The Harvard Law School Program on Corporate Governance recently issued our discussion paper, “Corporate Political Speech: Who Decides?” The paper will be published in the Harvard Law Review’s Supreme Court issue this November.
As long as corporations have the freedom to engage in political spending — a freedom expanded by the Supreme Court’s recent decision in Citizens United v. FEC — the law will have to provide rules governing how corporations decide to exercise that freedom. Our paper focuses on what rules should govern public corporations’ decisions to spend corporate funds on politics. The paper is dedicated to Professor Victor Brudney, who long ago anticipated the significance of corporate law rules for regulating corporate speech.
Under existing corporate-law rules, corporate political speech decisions are subject to the same rules as ordinary business decisions. Consequently, political speech decisions can be made without input from shareholders, a role for independent directors, or detailed disclosure — the safeguards that corporate law rules establish for special corporate decisions. We argue that the interests of directors and executives may significantly diverge from those of shareholders with respect to political speech decisions, and that these decisions may carry special expressive significance from shareholders. Accordingly, we suggest, political speech decisions are fundamentally different from, and should not be subject to the same rules as, ordinary business decisions.
We assess how lawmakers could design special rules that would align corporate political speech decisions with shareholder interests. In particular, we propose the adoption of rules that:
- Provide shareholders with a role in determining the amount and targets of corporate political spending;
- Require that political speech decisions be overseen by independent directors;
- Allow shareholders to opt out of — that is, either tighten or relax — the rules governing the role of shareholders and independent directors with respect to political spending; and
- Mandate detailed disclosure to shareholders of the amounts and beneficiaries of any funds that the company spends, either directly or indirectly through intermediaries, on politics.
We explain how such rules would benefit shareholders. We also explain why such rules are best viewed not as limitations on corporations’ speech rights but rather as a method for determining whether a corporation should be regarded as wishing to engage in speech at all. Viewed this way, the proposed rules protect, rather than abridge, corporations’ First Amendment rights.
In addition to examining corporate law rules designed to address the potential divergence between the interests of directors and executives and those of a majority of the shareholders, we also discuss rules designed to protect minority shareholders from forced association with political speech that is supported by the majority of shareholders. We consider the economic and First Amendment interests of minority shareholders with respect to corporate political speech. We suggest that decisional rules addressing political spending opposed by a sufficiently large minority of shareholders are likely to be constitutionally permissible, and we discuss how such rules could be designed by lawmakers.
The paper is available here, and comments from readers would be most welcome.