Corporate Political Speech: Who Decides?

Comment by Lucian A. Bebchuk and Robert J. Jackson, Jr.

For Professor Victor Brudney, who long ago anticipated the significance of corporate law rules for regulating corporate political speech.

The Supreme Court spoke clearly this Term on the issue of corporate political speech, concluding in Citizens United v. FEC that the First Amendment protects corporations’ freedom to spend corporate funds on indirect support of political candidates. Constitutional law scholars will long debate the wisdom of that holding, as do the authors of the two other Comments in this issue. In contrast, this Comment accepts as given that corporations may not be limited from spending money on politics should they decide to speak. We focus instead on an important question left unanswered by Citizens United: who should have the power to decide whether a corporation will engage in political speech?

Under existing law, a corporation’s decision to engage in political speech is governed by the same rules as ordinary business decisions, which give directors and executives virtually plenary authority. In this Comment, we argue that such rules are inappropriate for corporate political speech decisions. Instead, lawmakers should develop special rules to govern who may make political speech decisions on behalf of corporations. We analyze the types of rules that lawmakers should consider. We also offer a set of proposals, and policymaking considerations, for designing such rules.

In Part II, we consider existing corporate law rules governing the political speech decision. As long as corporations are permitted to engage in political speech, we show, decisional rules governing whether and how they decide to do so are inevitable. Under existing corporate law rules, corporate political speech decisions are subject to the same rules as ordinary business decisions. Accordingly, corporate political speech decisions do not require shareholder input, a role for independent directors, or disclosure — the safeguards that corporate law rules establish for special corporate decisions.

We explain that the interests of directors and executives with respect to political speech decisions may diverge from those of shareholders, that the financial implications of these decisions are hardly trivial, and that the costs of the divergence of interests may be exacerbated by the special expressive significance that these decisions carry for shareholders. We conclude that political speech decisions are substantially different from, and should not be subject to the same rules as, ordinary business decisions.

In Part III, we assess lawmakers’ choices with respect to rules that would align corporate political speech decisions with shareholder interests. In particular, we suggest that lawmakers consider adopting rules that (i) provide shareholders with a role in determining the amount and targets of corporate political spending; (ii) require that independent directors oversee corporate political speech decisions; (iii) allow shareholders to opt out of — that is, either tighten or relax — each of these first two rules; and (iv) mandate detailed and robust disclosure to shareholders of the amounts and beneficiaries of a corporation’s political spending, whether made directly by the company or indirectly through intermediaries. We explain how such rules would benefit share-holders. We also explain why the proposed rules are best viewed not as limitations on corporations’ speech rights but rather as a method of determining whether the corporation actually wishes to engage in political speech. Thus, these rules protect, rather than abridge, corporations’ First Amendment interests.

Part IV discusses an additional objective that decisional rules concerning corporations’ political speech may seek to serve: the protection of minority shareholders from forced association with political speech supported by a majority of shareholders. We discuss the economic and First Amendment interests of minority shareholders that lawmakers may seek to protect. Although we conclude that requiring unanimous shareholder approval for corporate political speech would likely be neither desirable nor permissible, we argue that decisional rules addressing political spending opposed by a sufficiently large minority of shareholders should be viewed as constitutionally permissible, and we discuss how lawmakers could best design such rules.

In our view, as long as corporations have the freedom to engage in political spending, the types of decisional rules we describe in this Comment will be desirable. While Citizens United expanded the scope of corporate resources that may be used for such speech, substantial corporate political spending was permitted before the decision. The expansion of the scope of constitutionally protected corporate political speech brought about by Citizens United, however, makes the need for such rules all the more pressing.