Two Meanings of Corporate Governance

The Harvard Law School Program on Corporate Governance recently issued an important paper entitled “Corporate Political Speech: Who Decides?” Written in response to the Citizens United decision, the paper makes the case for requiring shareholder approval of corporate political expenditures:

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.

Meanwhile, as Marcy Murningham notes, “Congress faces a decision on the Shareholder Protection Act (HR 4790), which puts a [potential] check on the flood of corporate money into electoral campaigns.” Jennifer Taub makes a compelling case for passing the SPA. Ciara Torres-Spellicsy’s publication “Corporate Campaign Spending: Giving Shareholders A Voice” explains one way the process could work:

Congress should act to protect shareholders by giving them the power, under statute, to authorize political spending by corporations. The voting mechanics would work in the following way: At the annual meeting of shareholders, a corporation that wishes to make political expenditures in the coming year should propose a resolution on political spending which articulates how much the company wishes to spend on politics. If the resolution gains the vote of the majority of the outstanding shares (50% plus 1 share), then the resolution will be effective, and the company will be able to spend corporate treasury funds on political matters in the amount specified in the resolution. However, if the vote fails to garner the necessary majority, then the corporation must refrain from political spending until the shareholders affirmatively vote in favor of a political budget for the compan

Given the extant weakness of corporate governance mechanisms, I can’t guarantee that this will make a substantial difference for our public sphere. I reluctantly began to consider campaign finance reform a “lost cause” even before the opinion in Citizens United was issued. But I do think immediate and full disclosure of the ultimate source of contributions and expenditures is a sine qua non for a legitimate electoral process. New Jersey Senator Robert Menendez worries that “shadow groups [are] putting their thumbs on the scale with undisclosed, unlimited and unregulated donations.” It is deeply troubling to see entities like the US Chamber of Commerce promise “deniability” to donors. Proposals like the SPA and tougher disclosure rules would help put campaign finance back in the limelight it deserves, lest books like David C. Korten’s become the predominant social meaning of “corporate governance.”

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