There is a significant lobby for limiting corporate political contributions and requiring disclosures of any contributions (seemingly not matter how small). Part of the premise for this campaign is that corporate political contributions are bad for investors. Well, here's an interesting fact from a recent speech by SEC Commissioner Daniel Gallagher:
... a portfolio invested in companies with the largest lobbying expenditures would have doubled the performance of the S&P 500 over the past year. See Motif Investing, “Kings of K Street” at https://www.motifinvesting.com/motifs/kings-of-k-street. According to this site, from September 2013 to August 2014, this portfolio returned approximately 35%, while the S&P 500 returned approximately 17%.
So if corporate political contributions pay off for investors, why oppose them? Maybe because the opponents of corporate political contributions also oppose policies that are good for investors?
SEC Commissioner Daniel Gallagher has given an excellent speech on the titular question. The whole thing is a must read, but this passage jumps out at me:
... sadly, we at the SEC are not doing nearly enough to ensure that small businesses have the access to capital that they need to grow. We layer on rule after rule until it becomes prohibitively expensive to access the public capital markets. Only rarely do we remove any of our rules, even after they have long since ceased to serve their purpose or have become obsolete or worse. And although we have made significant progress in expanding our economic analysis of new rules and rule amendments, we almost never consider how heavily the weight of the entire corpus of rules bears down on registrants.
Here. Just remember: The Supreme Court knows just about as much about corporate law theory as I know about string theory. So take anything it says with a grain of salt.
The NYT reports that:
The California Public Employees’ Retirement System, the nation’s largest pension fund, will eliminate all of its hedge fund investments over the next year on concerns that investments are too complicated and expensive.
Granted, CalPERS itself engages in activism, but it's still an interesting point. As is this bit of news:
Through August, activist investors returned an average 5.9% for the year, according to HFR, compared with a 3.9% gain for hedge funds in general. Still, both trailed the S&P 500's 9.9% gain.
So you'd be better off stashing your money in an S&P 500 index that giving it to activist shareholders. Someone alert Lucian!
... economic theory says we should make decisions based only on the costs and benefits that a course of action has in the future, not on “sunk costs,” which we’ll never get back. When you finish a plate of food you don’t really want just because you already paid for it, you’re falling victim to the sunk cost fallacy. On a bigger scale, the sunk cost fallacy can lead a company to keep pouring money into a failed venture, or a nation to keep pouring resources into a hopeless war.
Which brings us back to the Redskins.
In other words, all those draft picks the 'Skins gave up ought to be irrelevant to the decision of whether to make Kirk Cousins the starting QB.
But is Dan Snyder smart enough to see it?
Nicholas Georgakopoulos comes at the question from one angle. I want to come at it from another angle.
1. The Association of American Law Schools is not an accrediting agency, so nothing bad would happen to our students if we didn't belong.
2. Our students would benefit because (a) the school would save money by not having to pay the membership fee or subsidize law professor travel to whatever boondoggle places the AALS holds its various meetings and (b) faculty would not be disappearing on periodic boondoggles.
3. The AALS has zero interest in real intellectual diversity. Are you a member of the Federalist Sociery? Too bad, you can't hold a meeting at the AALS annual meeting or even use their hotel. Are you a member of the Christian Law Professor fellowship. Too bad, you can't hold a meeting at the AALS annual meeting or even use their hotel.
4. Are you only going to attend one session at the AALS meeting at which you are an invited presenter? Too bad, you still have to register and pay the full fee.
5. Are you annoyed by an organization run by and for the benefit of left-wing busybodies? Too bad, because that's what the AALS is.
6. Do you like academic conferences where the panels are informative and engaging? Too bad, because that doesn't describe very many AALS panels (if any).
And so I'll repeat something I wrote back in 2012:
The best thing we could do with the AALS is to disband it:
I can't think of one useful thing the AALS does except to provide a massive schmooze fest for faculty to network at taxpayer and student expense. And while that's fun, it doesn't justify the organization's existence.
While it seems unlikely that the AALS will ever do the honorable thing and fall on its sword, if I were a law school dean, I'd bail on it.
Delaware Chief Justice Leo Strine and Nicholas Walker recently posted an article (forthcoming in the Cornell Law Review) entitled Conservative Collision Course?: The Tension between Conservative Corporate Law Theory and Citizens United, which is available at SSRN: http://ssrn.com/abstract=2481061, and argues that:
One important aspect of Citizens United has been overlooked: the tension between the conservative majority’s view of for-profit corporations, and the theory of for-profit corporations embraced by conservative thinkers. This article explores the tension between these conservative schools of thought and shows that Citizens United may unwittingly strengthen the arguments of conservative corporate theory’s principal rival.
Citizens United posits that stockholders of for-profit corporations can constrain corporate political spending and that corporations can legitimately engage in political spending. Conservative corporate theory is premised on the contrary assumptions that stockholders are poorly-positioned to monitor corporate managers for even their fidelity to a profit maximization principle, and that corporate managers have no legitimate ability to reconcile stockholders’ diverse political views. Because stockholders invest in for-profit corporations for financial gain, and not to express political or moral values, conservative corporate theory argues that corporate managers should focus solely on stockholder wealth maximization and non-stockholder constituencies and society should rely upon government regulation to protect against corporate overreaching. Conservative corporate theory’s recognition that corporations lack legitimacy in this area has been strengthened by market developments that Citizens United slighted: that most humans invest in the equity markets through mutual funds under section 401(k) plans, cannot exit these investments as a practical matter, and lack any rational ability to influence how corporations spend in the political process.
Because Citizens United unleashes corporate wealth to influence who gets elected to regulate corporate conduct and because conservative corporate theory holds that such spending may only be motivated by a desire to increase corporate profits, the result is that corporations are likely to engage in political spending solely to elect or defeat candidates who favor industry-friendly regulatory policies, even though human investors have far broader concerns, including a desire to be protected from externalities generated by corporate profit-seeking. Citizens United thus undercuts conservative corporate theory’s reliance upon regulation as an answer to corporate externality risk, and strengthens the argument of its rival theory that corporate managers must consider the best interests of employees, consumers, communities, the environment, and society — and not just stockholders — when making business decisions.
As promised, I've knocked out a reply, which has just been posted to SSRN and is entitled Corporate Social Responsibility in the Night Watchman State: A Comment on Strine & Walker, and is available at SSRN: http://ssrn.com/abstract=2494003:
Delaware Supreme Court Chief Justice Leo Strine and Nicholas Walter have recently published an article arguing that the U.S. Supreme Court’s decision in Citizens United v. FEC undermines a school of thought they call “conservative corporate law theory.” They argue that conservative corporate law theory justifies shareholder primacy on grounds that government regulation is a superior constraint on the externalities caused by corporate conduct than social responsibility norms. Because Citizens United purportedly has unleashed a torrent of corporate political campaign contributions intended to undermine regulations, they argue that the decision undermines the viability of conservative corporate law theory. As a result, they contend, Citizens United “logically supports the proposition that a corporation’s governing board must be free to think like any other citizen and put a value on things like the quality of the environment, the elimination of poverty, the alleviation of suffering among the ill, and other values that animate actual human beings.”
This essay argues that Strine and Walker’s analysis is flawed in three major respects. First, “conservative corporate law theory” is a misnomer. They apply the term to such a wide range of thinkers as to make it virtually meaningless. More important, scholars who range across the political spectrum embrace shareholder primacy. Second, Strine and Walker likely overstate the extent to which Citizens United will result in significant erosion of the regulatory environment that constrains corporate conduct. Finally, the role of government regulation in controlling corporate conduct is just one of many arguments in favor of shareholder primacy. Many of those arguments would be valid even in a night watchman state in which corporate conduct is subject only to the constraints of property rights, contracts, and tort law. As such, even if Strine and Walker were right about the effect of Citizens United on the regulatory state, conservative corporate law theory would continue to favor shareholder primacy over corporate social responsibility.
Now it just needs to find a law review home.
The good news is that the UC has rejected the call by ecomentalist activists to divest from fossil fuel companies, which was the right decision for all the reasons I suggested the other day. The bad news is that:
The University of California will invest $1 billion over five years in companies and researchers coming up with solutions to climate change, part of an overall UC push in sustainability. ... UC also said it will implement a framework for sustainable investment by the end of June and become the first public U.S. university to adhere to United Nations-supported principles for responsible investment.
What's wrong with that, you ask? Well, as the WSJ explained a while back:
... investors tempted by green investing need to choose funds carefully and understand that some of these sectors can be very volatile, as illustrated by the bankruptcy of multiple ethanol and biofuel producers, as well as struggles among small solar-power companies, amid a drop in oil prices over the past year. It is also important to recognize that buying into green businesses and shunning those that are harder on the Earth's resources won't benefit the environment directly.
The thought that "if you are buying stock [in] an oil company, you are somehow giving money to the oil company" is just not true, says Brian Pon, a financial planner with Financial Connections Group Inc. in the San Francisco Bay area. Whether you're investing in a traditional energy company or an alternative-energy player, you are typically buying shares from another investor and not pumping cash into the firm. Further, he says, "an individual doesn't really have the money to affect investment markets. You're buying a hundred shares when hundreds of thousands of shares trade daily."
So you're taking on considerable risk by "greening" your portfolio, as illustrated by the WSJ's summary of the performance of portfolios of alternative energy during the financial crisis:
Among the narrow and volatile green portfolios are two ETFs that focus on solar energy: Claymore/MAC Global Solar Energy Index and Market Vectors Solar Energy.KWT +0.63% They are both down 45% over the past 12 months, while the Standard & Poor's 500-stock index declined 6.9%. ...
PowerShares WilderHill Clean Energy, a somewhat broader alternative-energy portfolio, has also taken investors for a bumpy ride. The ETF gives investors exposure to areas including ethanol, solar and wind power, and energy efficiency. Over the past year, the fund—one of the larger green portfolios, with a recent $783 million in assets—returned a negative 27%. Over the past three years, it has declined an average 13.5% a year, trailing the S&P 500 by more than eight percentage points.
Ouch. And the news hasn't gotten any better. The three year annual return on S&P's Global Alternative Energy Index is 7%. Compare that to the S&P 500's three year annual return of 22.7%. The Fidelity Select Environment and Alternative Energy Portfolio has underperformed the S&P 500 consistently.
So pardon me if I can't work up much enthusiasm for this new UC policy.
At HuffPo he opines that:
The Census Bureau reports that income inequality between the richest and poorest Americans has reached historic levels. ...
CEO pay, along with that of other senior executives, is a major contributor to this inequality. We need to know more about this phenomenon: Which companies are overpaying their CEOs? How are they performing in the marketplace? How responsibly are those companies being managed?
As I explain in my book Corporate Governance after the Financial Crisis, however, complaints during times of economic distress about supposedly excessive executive compensation are hardly new. In the 1930s, during the Great Depression, for example, a lawsuit challenging executive bonuses as corporate waste gave rise to the aphorism “no man can be worth $1,000,000 per year.” This complaint rested, at least in part, not on a belief that executives were being paid too much relative to their company’s performance but on the belief that the amounts they were being paid were simply too high.
Similar populist themes abound in the rhetoric surrounding the crises of the last decade. A 2008 House of Representatives committee report, for example, noted that “in 1991, the average large-company CEO received approximately 140 times the pay of an average worker; in 2003, the ratio was about 500 to 1.” Delaware Vice Chancellor Leo Strine observed in a 2007 law review article that both workers and investors “feel that CEOs are selfish and taking outrageous pay at a time when other Americans are economically insecure.” William McDonough, the then-Chairman of the Public Company Accounting Oversight Board (PCAOB), complained that:
We saw … an explosion in compensation that made those superstar CEOs actually believe that they were worth more than 400 times the pay of their average workers. Twenty years before, they had been paid an average of forty times the average worker, so the multiple went from forty to 400—an increase of ten times in twenty years. That was thoroughly unjustified by all economic reasoning, and in addition, in my view, it is grotesquely immoral.
The rhetoric of class warfare makes a poor foundation for economic policy. As a justification for regulating executive compensation, however, it is particularly inapt. First, why single out public corporation executives? Many occupations today carry even larger rewards. The highest paid investment banker on Wall Street in 2006 was Lloyd Blankfein of Goldman Sachs, for example, who “earned $54.3 million in salary, cash, restricted stock and stock options,” or about 4 times the median CEO salary from the year before. The pay of some private hedge fund managers dwarfed even that sum. Hedge fund manager James Simons earned $1.7 billion in 2006, for example, and two other hedge fund managers also cracked the billion-dollar level that year. Not to mention, of course, the considerable sums earned by top athletes and entertainers.
Second, regulating executive compensation may scratch the public’s populist itch, but it does little to address inequalities of income and wealth. To be sure, as Brett McDonnell observes, fat cat “CEOs have become poster boys for” the dramatic increase in “inequality in income and wealth in this country.” Even if one assumes that redressing such inequalities is appropriate social policy, however, capping or cutting CEO pay is not an effective means of doing so.
Steven Kaplan and Joshua Rauh determined that executives of nonfinancial corporations comprise just over 5 percent of the individuals in the top 0.01 percent of adjust gross income. Hedge fund managers, investment bankers, lawyers, executives of privately-held companies, highly paid doctors, independently wealthy individuals, and celebrities make up the bulk of the income bracket. They further found that the representation of corporate executives in the top bracket has remained constant over time and that realized CEO pay is highly correlated to stock performance. Accordingly, they conclude that “poor corporate governance or managerial power over shareholders cannot be more than a small part of the picture of increasing income inequality, even at the very upper end of the distribution.”
 Harwell Wells, “No Man Can Be Worth $1,000,000 a Year”: The Fight Over Executive Compensation in 1930s America, 44 U. Rich. L. Rev. 689, 726 (2010).
 House Report 110-088, at 3.
 Leo E. Strine, Jr., Toward Common Sense and Common Ground? Reflections on the Shared Interests of Managers and Labor in a More Rational System of Corporate Governance, 33 J. Corp. L. 1, 10-11 (2007).
 William J. McDonough, The Fourth Annual A.A. Sommer, Jr. Lecture on Corporate, Securities & Financial Law, 9 Fordham J. Corp. & Fin. L. 583, 590 (2004).
 Jenny Anderson & Julie Creswell, Top Hedge Fund Managers Earn Over $240 Million, N.Y. Times, Apr. 24, 2007.
 Brett H. McDonnell, Two Goals for Executive Compensation Reform, 52 N.Y.L. Sch. L. Rev. 586, 587 (2008).
 Steven N. Kaplan & Joshua Rauh, Wall Street and Main Street: What Contributes to the Rise in Highest Incomes, NBER Working Paper No. 13,270 (July 2007).
Back to Eskow:
... there has been a trend in recent decades toward compensating senior executives with stock gifts, stock options, and other "performance-based bonuses." This has become attractive because it allows companies to take tax breaks for the wildly generous sums they give to their chief executives.
This practice has the unfortunate side effect of encouraging CEOs to emphasize short-term stock performance over the long-term financial security and well-being of the company and its stakeholders -- a group which includes customers and employees, as well as shareholders.
What greed-driven CEO in his or her right mind would invest in a corporation's long-term growth if it minimized next quarter's stock performance, and that meant a few million dollars taken off an end-of-the-year bonus?
CEOs have increasingly behaved like stock manipulators, rather than executives of working companies. If they can pump up a stock's short-term performance by buying and selling smaller companies, flipping real estate properties, and engaging in other highly-leveraged transactions, most executives these days are only too eager to do so.
There's some validity to that point, but he's mostly wrong and his prescription is entirely wrong. Back to my book my book Corporate Governance after the Financial Crisis, in which I explain that scholars are divided as to whether this incentive structure causally contributed to either the housing or credit crunch. Grant Kirkpatrick contends that incentive pay encouraged high levels of risk taking. Richard Posner argues that the structure of executive compensation practices encouraged management to cling to the housing bubble and “hope for the best.” In contrast, Peter Mulbert contends that the empirical evidence does not support treating compensation as a major causal factor. What seems clear, however, is that the problem was localized to the financial sector. Whether or not financial institution executive compensation practices contributed to the crisis, there is no evidence that executive compensation at Main Street corporations did so.
 Posner, supra note 316, at 93.
 Peter O. Mulbert, Corporate Governance of Banks After the Financial Crisis: Theory, Evidence, Reforms (ECGI Law Working Paper No. 130/2009, Apr. 2010).
Let's turn to Eskow's prescription for this supposed problem: "Shareholders should have more responsibility for executive pay decisions."
Piffle. Back to my book my book Corporate Governance after the Financial Crisis, in which I explain that shareholders and society do not have the same goals when it comes to executive pay. Society wants managers to be more risk averse. Shareholders want them to be less risk averse. If say on pay and other shareholder empowerment provisions of Dodd-Frank succeed, manager and shareholder interests will be further aligned, which will encourage the former to undertake higher risks in the search for higher returns to shareholders. Accordingly, as Christopher Bruner aptly observed, “the shareholder-empowerment position appears self-contradictory, essentially amounting to the claim that we must give shareholders more power because managers left to the themselves have excessively focused on the shareholders’ interests.”
 Christopher M. Bruner, Corporate Governance in a Time of Crisis 13 (2010), http://ssrn.com/abstract=1617890.
Back to Eskow:
Some Democrats in Congress are now proposing to disallow tax deductions of more than $1 million for senior executive pay -- unless the corporation pays its lowest-paid employees $10.10 per hour or more, in which case that ceiling is lifted.
<SARCASM>Now there's a good idea.</SARCASM> In 1994, President Bill Clinton and the Democrats in Congress passed a budget that changed the tax laws to cap at $1 million the deduction corporations may take for executive compensation. Clinton and the Democrats, however, ensured that performance or incentive-based forms of compensation, most notably stock options were exempt from this cap (as they still are). So if you don't like current executive compensation practices, the blame lies at the Democrats' door. (Of course, the 1994 budget was a major factor in the GOP takeover of the House, which gives folks on my side of the aisle special reason to feel kindly towards it.)
In addition, the 1994 budget teaches us that the law of unintended consequences always comes into play when Congress messes about with executive compensation and tax policy. It didn't limit executive pay and it cost the federal government a lot of revenue:
For all that Section 162(m) is intended to limit excessive executive compensation, it is the shareholders and the U.S. Treasury who have suffered financial losses.
The code does not prohibit firms from paying any type of compensation; instead, they are prohibited from deducting that amount on their tax return. The result is decreased company profits and diminished returns to the shareholders.
Assuming a 25 percent marginal tax rate on corporate profits (a conservative estimate), revenue lost to the federal government in 2010 from deductible executive compensation was $7 billion, and the foregone federal revenue over the 2007–2010 period was $30.4 billion. More than half the foregone federal revenue is due to taxpayer subsidies for executive “performance pay.”
In short, the one thing you can count on is that the Congressional Democrat caucus when it comes to CEO pay is that they'll screw it up. After all, all the Dodd-Frank provisions on CEO pay are nothing more than quaxk corporate governance (see my book Corporate Governance after the Financial Crisis).