In Citizens United v. Federal Election Commission, No. 08–205, Jan. 21, 2010, the Supreme Court's recent decision on campaign finance, the majority noted that:
Shareholder objections raised through the procedures of corporate democracy, see Bellotti, supra, at 794, and n. 34, can be more effective today because modern technology makes disclosures rapid and informative. A campaign finance system that pairs corporate independent expenditures with effective disclosure has not existed before today. . . . With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are “‘in the pocket’ of so-called moneyed interests.” 540 U. S., at 259 (opinion of SCALIA, J.); see MCFL, supra, at 261.
Jay Brown observes that:
It is, in the end, a misguided proposition. It assumes that with some kind of public disclosure of the payments, shareholders can put a stop to them.
Jay goes on to note that there are a number of obstacles to shareholder activism directed at campaign contributions. And he's quite right. But so what?
I've defended this board centric model of corporate governance countless times, so I won't rehash the larger debate here. Just go buy the book:
Suffice it to say that the business judgment rule clearly protects the discretion of directors in this area as it does in others. In Marsili v. Pacific Gas & Elec. Co. 51 Cal.App.3d 313 (1975), for example, shareholders brought a derivative action challenging a political contribution by the corporation. The plaintiffs argued that the contribution was ultra vires because it did not further a corporate purpose and that the contribution was “illegal” because the corporation received no consideration. The court rejected these arguments:
The crux of the controversy at bench, therefore, is whether a contribution toward the defeat of a local ballot proposition can ever be said to be convenient or expedient to the achievement of legitimate corporate purposes. Appellants take the flat position that in the absence of express statutory authority corporate political contributions are illegal. This contention cannot be sustained. We believe that where, as here, the board of directors reasonably concludes that the adoption of a ballot proposition would have a direct, adverse effect upon the business of the corporation, the board of directors has abundant statutory and charter authority to oppose it.
The law is clear that those to whom the management of the corporation has been entrusted are primarily responsible for judging whether a particular act or transaction is one which is helpful to the conduct of corporate affairs or expedient for the attainment of corporate purposes .... Neither the court nor minority shareholders can substitute their judgment for that of the corporation ‘where its board has acted in good faith and used its best business judgment in behalf of the corporation.’
In other words, it is for the board to decide whether a political contribution is in the corporation's best interests and the shareholders have no right to restrict that authority in the absence of an appropriate limitation in the articles of incorporation.
