If there are right-to-work laws, there must be right-to-invest laws

Our political leaders have failed to address a massive violation of Americans’ free-speech rights by corporate management. New federal and state right-to-invest laws can remedy this and change the balance of power in our economy and politics.

Many policies serve the principle that each American deserves protection against compulsion to fund organizational activities to which the individual objects.

One policy — Citizens United v. Federal Election Commission’s bar on contributions from organizations’ general treasuries to political campaigns — protects both workers against union compulsion and investors against management compulsion.

Two others — Communications Workers of America v. Beck rights and right-to-work policies — limit only unions, not management. American investors lack analogous protection against violations of their free-speech rights.

Unions and management each have legal duties to collectively represent their constituency. A union represents a group of workers’ shared interests in bargaining with their employer. A company’s management represents a group of investors’ shared interests in bargaining with their workers, suppliers and customers.

The law recognizes a distinction between core representation and other activities of unions and gives each worker some rights to opt out of paying for these activities. Core representation activities include only bargaining and contract administration with an employer.

Other union activities are noncore, such as engaging in independent political expenditures and contributing to nonprofits, presidential transition committees, or super-political action committees (PACs).

Each union must declare the shares of its expenditures going to core and noncore activities, subject to Department of Labor audit. Since the Supreme Court’s 1988 Beck decision, the law protects each worker against unions’ use of their money in noncore activities.

Compelling a worker to pay for noncore activities infringes upon their right to free speech. No worker can be forced to pay a union for noncore activities. Each worker under a union contract can opt out.

Investors deserve this same right to freedom from speech compelled by corporate management. The law fails to recognize a core-noncore distinction for management and fails to protect investors.

Beyond management’s core representation activities of collectively bargaining on behalf of investors with workers, customers and suppliers, it also engages in noncore activities. For instance, management pays for independent political expenditures, contributes to PACs, presidential transition committees and nonprofits.

Managers constantly dip into working Americans’ retirement assets to fund noncore activities. Investing Americans have no way to opt out. The law allows forced funding of noncore activities to which they object.

A right-to-invest law would protect each investor’s right to opt out of funding noncore activities, parallel to workers’ Beck rights, as Ben Sachs of Harvard Law proposed.

Public companies would declare the shares of expenditures going to core and noncore activities, subject to Securities and Exchange Commission audit.

Suppose that 99 percent of a company’s $1 billion in annual expenditures are core, implying $10 million are noncore. If owners of 20 percent of equity opt out, the company would allocate $12.5 million for noncore activities, return 20 percent to the opt-out shareholders via a dividend payment of $125,000 per percentage point of ownership and fund noncore activities with the other $10 million.

Alternative structures can achieve the same end. States could designate an agency to do this for privately-held companies as well. Protecting against forced noncore expenditures is a weak form of right-to-invest.

Moving from noncore to core activities, each worker in a unionized workplace in the private sector of right-to-work states and in the whole public sector under the Supreme Court’s recent decision in Janus v. American Federation of State, County, and Municipal Employees, Council 31 has the right to opt out of paying even one penny to the union.

Under this doctrine, no worker can be compelled to pay even for core representation activities. Opted-out workers enjoy union-negotiated salaries, benefits and employee rights without contributing anything to finance the costs of collective representation.

Current law denies investors the same kind of protection. Following the logic of Janus and right-to-work, a strong right-to-invest policy asserts each investor’s right to opt out of paying for management’s core representation activities.

All investors would have to finance the firm’s purchase of inputs from other firms and for frontline workers’ compensation, just as opt-out employees still need to work to get paid, but investors could no longer be compelled to pay management representation if they object.

Continuing the example above, suppose managerial expenses — salaries, benefits, offices, cars, etc. — total 5 percent of firm expenditure. Shareholder who exercise their strong right to invest would get $625,000 in dividends per percentage point of ownership.

Both weak and strong right-to-invest would create incentives for each individual investor to opt out. For the same cost of ownership, investors choose simply whether to enjoy a higher or lower economic return. This would create free-rider dilemmas and may reduce management funding.

Right-to-invest would create additional reporting and tracking requirements. Beck and right-to-work create similar incentives for individual workers and impose similar requirements on unions. If this proposal seems absurd to you, consider your position on right-to-work and Janus.

All organizations need tools to overcome free-rider problems so that those who enjoy organizationally-generated benefits share their costs. This can create tension with free-speech rights. The law gives investors’ representatives strong tools to overcome free-rider dilemmas but denies these to workers’ representatives.

This legal disparity contributes to badly imbalanced power between workers, investors and management in our economy and politics. Either strengthening right-to-invest or weakening right-to-work laws, as the Workplace Democracy Act proposes to do, would help correct this imbalance.

I advocate opt-out rights for noncore activities only. Create a weak right-to-invest parallel to workers’ Beck rights, refrain from strong right-to-invest policies that would undermine management’s core functions and eliminate right-to-work policies that undermine unions’ core functions.

Aaron Sojourner is a labor economist and associate professor at the University of Minnesota’s Carlson School of Management.