In our article, Corporate Political Spending is Bad Business, we explore the deep problems that corporate political spending poses for corporations and their management. In particular, we highlight the lack of legitimacy underpinning management decisions to spend treasury dollars on political causes as well as the “hypocrisy trap” for companies that donate to causes that undermine their stated values.

The legitimacy problem is easy to understand. Under the traditional division of power in U.S. corporations, managers decide how to allocate corporate assets, and shareholders are entitled to a say on those decisions only if they involve certain fundamental transactions. Thus, even as corporate political spending has soared since Citizens United, shareholders have had no real say in the matter. Corporate leaders have not chosen to seek their approval for political donations, and most have not even disclosed their contributions—despite the fact that shareholders are paying for them with their entrusted capital.

Even when it comes to traditional business decisions, academic research has focused for years on the reality that management does not always use its control of a company’s money to benefit the company and its shareholders, whether out of myopia or self-interest. In the fields of corporate finance and governance, this is referred to as an agency problem. Of course, the misalignment is especially pronounced when the decision is about which politicians or parties should benefit from corporate largesse—an issue on which shareholders have no common interest. Shareholders have diverse political views and—as we highlight—no interest in electing candidates just because they support one company’s preferred regulatory policies. The ability of corporate managers, who understandably have their own political views, to make contributions in a way that is faithful to their investors’ diverse interests and opinions is rightly suspect, and for that reason, demand is growing for shareholders to be given more information about and more say over corporate political spending.

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