet) tossed, effectively disallows appeals to any sort of notions of “right to privacy” when it comes to election money — as an individual I have to give timely, accurate information about myself to any campaign or political party I donate to directly or via a PAC, who in turn have an obligation to report it. So I assume that your question re constitutionality is the claim of a prospective chilling effect from loss of anonymity not only on constitutionally-protected but constitutionally-encouraged free speech.

    Since some companies would likely not give money to candidates if their speech was controversial — that is, where a contribution might be economically damaging to the donor if it was known to the general public (potential customers or workers, investors, etc) — and if as a policy preference we want more rather than less speech, then we should allow “legal persons” to maintain anonymity. Furthermore, the members of some associations might be uncomfortable having their affiliation with the association exposed publicly — either a general concern re privacy or a reluctance to be publicly identified with a particular interest, cause or advocacy effort. So a “legal person” with skittish members would be reluctant to exercise its free-speech rights, and if we wanted to encourage more “legal persons” political speech, we should be willing to protect its members from publicity.

    Even if one grants “legal persons” constitutional free-speech protections, however, I don’t see why we should be in the business of putting the encouragement of election-related speech by “legal persons” ahead of other public policy considerations. So the potential chilling effects seem to me outweighed by a number of public benefits from enforced disclosure.

    First, why should “legal persons” be able to construct anonymity, either for individuals or for other “legal persons”, that isn’t available to individuals who donate directly or through already-regulated groups of donors (aka PACs)? If the individual members of a “legal person” are skittish about having themselves identified publicly with the “legal person”, it seems to me that’s precisely the sort of speech we aren’t interested in actively promoting via Constitutional protections. And since we already have a campaign finance regime that covers individuals, why would we want to create even the possibility that the Constitutional protections for “legal persons” could be exploited by individuals who want to evade the current legislative rules on contributions? Shouldn’t the Supreme Court have some deference to Congressional attempts to place individuals in the same effective position re contributions — at least identification of, if not aggregate limits on, their contributions — whether they act as an individual or a “legal person” acts, in effect, on their behalf? We don’t let folks use holding companies or corporate shells to evade federal taxes, so why is this different?

    If we’re balancing policy objectives, we also should want to give some weight to an improved “marketplace of ideas” that comes from being able to identify those who are funding the speech in the marketplace. The primary benefit, if we know who is putting forward arguments on behalf of a candidate, is that we are able to better assess the validity of those arguments and evaluate the economic interests they represent.

    And, as your personal story illustrates, disclosure also can, at least modestly, level the playing field between the huge speech-power advantages of “legal persons” with concentrated economic power versus the feeble speech-power of atomized investors, customers and workers on which those “legal entites” depend for the very profits that give them their speech-power advantages.

  7. James K says:

    nadezhda:

    I always thought it was basic good ol’ Anglo-Saxon law that “legal persons” are fictional creations of government — originally by Royal charter — whose powers to act and legal rights are the creation of, and subject to modification by, the government. The principle, which has been applied in areas such as tax law and which I had assumed applied to campaign finance law, is that given that since “legal persons” are legal fictions, we don’t have to recognize a legislatively-authorized fictional personhood for purposes other than what the fiction was adopted for. And since a legislative body is the source of all rights and powers to which a fictional “legal person” is entitled, a legislature can establish limits to those rights and powers that are different from and less than the rights and powers of individual “real” persons.

    What you say is true, but it’s worth noting that corporations are owned by actual natural persons and restrictions on what a corporation can do can act as a constraint on what natural persons can do. Before the Citizens United case, a millionaire like George Soros or Rupert Murdoch could spend any amount of money on political advertising, but people of more modest means have to band together to spend large sums of money and they used to be severely restricted in their ability to do that. Since money can be a necessary condition for speaking to a lot of people, this restriction adversely affected the rights of natural persons, not just legal ones.

  8. nadezhda says:

    it’s worth noting that corporations are owned by actual natural persons and restrictions on what a corporation can do can act as a constraint on what natural persons can do.

    Ah, but a corporation is not an association of individuals with free-speech rights. That is the heart of the problem.

    If a state had passed a law that created a new type of special-purpose association for collective election financing, and if then Congress had outlawed political financing by such an association, we’d have a totally different constitutional issue before the Court. But that’s not what the Court decided.

    A corporation is a legal fiction that allows the assembling of capital, management and labor to be deemed to be a person for specific sorts of purposes and subject to certain relevant types of laws (they’re not subject to family law, etc), with various limits on its capacity. The law (common, statutory or constitutional) doesn’t look through the corporate form to those who may from time to time be the legal “owners” of the corporation except as necessary to enforce policies against stuff we don’t like such as fraud, tax evasion, etc. for which the corporate form is serving as a liability shield for individuals.

    To the extent humans are viewed by our legal system to be acting through a corporation, it is the corporation’s managers, not the providers of capital, who are relevant, both in real life and in virtually all legal situations. So the Supreme Court has given managers the right to use funds that, in legal theory after all other claims against a corporation are settled, “belong” to investors so that the managers can exercise their political speech preferences. Nowhere is there any sort of requirement that the managers’ decisions reflect the speech preferences of any of those individuals who have a contingent entitlement to the funds that are being spent.

    So let’s take as given your claim that the Court was only facilitating individual free speech of the “owners” of the legal person. Please note that in the case of investors (who I assume are the sorts of individuals whose speech rights we’re concerned with), they have only two types of control over the speech rights the corporation (i.e. its managers) is going to exercise “on their behalf”. They have Hirshman’s “voice” — pretty useless if you know anything about corporate governance in the real world — or “exit”.

    Now as an individual investor, “exit” is the only way I can keep a company’s managers from spending funds that I have some sort of claim to on speech I oppose. Why in the devil is the Supreme Court forcing me to engage in constant oversight of the “political speech” decisions of managers of all companies in my portfolio of investments (btw via mutual fund managers, whose investment decisions on my behalf I can’t affect except via another “exit”) so that I can exercise my “exit” rights? Why is the only power I have to control “my” political speech, which the Court is so eager to protect, to sell out whenever a company’s managers decide to spend the company’s money on political campaigns I oppose rather than invest in the business or dividend out the funds to me as profits? Hasn’t the Court interfered rather profoundly with my property and speech rights by allowing company managers to appropriate “my” funds for their own (free-speech) purposes?

    The question is obviously rhetorical because the Court decided as it did. So all we’re left with is trying to mop up the mess they’ve made with a few feeble measures like disclosure requirements. Because without disclosure requirements, I’m left with neither “voice” nor “exit” as an option to affect the use of “my” funds for political speech purposes.

  9. ppnl says:

    I have to stand with nadezhda. Citizens United is simply incomprehensible. I think the following by Milton Friedman pretty much nails it:

    http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

    A corporation does not and cannot have a social responsibility. There is no moral entity there.

    All citizens united does is continue and strengthen the corporate/government oligarchy. It is neither free speech nor free enterprise. Adam Smith would have a cow.

  10. James K says:

    The situation you describe is true of publicly listed companies, but this is not the only type of company there is. In a private equity firm where the shareholders and managers are often the same people you had better believe that the shareholders have a lot of say over what management does.

    I recognise the issue you bring up that a public company could act against its shareholders wishes, and I can see that some disclosure requirement for public companies only might be a good idea. But I urge you to consider that a “corporation” is not just some behemoth in the S&P 500, but any group of people who want to pool their resources. The pre-CU ruling restrained even private companies with explicitly political intentions. How is that not a restraint on the liberties of the real, natural people who wanted to form such a corporation?

  11. nadezhda says:

    @ James K — We already had a legal regime for individuals to pool their funds and act collectively in political speech. Those groups are commonly known by their IRS monikers — 527s, 501(c)(3)s etc. If someone wants to argue about how the specific rules that govern political action associations were constitutionally inadequate, fine. But we didn’t need the Court to create a whole new category of constitutional speech rights — which, I argue, actually interferes with individual property and speech rights — to make collective political speech by individuals more meaningful.

  12. Jim Babka says:

    501(c)’s are corporations! Take it from someone who manages two of them.

    And plaintiff Citizens United is also a 501(c). They also were partners with us when we challenged the Bipartisan Campaign Reform Act of 2002 (a.k.a., McCain-Feingold). They’ve been invested in this First Amendment argument for awhile now.

    Given the argument you’ve just made, how is it, again, that the Citizens United case is incomprehensible?

    Also, the Court didn’t “create a whole new category of constitutional speech rights.” It merely reversed some precedents, the oldest of which was 20 years old.

  13. nadezhda says:

    501(c)’s are corporations! Take it from someone who manages two of them.

    Ummm… I think that was my point.

  14. James Hanley says:

    Nadezhda,

    I don’t really follow you on the corporation thing. CU filed suit because they–as part of that legal regime for individuals to pool their funds and act collectively in political speech–found they could not effectively engage collectively in political speech.

    And as to the whole “creation of a new category of rights” business, that sort of ducks my argument that it’s not about a creation of rights, but a question of whether the Constitution grants Congress the authority to regulate any political speech. I don’t see a “except for corporations” exception in the First Amendment clause that says, “Congress shall make no law abridging the freedom of speech.”

  15. ppnl says:

    A corporation is not capable of political speech. When a for profit corporation gives money to a cause they do it for commercial gain. The commerce clause should give congress all the power it needs to regulate that. Again read Friedman:

    http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

    What can it mean for a corporation to have no social responsibility massive wealth and free speech?

    But still I think if the electoral system was fixed it wouldn’t matter much.

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