Corporate Political Speech: Who Decides?

Lucian Bebchuk is a Professor of Law, Economics, and Finance at Harvard Law School. Robert J. Jackson, Jr. is an Associate Professor of Law at Columbia Law School. This post is based on their paper “Corporate Political Speech: Who Decides?” available here.

The Harvard Law School Program on Corporate Governance recently issued our discussion paper, “Corporate Political Speech: Who Decides?” The paper will be published in the Harvard Law Review’s Supreme Court issue this November.

As long as corporations have the freedom to engage in political spending — a freedom expanded by the Supreme Court’s recent decision in Citizens United v. FEC — the law will have to provide rules governing how corporations decide to exercise that freedom. Our paper focuses on what rules should govern public corporations’ decisions to spend corporate funds on politics. The paper is dedicated to Professor Victor Brudney, who long ago anticipated the significance of corporate law rules for regulating corporate speech.

Under existing corporate-law rules, corporate political speech decisions are subject to the same rules as ordinary business decisions. Consequently, political speech decisions can be made without input from shareholders, a role for independent directors, or detailed disclosure — the safeguards that corporate law rules establish for special corporate decisions. We argue that the interests of directors and executives may significantly diverge from those of shareholders with respect to political speech decisions, and that these decisions may carry special expressive significance from shareholders. Accordingly, we suggest, political speech decisions are fundamentally different from, and should not be subject to the same rules as, ordinary business decisions.

We assess how lawmakers could design special rules that would align corporate political speech decisions with shareholder interests. In particular, we propose the adoption of rules that:

  • Provide shareholders with a role in determining the amount and targets of corporate political spending;
  • Require that political speech decisions be overseen by independent directors;
  • Allow shareholders to opt out of — that is, either tighten or relax — the rules governing the role of shareholders and independent directors with respect to political spending; and
  • Mandate detailed disclosure to shareholders of the amounts and beneficiaries of any funds that the company spends, either directly or indirectly through intermediaries, on politics.

We explain how such rules would benefit shareholders. We also explain why such rules are best viewed not as limitations on corporations’ speech rights but rather as a method for determining whether a corporation should be regarded as wishing to engage in speech at all. Viewed this way, the proposed rules protect, rather than abridge, corporations’ First Amendment rights.

In addition to examining corporate law rules designed to address the potential divergence between the interests of directors and executives and those of a majority of the shareholders, we also discuss rules designed to protect minority shareholders from forced association with political speech that is supported by the majority of shareholders. We consider the economic and First Amendment interests of minority shareholders with respect to corporate political speech. We suggest that decisional rules addressing political spending opposed by a sufficiently large minority of shareholders are likely to be constitutionally permissible, and we discuss how such rules could be designed by lawmakers.

The paper is available here, and comments from readers would be most welcome.

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2 Comments

  1. Posted Thursday, September 16, 2010 at 5:40 pm | Permalink

    I appreciate this direction! This would be a way to be fair to shareholders. Considering what is done in the name of shareholders (but maybe more for the management’s sake as well?), this should really be put in gold, or better, law.

    In addition, and more generally speaking, I would like to add that corporate and stockholder language should reflect the average stockholder’s (and maybe even CEO’s!) capabilities (not all corporations have a law firm deal behind their backs).

    The lack of understanding of the corporate and stockholders language is probably ONE of the many reasons why the ‘real estate bubble’ was able to implode at this size, and why many ‘small’ investors loose money on the market daily. [I am still astonished why economic experts didn’t see the disaster coming while I – no expert at all – knew what would result from ‘fulfilling the American Dream of home ownership for everybody’ while the basis clearly wasn’t there. I suspect that many ‘insiders’ were financially rewarded for keeping their shutters on and I am still amazed that none of the ‘big fish’ that were responsible for this disaster, which eventually affected the whole world until today, were put behind bars (or at least fined).

    It seems to be true what they used to say where I grew up (Austria): “Steal a chocolate bar from the store and go to prison, but steal *a lot* and you aren’t even asked to stand in the corner for the rest of the hour.”

  2. Posted Monday, January 31, 2011 at 12:49 pm | Permalink

    If we’re going to give shareholders a say in corporate speech, why not other corporate constituencies? Workers, creditors, communities “invest” in corporations just as much as shareholders do.

    http://commonercents.blogspot.com/2011/01/corporate-political-speech-and-proxy.html

2 Trackbacks

  1. By Election Law on Wednesday, September 8, 2010 at 6:22 pm

    Corporate Political Speech: Who Decides?…

    One of the pieces in the SCOTUSblog roundup is this article in the Harvard Law Review by Bebchuk and Jackson. Further fanfare here. I look forward to reading this — and on seeing whether it addresses the board-approval challenge in……

  2. […] Who Decides?, and prior posts about the subject of corporate political spending are available here, here, […]

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    Lucian Bebchuk
    Alon Brav
    Robert Charles Clark
    John Coates
    Alma Cohen
    Stephen M. Davis
    Allen Ferrell
    Jesse Fried
    Oliver Hart
    Ben W. Heineman, Jr.
    Scott Hirst
    Howell Jackson
    Robert J. Jackson, Jr.
    Wei Jiang
    Reinier Kraakman
    Robert Pozen
    Mark Ramseyer
    Mark Roe
    Robert Sitkoff
    Holger Spamann
    Guhan Subramanian

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    William Ackman
    Peter Atkins
    Joseph Bachelder
    John Bader
    Allison Bennington
    Richard Breeden
    Daniel Burch
    Richard Climan
    Jesse Cohn
    Isaac Corré
    Scott Davis
    John Finley
    Daniel Fischel
    Stephen Fraidin
    Byron Georgiou
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    Paul Rowe
    Rodman Ward