I'm reading Leo Strine and Nicholas Walter's new article, Conservative Collision Course?: The Tension between Conservative Corporate Law Theory and Citizens United (August 1, 2014). Harvard Law School John M. Olin Center Discussion Paper No. 788. Available at SSRN: http://ssrn.com/abstract=2481061. Here's the abstract:
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.
An initial reaction is that we need to draw a sharp distinction between what Strine calls "conservative corporate law theory" and the Roberts Court's decisions in cases like Citizens United and Hobby Lobby. As I observed of the Supreme Court's decision in Federal Communications Commission v. AT&T, Inc.:
Twelve pages of what purports to be legal and grammatical analysis follows. But Chief Justice Roberts could have summed up his opinion far more succinctly: "Because at least 5 of us say so."
The Citizens United decision last term attracted much criticism--not least from Con Law Professor-in Chief Obama--for holding that a corporation is a person and as such has certain constitutional rights. While I agreed with the holding, I was disturbed that the Chief Justice's majority opinion for the Supreme Court so obviously lacked a coherent theory of the nature of the corporation and, as such, also lacked a coherent theory of what legal rights the corporation possesses.
The utterly specious word games that drive this opinion simply confirm that Chief Justice Roberts has failed to articulate a plausible analytical framework for this important problem.
In short, nothing the SCOTUS says should be understood as affecting our understanding of corporate law or corporate law theory. They're just making this stuff up as they go along. On a preliminary read, I don't think Strine makes this mistake, but his article provides a useful opportunity for reminding us of this basic point.
Second, I don't agree with Strine that the political spending poses a threat to conservative corporate law theory. For one thing, the so-called flood of money really is a trickle. As a society, we spend much more money advertising toilet paper than we do deciding who should run the most powerful country in the world.
For another, and more pertinent to Strine's point, I don't see any evidence that corporate political spending is significantly chipping away at "regulation as an answer to corporate externality risk." To the contrary, the regulatory burden on US corporations continues to rise despite Citizens United. The Obama administration has used its executive powers to adopt a raft of pro-worker and anti-business regulations. The EPA is protecting the environment without much regard for cost-benefit analysis. We are dealing with massive regulation by prosecution:
The problem is not just that companies are ever more frequently treated as criminals. It is that the crimes they are accused of are often obscure and the reasoning behind their punishments opaque, and that it is far from obvious that justice is being done and the public interest is being served.
In sum, it seems entirely plausible that corporate political spending does not erode labor and environmental protections but simply slows the rate at which new regulations are piled onto the mountain of laws to which corporations are already subject. Indeed, maybe such expenditures provide a pro-social service by creating incentives for regulators to take the costs of their rules into account. By analogy, for example, the US Chamber of Commerce has been able to get a number of SEC regulations overturned because the agency had failed to conduct adequate cost-benefit analyses. If corporate lobbying encourages regulators to consider business' objections to a rule, then maybe agencies will be more likely to be more thorough in ensuring that the benefits of their rules outweigh their costs.
Finally, and most importantly, the case against corporate social responsibility rests on many legs of which the "regulation solves externalities" claim is but one. Speaking only for myself, I would still oppose CSR even if we lived in a night watchman state. (Hey, that's a good article title: Corporate Social Responsibility in the Night Watchman State! Fellow academics: I will track you down and wreak terrible vengeance if you swipe it.)
I'll have more detailed reactions later. But for now I urge you to go read the article and encourage comments.
