Why Corporate Political Spending Is Bad for Business
Big Money in Politics Harms the Free Market and the Health of American Business and Innovation
The 2010 Supreme Court ruling in Citizens United v. Federal Election Commission freed corporations to fund political candidates and dark-money campaign committees (organizations that do not have to disclose their donors). Since that time, election spending and corporate political spending have both skyrocketed. However, rather than businesses and their leaders discovering new benefits from this shift, executives have faced a host of new challenges in the aftermath of Citizens United.
In a recent article in Harvard Business Review, former Chief Justice of the Supreme Court of Delaware Leo E. Strike Jr. and Associate Professor of Law at University of Southern California Dorothy S. Lund explore why corporate political spending is bad for business. American Promise has built a network of more than 100 business leaders who have publicly signed a Statement of Principle in support of an amendment to the U.S. Constitution to end the unlimited influence of corporate money in politics. Read the summary below to learn Justice Strine and Professor Lund’s arguments why corporate spending harms the free market and the health of American business and innovation.
Political Spending Harms Business Performance
Research suggests that companies that spend heavily on politics perform more poorly than others. In a study of corporate political activity in the form of lobbying and PAC spending by S&P 500 companies, increased political spending was strongly and negatively related to company value. When companies feel they have to compete on regulatory shortcuts rather than on productivity and innovation, they may be poorly positioned to produce sustainable profits by evolving to meet new consumer demands. Emerging evidence suggests that political shortcuts can destroy value by suppressing innovation and distracting managers from more-pressing tasks.
A Vulnerability of Values
Corporations face novel vulnerabilities when their stated values seem to contradict their lobbying efforts. Shareholders have diverse political views — and no interest in electing candidates just because they support one company’s preferred regulatory policies. Most investors hold a broad portfolio of stocks reflecting the whole economy. They don’t want their dollars to be spent on political rent-seeking by a specific company, which helps one company but causes externalities for other companies, taxpayers, and consumers like themselves, and therefore is likely to slow real overall economic and portfolio growth. If people want to give to politicians, they want to use their own money, not have corporations do it for them, and to direct their contributions to the candidates and causes that best align with their overall values.
The Legitimacy Problem
Before Citizens United, the law reflected a general societal consensus that keeping corporate money out of elections was a good thing. Direct contributions to candidates and independent expenditures (such as advertising) to promote the election or defeat of candidates were prohibited. Companies that wished to participate in political activity could do so through a corporate political action committee (PAC) funded by voluntary contributions from employees and shareholders — but not with corporate treasury funds. That constraint had strong bipartisan support, as exemplified by its inclusion in the 2002 McCain-Feingold Act on campaign finance reform.
Citizens United upset that settled approach. It gave corporate managers the freedom to spend unlimited sums of shareholder money to influence political activity. With that decision, the Supreme Court exposed corporations and our political process to a new and unhealthy dynamic of interactive influence seeking. The change in law not only enabled corporations to act more freely in the political process but also allowed politicians and interest groups to demand that corporations give them money. Managers may rationally fear that by failing to give when all other companies are giving, they will lose the ability to influence regulation. Thus corporate political spending has become a dangerous and unprincipled game, leading many business leaders to long for the old rules.
The Solutions
The risks and costs imposed by political contributions cannot be rationally or effectively addressed by ad hoc moratoriums. Instead, we propose concrete action to enable corporate leaders to avoid the political spending trap while freeing up attention and resources to focus on running their companies well.
There is no sound business justification for corporate political giving as it is practiced today. Investors don’t benefit from this state of affairs, nor do shareholders, nor do corporate executives, who are pressured into giving in ways that undermine their business focus and create substantial risk. Article V of the Constitution has been invoked to amend the constitution 27 times in the history of our young country; American Promise advocates the passage of the For Our Freedom Amendment, which will give States sovereignty to decide how money can be spent in their elections, a nullification of Citizens United.
Read the whole article by Justice Strine and Professor Lund in Harvard Business Review.
