The Politics of CEOs

Alma Cohen teaches at Harvard Law School and Tel-Aviv University School of Economics. Moshe Hazan and David Weiss teach at Tel-Aviv University School of Economics. Roberto Tallarita is Associate Director of the Program on Corporate Governance, as well as Terrence C. Considine Fellow in Law and Economics, at Harvard Law School. This post is based on a new Harvard Law School Program on Corporate Governance study that they authored, The Politics of CEOs.

Related research from the Program on Corporate Governance includes The Untenable Case for Keeping Investors in the Dark by Lucian Bebchuk, Robert J. Jackson Jr., James David Nelson, and Roberto Tallarita (discussed on the Forum here); Corporate Political Speech: Who Decides? by Lucian Bebchuk and Robert J. Jackson, Jr. (discussed on the Forum here); Fiduciary Blind Spot: The Failure of Institutional Investors to Prevent the Illegitimate Use of Working Americans’ Savings for Corporate Political Spending by Leo E. Strine, Jr. (discussed on the Forum here); and Conservative Collision Course?: The Tension between Conservative Corporate Law Theory and Citizens United by Leo E. Strine Jr. and Nicholas Walter (discussed on the Forum here).

We have recently placed on SSRN a new study, The Politics of CEOs. The study, which was the subject of a recent New York Times column by Andrew Ross Sorkin last week, presents novel empirical evidence on the partisan leanings of public-company CEOs. We also discuss the policy implications of our findings.

Chief executive officers (CEOs) of public companies have substantial influence over the political spending of their firms, an issue that has attracted significant attention since the Supreme Court decision in Citizens United. Furthermore, the policy views expressed by CEOs receive both substantial media coverage and attention from policymakers. Therefore, we argue that the political preferences of CEOs are important for understanding the inner dynamics of U.S. policymaking and politics.

To measure CEO political views, we use Federal Election Commission (FEC) records to compile a comprehensive database of the political contributions made by public-company CEOs during the 18-year period 2000-2017. In particular, we examine the political spending of more than 3,500 individuals who served as CEOs of S&P 1500 companies during this period.

We find that these political contributions display substantial partisan preferences in support of Republican candidates. We classify CEOs as “Republican” if they contribute primarily to Republican candidates, “Democratic” if they contribute primarily to Democratic candidates, and “Neutral” if they split their financial support among the two major parties. We find that 58% of CEOs are Republicans (so defined), while only 18% are Democrat (and the remaining 24% Neutral). Furthermore, Republican CEOs lead companies with more than twice the asset value of companies led by Democratic CEOs.

We also investigate the extent to which the predominance of Republican CEOs varies across industries, geographical regions, and CEO gender. Additionally, we show that public companies led by Republican CEOs are less likely to disclose their political spending to their investors. Finally, we conclude by discussing the important policy implications of our analysis.

Below we provide a more detailed account of our analysis:

Part II of our study discusses the potential importance of CEO political preferences for public policy and politics. We examine the impact of CEO political preferences through two main channels: corporate political spending and policy activism. Since the Supreme Court’s decision in Citizens United, which allowed corporations to make unlimited independent political expenditures, corporate spending can substantially affect politics and policymaking. An understanding of CEO political preferences is therefore important for assessing the long-term effects of corporate political spending and Citizens United on U.S. politics and policy. Furthermore, CEOs are active both individually and through the Business Roundtable—their most prominent association—in expressing policy views and advice. Their expertise and leadership positions give their opinions substantial influence.

Part III of our study describes the dataset we have built. We first put together public information about individuals who served as CEOs of S&P 1500 companies between 2000 and 2017. We then locate within the massive electronic records of the Federal Elections Commission (FEC) all political contributions by the CEOs in our sample. Part III describes the problems we had to address to match CEOs to their contributions. Overall, we were able to identify political contributions for 86% of S&P 500 CEOs, 76% of the mid-cap CEOs, and 62% of the CEOs of smaller companies.

Part IV presents our findings. We begin by providing an overview of CEO political preferences and present evidence that Republican CEOs substantially outnumber Democratic CEOs. We show that the median CEO directs 75% of his or her total contributions to Republicans. We classify CEOs as Republicans or Democrats if at least two-thirds of their donations go to Republican or Democratic candidates, respectively, and find that Republican CEOs are about three times more numerous than Democratic CEOs: Republican CEOs (so defined) are 57.7% of the whole sample, while Democratic CEOs are only 18.4%.

Part IV examines our findings in more detail to show the extent to which CEO political preferences are associated with industry sectors, regions, and CEO gender. CEOs disproportionately support Republican candidates in each year of the period we examine, in all 12 Fama-French industry sectors, in all four U.S. census regions, and for both male and female CEOs. However, CEOs’ Republican leanings are most pronounced in some industries (energy, manufacturing, and chemicals) than others (such as telecom, business equipment and money).

Similarly, pro-Republican preferences are strongest for CEOs of companies headquartered in the Midwest and the South, and least strong for CEOs of companies in the Northeast and West. Furthermore, CEO gender is significantly associated with partisan preferences, with male CEOs much more likely to have pro-Republican preferences than female CEOs. These correlations persist also after controlling for all other variables in a regression analysis.

Part V of our study investigates one significant potential effect of political preferences on corporate decisions. We test whether there is a relationship between the partisan preferences of CEOs and the willingness of their companies to disclose information about their political spending. To measure the scope and quality of such corporate disclosure, we use the CPA-Zicklin Index in 2015, 2016, and 2017, a measure of transparency of corporate political spending among public companies. We find that companies led by Republican CEOs are less transparent to their investors on whether, how, and how much they spend on politics.

Part VI discusses the potential policy implications of our analysis and findings. We argue that an understanding of CEOs’ disproportionate support for the Republican Party should inform an assessment of the effects of corporate political spending and Citizens United on policymaking and politics. In addition, an understanding of CEOs’ partisan leanings should inform the assessment of CEO policy activism. Furthermore, students of corporate law and finance should generally take into account the potential impact of political preferences on corporate decision-making.

We take no position on whether the disproportionate support of CEOs for Republicans is socially desirable. Focusing on shareholder-value maximization, some might argue that support for Republicans is consistent with shareholder interests because share value would benefit from the low-tax and deregulatory policies promoted by Republicans. Similarly, looking at the political system as a whole, some might argue that the partisan leanings of CEOs provide a desirable balance against the opposite partisan bias of other influential groups, such as labor unions. By contrast, others might worry that a significant partisan imbalance among CEOs, and as a result among public companies, could be unhealthy for democracy. These are claims on which individuals may reasonably disagree, and we do not wish to contribute to a debate on the normative assessment of CEO support for Republicans. Our contribution is to provide an empirical foundation on which any examination of this subject can build.

Similarly, we also would like to clarify and emphasize that we do not seek to criticize or portray as negative the documented association between Republican CEOs and resistance to voluntary disclosure of the company’s political spending. There is an intense ongoing debate on the desirability of such disclosure. Some might argue, for example, that company contributions to unpopular causes can provoke backlash from customers or other stakeholders, and that companies headed by Republican CEOs tend to be ones that have to worry more about attacks by liberal activist groups. We do not take a position on these issues either. Our contribution in this connection is to provide evidence that, for better or worse, the spread of voluntary disclosure practices could have been slowed down or impeded by the dominance of Republican CEOs, as well as to highlight in this way the importance of considering CEO political preferences in predicting corporate decisions.

Our findings should be useful for understanding the political process and the effect of corporate political spending on it, for assessing the policy input and advice provided by CEOs, and for understanding corporate decisions. Further research should expand the scope of the analysis and investigate the potential relationships of CEO political preferences with a wide range of corporate policies and practices. We hope that our work will lead to recognition of the partisan preferences of public-company CEOs, and that it will provide a starting point and an empirical foundation for subsequent discussions of this subject.

Our study is available on SSRN here. We plan to revise the study prior to journal publication, and comments or reactions from readers would be most welcome.

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