Nike and the First Amendment

Thursday, January 30, 2003

In early January, the Supreme Court announced that it would review what some have called the most significant First Amendment case in a generation: Kasky v. Nike, Inc. et al. (2002). At the heart of this case is the long-debated distinction between commercial and political speech now forced by a simple question: If speech is both commercial and political, do federal or state governments have the power to regulate it—and to shut it off?

The Kasky case became notorious last May when the California Supreme Court found that, under California’s Unfair Competition and False Advertising Law, companies may be sued and face crushing judgments for answering the charges of ideological and political activists. After Nike said in advertisements and statements that it was a good Third World employer, Marc Kasky, an environmental activist, filed a class action suit (the class was every citizen of California) charging that Nike had illegally lied about a commercial matter. Citing the First Amendment, the company asked the courts to reject the suit. The California Supreme Court said that Nike’s speech was commercial, not political, hence not covered under the First Amendment, and sent the suit to trial. Nike’s appeal will now be heard by the U.S. Supreme Court.

How devastating to business will the Kasky decision be, if it stands? Start with one question: Are Nike’s attackers protected by the First Amendment? Obviously, yes. They know they are making points in a political debate. Nike knows it. Surely the court knows it, too. In our times, politics is about much more than elections.

Governance in a free society involves conflict—conflicting interests, conflicting ideological frameworks, conflicting views of what is and is not true. Sometimes conflicts that involve corporations end up as issues in election campaigns and before legislatures, but in contemporary American politics, elections and legislation are often not ends in themselves. They are tools for prompting news coverage, and whether or not legislation is the final goal, they enable one side in a conflict to apply pressure on the other.

In the last two decades activists such as Mr. Kasky have found legislatures and political campaigns a growing source of frustration. Taxes have been cut. New Deal–era economic regulations have been rolled back. Even on health, safety, and environmental regulation, their strongest arena, they have found themselves as often as not angry about the outcomes.

The reason? Absolutism. Consider, as an example, a fairly typical environmental conflict, that over farm runoff into the Florida Everglades, which was among the more celebrated environmental showdowns of the 1990s. I was an adviser to the farmers in question and saw the self-defeating intransigence of the environmental activists firsthand.

In 1997, faced with charges that phosphorus in water leaving their land was upsetting the balance of plant life in Everglades National Park 70 miles to their south, the farmers proposed a package of cleanup measures that is now law. That law has proven highly successful at achieving environmental objectives without costing jobs. But months of bargaining among the federal and state governments, farmers, and environmentalists were needed to produce the agreement underpinning the legislation. All parties gave up something to get to “yes” except one—the absolutists representing the environmental activists. As a result, although talks started with all levels of government seeking to impose the activists’ agenda on the farmers, talks ended with the absolutists entirely isolated. They fought the agreement in the state legislature and lost. Charging that the legislature was, in essence, corrupt, they turned to the state initiative process—and, despite lavish funding and polls showing a massive early lead, lost again. To this day they continue to say that—as with Kasky’s complaint against Nike—the other side won because it was untruthful. The truth is that they saw no truth other than their own and so alienated nearly all their natural allies.

Although big, this conflict was not unusual—nor was the rigid mind-set of the environmental activists. And as absolutists such as these have become more frustrated, they have turned from elections and legislation to the courts, the media, and the streets. Companies like Nike, McDonald’s, and Starbucks have found themselves attacked as predators. Sometimes the goal has been to set up or support a lawsuit, sometimes to damage the target in the financial and commercial marketplaces—and sometimes the attackers have received financial backing from the target’s competitors. Sometimes it has been to stampede regulators or to promote prosecution or, yes, even occasionally to advance legislation.

When the tactics of this kind of ideologically driven conflict were new, companies had no idea how to respond and usually did it poorly. Often senior management was unaware of the issue on which they were drawing fire. With training in marketing, finance, or engineering—but not hardball politics—it had no feel for how to respond. Frequently the reaction was one of extremes—either to become submissive and all too ready to pay tribute, that is, to buy off the attackers, or to become hyperaggressive, in other words, to be at the attacker’s feet or at their throats.

Eventually, though, companies became more sophisticated. Don’t pay tribute, they learned, but where there are problems that offend the public’s standards, or your own, fix them—and make it public that you have. If in exposing the fixes to media scrutiny you find that problems persist, keep at it until the organization gets it right. Use media attention as a management tool to raise corporate standards. But also start answering back. Rebut false charges with facts. Point out the slipperiness with facts that so often has characterized the fervent but sloppy absolutists. Put the absolutists on the defensive about their intransigence and the implications of their demands on the economy and on those they purport to serve. Put out policy initiatives that address public concerns in ways that harness market mechanisms and preserve economic freedom and growth.

As they began to respond to attackers this way, companies began to do better in the public debate—and, again, the frustration of the absolutists rose. Reflecting a totalitarian rather than a democratic attitude, some sought to shut off debates they were losing. Now one has found a court to go along.

It is hard to escape the conclusion that the absolutists want not so much to improve the environment or the standards of workers or the lot of the poor as to attack large corporate enterprises and the market economies from which they spring. At base, anticorporate absolutists are challenging core elements of how our nation has organized itself. This is fundamentally a political question.

If companies are effectively prohibited from responding, they—their managements, employees, stockholders—will become the sole group shut out of one of the most fundamental political discussions of our time. They will be excluded from our increasingly plebicitary political process on the issue of their very legitimacy and place in society. As incongruous as it may sound, they will become the new disenfranchised class of our time, for which all of us are certain to pay a very high price.

As a business, almost anything that Nike and its officers say is commercial, that is, intended to advance the fortunes of the company. In other words, when they speak on an issue, they are interested parties. But all political players are, in one way or another, interested parties. The California court has, in essence, decided that some interests are less worthy of constitutional protection than others. The U.S. Supreme Court will do the nation and its principles a true service if it firmly reverses that decision.