02.26.10
The Citizens United Decision and Corporate Governance
There was a great deal of criticism in both academic and professional corporate governance circles of the Supreme Court decision in Citizens United v. Federal Election Commission, that corporations have the right to make campaign contributions and pay for political advertising, the McCain-Feingold Act notwithstanding. Lucian Bebchuk weighed in with the argument that such a right could permit managements to act in a manner contrary to their shareholders’ interests. In the WSJ Law Blog, I opined that any such abuse of the ruling would probably be unusual.
I am a great fan of Lucian’s, but I think his concerns are a bit over the top here. His argument requires a lot of bootstrapping: corporations would have to spend regularly a great deal on elections, they would have to favor politicians who are pursuing programs contrary to investor interests but supporting abuse by managers, the support would have to be a significant factor in electing said candidates, the managers would have to stay in power despite this open support of causes contrary to minority shareholders’ interests, and finally, the investor-unfriendly policies would have to find their way into law. That’s a lot of ‘ifs’.
More likely, companies would only get involved in those relatively rare cases where a particular politician was promoting positions seen as contrary to a particular industry’s interests—e.g., restrictions on drilling for oil, breaking up large financial combines, etc.—and where there was both a great deal of support from within the general body of shareholders, and a reasonable chance that the company’s support could make a difference. The last thing any management would want is to risk a politician’s or a political party’s ire without having had both a good chance that its contribution would make a difference in the outcome, and strong support from among its shareholders.
Currently, corporations already find plenty of ways to buy influence through encouraging contributions by their employees and other means. At least with explicit corporate funding there would be something openly done with corporate funds that shareholders could oppose. It is possible that activists might believe that the platforms being supported were contrary to the general social welfare, but in such circumstances there is an equal possibility that the activists would be themselves wrong; in any case, this is not an abuse of shareholder rights. Allowing the corporation to express its support of certain candidates, would also arguably create a counter-balance to the power of the press, which under McCain-Feingold represents the only kind of corporate entity that is allowed to express its support, and is today largely unchecked.