Lucian Bebchuk weighs in on Citizens United. Unsurprisingly, he thinks it's bad for shareholders. (Remember the old joke about the New York Times? A headline in New York Times reads, "New York destroyed by nuclear bomb." Subhead: "Women, Minorities Hardest Hit." Lucian would write the subhead as "Shareholders Hardest Hit.")
When corporations decide which politicians to support, what kind of messages to send, and which political outcomes to seek, their general investors are not consulted. Rather, such decisions are likely to reflect the preferences and objectives of the insiders who manage the companies, ostensibly on shareholders’ behalf.
So what? When corporations decide which products to make, what kind of advertising to run, and which employee benefits to offer, "their general investors are not consulted."
Bebchuk concedes that:
To be sure, on many issues the interests of corporate insiders overlap with those of investors, and here insiders can be expected to lobby in directions that are consistent with the interests of shareholders.
But Bebchuk then throws corporate free speech under the bus because it might be used to entrench managers:
But there are also important issues on which the interests of insiders and outside investors can sharply diverge. This is clearly the case with respect to the rules which govern investor protection and corporate governance.
In other words, because of the slight possibility that corporate managers might use corporate speech to pass anti-takeover legislation, for example, Bebchuk would deny them the right to participate in politics.
Talk about throwing the baby out with the bathwater. Should insurance companies be banned from speaking out about Obamacare just because Lucian Bebchuk is worried they might also speak up about poison pills?
Granted, there are agency cost problems when a corporation speaks. But so what? The sorts of decisions I identified above -- which products to make, what kind of advertising to run, and which employee benefits to offer -- also present agency costs. Indeed, the agency costs associated with those decisions likely are far greater than those presented by corporate political speech.
Finally, Bebchuk claims that because corporate political participation is bad for shareholders, it is bad for capitalism. Capitalism in the United States has historically rested on a foundation of laws that created a board-centric system of corporate governance, not a shareholder-centric one. It's muddled along okay. So why throw it over to experiment with a radically different system?
All of which leads me once again to wonder whether there are any limits on the powers Bebchuk would grant a corporation's shareholders. Or any constraints on powers of boards of directors he would not support.
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