Tuesday, May 11, 2010
A Corporate Insider's View of Political Funding: A Response to Katrina
I started to write a comment in response to Katrina's question in the preceding post, and it began to take on a life of its own (possibly because I am now into full-fledged grading procrastination mode, and taking a break after doing a dozen or so exams). I'll also take the bait.
Katrina's question is about the strategy/tactic of using shareholder proposals to affect the ability of corporations to involve themselves in the political process following Citizens United. I want to offer a corporate insider's somewhat "yawn" view of the whole issue (not Katrina's post, which is very interesting).
First, as to the shareholder proposal strategy. There's little doubt this is always going to be a matter of a precatory proposal, at least under Delaware law, because the decision whether or not to contribute politically will be a matter wholly within the board's purview under Del. GCL §141(a). As to the filing of a precatory shareholder proposal in the proxy, I don't think the "relevance" exception would permit exclusion of the proposal, which is designed to keep "tail of the dog" business issues out of the proxy statement (e.g., if General Electric has a $1,000,000 business in Burundi, it's simply too dinky for this much effort). This proposal indeed goes to an overall corporate operational issue. If a corporation really wanted to exclude the proposal, the most likely candidate in 14a-8 is the "ordinary business operations" exclusion. But (a) I don't think the SEC would agree that a proposal going to a significant policy issue like this would be within the scope of the exclusion, and (b) I don't think most companies would even bother trying to exclude it rather than addressing it on the merits.
No, the real issue here is the appropriate of the proposal on the merits, and were I still the GC of a public corporation, I'd be writing a response encouraging the shareholders to reject even the precatory proposal as inimical to the best interests of the shareholders. Citizens United didn't change the ability of corporations to involve themselves in the political process; it simply changed the directness of the funding. Corporations have long been able to organize and support PACs, and to direct PAC money to candidates whose views the corporation sees as being in the best interest of the shareholders. As long as the Supreme Court has held that it's legal for corporations to fund political interests under the First Amendment, no rational corporation ought to adopt a blanket policy that ties one arm behind its back, so long as others are able to channel their entrepreneurial efforts (business or social) into strategic political moves ultimately designed to obtain competitive or social advantage. (Compare on the other hand bribery to foreign officials that is illegal under the Foreign Corrupt Practices Act. U.S. corporations simply cannot respond in kind even if it puts them at a competitive disadvantage to companies domiciled in countries without such restrictions.)
Moreover, the "yawn" comes from an insider's perspective that understands just how much the spending of money for any purpose inside a corporation is a zero-sum game. Even under the PAC rules, companies could do all sorts of things to encourage employee PAC contributions, including social events, raffles, making charitable donations to non-political causes in exchange for PAC contributions (I'm pretty sure on this one, but it's been a while.) Nor did anything restrict the amount of money that companies could spend on lobbying efforts, as long as the lobbying efforts were appropriately registered and otherwise transparent. And in a number of states (e.g. Indiana), there were no restrictions on corporate contributions directly to candidates. Nevertheless, as far as I know, no corporation interested in producing returns to shareholders, just for the sake of global hegemony or some such, ever adopted for political influence what the former chairman of IBM once said about his law department: "Every year I give them an unlimited budget and every year they exceed it." (See also commenter Ron's comments after Katrina's post, which make sense to me.)
Finally, at the end of the day, it's a political issue. As long as the source of funds in a campaign is transparent, a candidate will be accountable for his or her acceptance of the funds. If the candidate appears to be beholden to corporate interests, other candidates or interest groups point that out, and the voters don't care, they'll get exactly the government they deserve. And I'm unpersuaded that corporate funding will be so endemic as to crowd everyone else out of the process - Obama's micro-donation campaign as Exhibit A.
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Thanks to Jeff (and Ron, see comment to my post) for serious responses to my foray into unfamiliar territory that significantly elevate the discussion. Jeff, I hope you are right about the limited real world impact of Public Citizen. I also see Ron's point about existing shareholder power, but personally (as a plain vanilla, retirement focused investor) feel rather impotent to use these mechanisms to resolve the conflict between my shareholder interest (more profit!) and personal/voter interests (less air pollution!). I value my personal/voter far interests more, but short of opting out of investing at all, don't see a reasonably feasible way to prevent my investing from working at cross purposes with these values.
(Also curious how many people read Jeff's post expecting a hurricane-related discussion? Ah, the perils of sharing a name with natural disaster.)
Posted by: Katrina Kuh | May 11, 2010 1:15:07 PM
It's always a tradeoff, isn't it, Katrina? There would also be less air pollution (and fewer other environmental hazards) if we didn't use plastic for computers and cell phones. The chemicals that protect us from death by making our furniture and pajamas fire resistant (in a way that also doesn't make them prohibitive expensive) possibly pose longer term environmental issues. As to investing, there are "green" funds and "green" companies in which you can still invest, but in which you may (a) either take on more risk, with the attendant volatility in gain or loss (such as investing in startup green technologies), or (b) expect a lower but safer return (companies that chose to market more narrowly in an established "green" niche). I wish there were a silver bullet by which we never had cross purposes!
Posted by: Jeff Lipshaw | May 11, 2010 4:08:35 PM
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