Corporate political speech: Who decides?

Harvard Law Review

Volumn 124, Issue 1, 2010, Pages 83-117

  Bebchuk, Lucian A ^a   Jackson Jr , Robert J ^b  

^a HARVARD LAW SCHOOL   (United States)

^b Columbia Law School ^*  (United States)

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EID: 78650683926     PISSN: 0017811X     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (150)

1. 130 S. Ct. 876 (2010).
2. Id. at 913.
3. See Samuel Issacharoff, The Supreme Court, 2009 Term - Comment: On Political Corrup-tion, 124 HARV. L. REV. 118 (2010)
4. Kathleen M. Sullivan, The Supreme Court, 2009 Term - Comment: Two Concepts of Freedom of Speech, 124 HARV. L. REV. 143 (2010).
5. For ease of exposition, throughout this Comment we shall refer to the preferences of a majority of shareholders of a corporation as reflecting the preferences of shareholders on the whole. In Part IV, we focus on differences in shareholder preferences, and consider the extent to which the preferences of a majority of the shareholders with respect to corporate political speech should be imposed on the minority.
6. Of course, some corporate political speech also remains impermissible even after Citizens United. For example, federal law still prohibits corporations from coordinating expenditures with candidates or providing them with direct contributions, see 2 U.S.C. § 441b (2006)
7. and has done so for over a century, see Robert H. Sitkoff, Corporate Political Speech, Political Extortion, and the Competition for Corporate Charters, 69 U. CHI. L. REV. 1103, 1103 (2002) (describing the ini-tial passage of the Tillman Act, which made it illegal for corporations to make financial contribu-tions directly to candidates for federal office, in 1907). The Citizens United decision did not ex-pressly address its implications for such political spending.
8. See generally Lucian A. Bebchuk & Assaf Hamdani, Federal Corporate Law: Lessons from History, 106 COLUM. L. REV. 1793 (2006) (documenting that, over the past seven decades, most corporate law rules that constrain insider behavior have been developed through federal intervention).
9. Victor Brudney, Business Corporations and Stockholders' Rights Under the First Amend-ment, 91 YALE L.J. 235, 241 (1981).
10. Citizens United, 130 S. Ct. at 911
11. (quoting First Nat'l Bank of Bos. v. Bellotti, 435 U.S. 765, 794 (1978)) (internal quotation mark omitted).
12. For examples of corporate law arrangements involving shareholder approval, see DEL. CODE ANN. tit. 8, § 251(c) (2001 & West 2010), which requires such approval for certain mergers
13. id. § 242(b), which requires such approval for charter amendments
14. and Order Approving NYSE and Nasdaq Proposed Rule Changes Relating to Equity Compensation Plans, Exchange Act Re-lease No. 48,108, 68 Fed. Reg. 39,995 (July 3, 2003) [hereinafter SEC Equity Compensation Or-der], which approved exchange-listing rules requiring firms to obtain shareholder approval for equity-based compensation plans.
15. In an important recent decision, the Delaware Supreme Court examined the scope of share-holders' power to adopt bylaws under Delaware law, concluding that this power "is limited by the board's management prerogatives," that the proper function of bylaws is merely "to define the process and procedures by which [board] decisions are made," and that even process-related bylaws must leave directors free to disobey the bylaws if the directors conclude that doing so is necessary to discharge their fiduciary duties. CA, Inc. v. AFSCME Emps. Pension Plan, 953 A.2d 227, 232, 235 (Del. 2008)
16. see also Corporate Governance After Citizens United: Hearing Be-fore the Subcomm. on Capital Mkts., Ins., & Gov't Sponsored Enters. of the H. Comm. on Fin. Servs., 111th Cong. 10 (2010) (testimony of John C. Coffee, Jr., Adolf A. Berle Professor of Law, Columbia Law School) (arguing that, in light of these developments, Delaware law gives share-holders "little practical ability to limit or restrict political contributions by mandatory shareholder action"). We note, however, that the Delaware courts and the courts of other states have not yet ex-plicitly ruled on the permissibility of bylaws placing limits on a company's political spending. Thus, state law could conceivably evolve in the future to make such fully binding bylaws permis-sible. We would welcome such a development, which would be consistent with the proposal we put forward in section III.A to enable shareholders to pass binding resolutions concerning politi-cal spending.
17. Shareholder Proposals, 17 C.F.R. § 240.14a-8 (2010) (requiring that certain proposals by cer-tain shareholders be included for a vote in the corporate proxy).
18. See, e.g., Bristol-Myers Squibb Co., SEC No-Action Letter, 2009 WL 851540, at *1 (Feb. 17, 2009) (concluding that a proposal requesting that the company provide a report related to lobby-ing activities and expenses could be excluded from the proxy)
19. See, e.g., American International Group, Inc., SEC No-Action Letter, 2004 WL 346068, at *1 (Feb. 19, 2004).
20. We also note that the staff of the SEC has permitted the exclusion of shareholder proposals recommending that a corporate political action committee be eliminated on the basis of the "ordi-nary business operations" exception to the shareholder proposals rules. See, e.g., NiSource Inc., SEC No-Action Letter, 2002 WL 32072765, at *1 (Mar. 22, 2002).
21. See Standards Relating to Listed Company Audit Committees, Exchange Act Release No. 47,654, 17 C.F.R. § 240.10A-3 (2010) (requiring that audit committees consist entirely of indepen-dent directors); New York Stock Exchange Rule 303A.05 (requiring all listed firms to have a com-pensation committee consisting entirely of independent directors).
22. BRUCE F. FREED & JAMIE CARROLL, OPEN WINDOWS: HOW CODES OF CONDUCT REGULATE CORPORATE POLITICAL SPENDING AND A MODEL CODE TO PROTECT COM-PANY INTERESTS AND SHAREHOLDER VALUE 15 & n.18 (2007), available at http://www. politicalaccountability.net/index.php?ht=a/GetDocumentAction/i/611. This low figure actually reflects increased board-level oversight of these decisions; just two years earlier, a similar survey of 120 large public companies found that just two required board approval of political contribu-tions.
23. See BRUCE F. FREED ET AL., THE GREEN CANARY: ALERTING SHAREHOLDERS AND PROTECTING THEIR INVESTMENTS 28-29, 41 app. II (2005), available at http://www.political accountability.net/index.php?ht=a/GetDocumentAction/i/920. Moreover, board oversight appears to be concentrated among the largest public companies, which were the focus of these surveys. A more recent survey of the entire S&P 500 found that just twenty-two percent of those companies, or 110 firms, had in place board-level oversight of political spending decisions. See Email from Heidi Welsh, Exec. Dir., Sustainable Invs. Inst., to Robert J. Jackson, Jr. (Sept. 20, 2010, 11:23 EST) (on file with the Harvard Law School Library).
24. See 17 C.F.R. § 229.402(b)(2)(i)-(xv) (2010) (listing fifteen nonexclusive considerations that may be among the information that firms are required to disclose with respect to executive com-pensation)
25. id. § 229.404(a) (requiring detailed disclosure on related-party transactions).
26. Citizens United, 130 S. Ct. at 916 (arguing that "[s]hareholder objections raised through the procedures of corporate democracy," along with existing disclosure rules, would "permit[] citizens and shareholders to react to the speech of corporate entities in a proper way" (citing First Nat'l Bank of Bos. v. Bellotti, 435 U.S. 765, 794 (1978))).
27. See, e.g., SEC Equity Compensation Order, supra note 9, at 39,997 (requiring shareholder approval of equity-based executive pay plans).
28. Because some corporate political spending preferred by directors and executives may also be consistent with shareholder preferences, shareholder protection objectives would not warrant corporate law rules banning corporate political speech - even if such a ban were constitutionally permissible. Cf. Sitkoff, supra note 5, at 1116 (arguing that, notwithstanding the possibility that the interests of managers diverge from those of shareholders with respect to corporate political spending, lawmakers should consider "less drastic" alternatives than a mandatory prohibition on such spending).
29. While we focus in this Comment on political speech decisions, our reasoning may also apply to similar corporate decisions, such as decisions to spend corporate funds on charitable contributions. Relative to the ordinary business decisions with which they are now conflated, those decisions may also involve more frequent or significant divergence between the interests of directors and executives and those of shareholders. Accordingly, our analysis may also justify a reconsideration of the rules governing public companies' decisions concerning charitable contributions. See infra note 97.
30. Compare Letter from Wayne Watts, Senior Exec. Vice President & Gen. Counsel, AT&T, to Elizabeth M. Murphy, Sec'y, SEC (Jan. 19, 2010), http://www.sec.gov/comments/s7-10-09/s71009-629.pdf
31. with Letter from Jack Ehnes, CEO, Cal. State Teachers' Ret. Sys.
32. to Elizabeth M. Murphy, Sec'y, SEC (Jan. 19, 2010), http://www.sec.gov/ comments/s7-10-09/s71009-623.pdf.
33. See generally Comments on Proposed Rule: Facilitating Shareholder Director Nominations: File No. S7-10-09, SEC, http://www.sec.gov/comments/s7-10- 09/s71009.shtml#33-9086.
34. See Lucian A. Bebchuk & Zvika Neeman, Investor Protection and Interest Group Politics, 23 REV. FIN. STUD. 1089, 1113 (2010) (developing an account of interest group politics in which corporate insiders' ability to use corporate assets to lobby politicians leads to a suboptimal equi-librium level of investor protection).
35. See, e.g., Sitkoff, supra note 5, at 1114-18.
36. See, e.g., LUCIAN BEBCHUK & JESSE FRIED, PAY WITHOUT PERFORMANCE: THE UNFULFILLED PROMISE OF EXECUTIVE COMPENSATION 53-58 (2004) (explaining how mar-ket forces cannot fully eliminate problems resulting from a divergence between the interests of directors and executives and those of shareholders with respect to executive compensation deci-sions)
37. Lucian Arye Bebchuk, Federalism and the Corporation: The Desirable Limits on State Competition in Corporate Law, 105 HARV. L. REV. 1435, 1470-75 (1992) (providing such an anal-ysis with respect to reincorporation decisions)
38. Lucian Arye Bebchuk, Limiting Contractual Free-dom in Corporate Law: The Desirable Constraints on Charter Amendments, 102 HARV. L. REV. 1820, 1840-46 (1989) (providing such an analysis with respect to decisions to initiate charter amendments).
39. For an early work recognizing the limits of market forces in fully addressing prob-lems resulting from interest divergence of this kind, see generally MELVIN ARON EISENBERG, THE STRUCTURE OF THE CORPORATION: A LEGAL ANALYSIS (1976).
40. Existing empirical work on the frequency with which, and the extent to which, the interests of directors and executives with respect to political spending actually diverge from the interests of shareholders is limited. Recent research provides some empirical evidence consistent with the possibility that corporate political spending is associated with agency problems. See Rajesh K. Aggarwal et al., Corporate Political Contributions: Investment or Agency? 1-2, 17-18, 49-50 tbl.4 (June 25, 2009) (unpublished manuscript) (on file with the Harvard Law School Library), avail-able at http://papers.ssrn.com/sol3/papers. cfm?abstract-id=972670 (providing some evidence that U.S. firms making larger political contributions have lower returns)
41. John C. Coates, IV, Corpo-rate Governance and Corporate Political Activity: What Effect Will Citizens United Have on Shareholder Wealth? 13-14, 24-25 tbls. 3, 4 (Sept. 21, 2010) (unpublished manuscript) (on file with the Harvard Law School Library), available at http://papers.ssrn.com/abstract-id= 1680861. More than two decades ago, Professor Roberta Romano claimed that "casual" empiricism suggests that corporate political spending is profit-maximizing, but did not carry out an empirical study of the subject.
42. See Roberta Romano, Metapolitics and Corporate Law Reform, 36 STAN. L. REV. 923, 995-96 (1984). Further empirical work is warranted, and we hope that future research will shed further light on this important issue.
43. Brody Mullins & Ann Zimmerman, Target Discovers Downside to Political Contributions, WALL ST. J., Aug. 7-8, 2010, at A2.
44. The data in Table 1 were assembled from each intermediary's IRS Form 990, which is made publicly available by organizations seeking to track intermediary spending. See, e.g., About Us, GUIDESTAR, http://www2.guidestar.org/rxg/about- us/index.aspx (last visited Oct. 2, 2010) (de-scribing the mission of one such organization as including efforts to "encourage nonprofits to share information about their organizations openly and completely"). Each organization's lobby-ing and political expenditures were drawn from line 2a of Part III-B of Schedule C to Form 990, which requires disclosure of lobbying and political expenses.
45. See Am. Petroleum Inst., IRS Form 990, Return of Organization Exempt from Income Tax (OMB No. 1545-0047) (2008)
46. Bus. Round-table, IRS Form 990, Return of Organization Exempt from Income Tax (OMB No. 1545-0047) (2008)
47. Fin. Servs. Roundtable, IRS Form 990, Return of Organization Exempt from Income Tax (OMB No. 1545-0047) (2008)
48. Nat'l Assoc. of Mfrs., IRS Form 990, Return of Organization Ex-empt from Income Tax (OMB No. 1545-0047) (2008)
49. U.S. Chamber of Commerce, IRS Form 990, Return of Organization Exempt from Income Tax (OMB No. 1545-0047) (2008). The percentages reflect the quotient of these figures and each organization's gross receipts, which are drawn from line G of Form 990.
50. Microsoft and News Corporation are two high-profile examples in which corporate political spending was revealed to have been channeled through intermediaries. Microsoft provided over $250,000 to the Michigan Chamber of Commerce, which in turn funded advertisements regarding the Michigan Senate race in 2000, and was reported to have spent nearly $16 million in total on lobbying and political expenses between 1997 and 2000. See John R. Wilke, Microsoft Is Source of 'Soft Money' Funds Behind Ads in Michigan's Senate Race, WALL ST. J., Oct. 16, 2000, at A3. News Corporation contributed $1 million to the Republican Governors' Association in 2010.
51. See Brody Mullins, Groups' Spending for GOP on Rise, WALL ST. J., Sept. 14, 2010, at A1.
52. Our analysis focuses on well-known intermediaries. Recent reports, however, have high-lighted the existence of some obscure intermediaries that spend millions of dollars on indirect support for candidates. See Mike McIntire, Under Tax-Exempt Cloak, Political Dollars Flow, N.Y. TIMES, Sept. 24, 2010, at A1. For the reasons given above, it is impossible to discern the extent to which public corporations provide support for these organizations and, if so, how much support is provided by any particular corporation.
53. See Top PACs, CTR. FOR RESPONSIVE POLITICS, http://www.opensecrets.org/ pacs/toppacs.php?Type=C&cycle=2008 (last visited Oct. 2, 2010).
54. This estimate is drawn from a database maintained by the Center for Responsive Politics, which assigns each PAC included in Federal Election Commission filings to one of thirteen sec-tors. The figure includes PACs assigned to sectors relating to particular industries, but excludes PACs assigned to the "Ideological/Single-Issue," "Labor," and "Other" sectors. See Email from Spencer MacColl, Ctr. for Responsive Politics, to authors (Sept. 20, 2010, 12:04 AST) (on file with the Harvard Law School Library).
55. Nevertheless, the costs of special decisional rules may sometimes exceed the benefits to shareholders, even when considering the expressive significance of corporate political speech decisions. For that reason, we suggest that lawmakers provide shareholders with the ability to opt out of any such rules, provided that certain procedural protections are observed. See infra section III.C, pp. 102-04.
56. Shareholder Proposals, 17 C.F.R. § 240.14a-8(i)(7) (2009).
57. Amendments to Rules on Shareholder Proposals, 63 Fed. Reg. 29,106, 29,108 (May 28, 1998).
58. See, e.g., Unocal Corp., SEC No-Action Letter, 1996 WL 106112 (Mar. 11, 1996)
59. Gillette Co., SEC No-Action Letter, 1996 WL 8089 (Jan. 4, 1996). The Commission had previously con-cluded that shareholder proposals of this type could be excluded from the proxy; but, noting that "[n]early all commentators from the shareholder community who addressed the matter supported the reversal of this position," the Commission concluded that "proposals that raise significant social policy issues" could no longer necessarily be excluded pursuant to the "ordinary business" exception. Amendments to Rules on Shareholder Proposals, 63 Fed. Reg. at 29,108.
60. Adoption of Amendments Relating to Proposals by Security Holders, Exchange Act Release No. 12999, 10 SEC Docket 1006 (Nov. 22, 1976).
61. One such proposal passed the House of Representatives in June 2010. See Democracy Is Strengthened by Casting Light on Spending in Elections Act (DISCLOSE Act), H.R. 5175, 111th Cong. (2010). It appears, however, that this proposal will not pass during the 111th Congress.
62. See Eric Lichtblau & Carl Hulse, Senate Democrats Fail to Advance a Campaign Finance Bill, an Obama Priority, N.Y. TIMES, Sept. 24, 2010, at A17. Other proposals are currently pending be-fore Congress, including one passed by the House Financial Services Committee.
63. Shareholder Protection Act of 2010, H.R. 4790, 111th Cong. (2010).
64. Some opponents of these proposals may argue that firms should be expected to adopt these arrangements voluntarily if they are beneficial to investors - and thus that the existing set of corporate law rules must be optimal. This argument, sometimes referred to as the "Panglossian" view, can be offered in response to any proposal that introduces corporate governance rules that do not already prevail in the marketplace. For responses to these Panglossian arguments, see, for example, Lucian Arye Bebchuk, The Case for Increasing Shareholder Power, 118 HARV. L. REV. 833, 888-91 (2005). We also note that, other than the disclosure requirements, described in section III.D, the corporate law arrangements described in this Part are proposed as default arrange-ments from which shareholders may opt out. Thus, these arrangements can be expected to sur-vive in the marketplace only if they enjoy the support of a majority of shareholders.
65. See infra section III.C, pp. 102-04.
66. See supra note 9 and accompanying text.
67. Although not the basis for our analysis or conclusions, we note that there is some survey evidence suggesting that adoption of this approach would be well received by the public. See STEPHEN ANSOLABEHERE & NATHANIEL PERSILY, KNOWLEDGE NETWORKS, FIELD RE-PORT: CONSTITUTIONAL ATTITUDES SURVEY 101 Q515 (2010), available at http://www.law. columbia.edu/null/download?&exclusive= filemgr.download&file-id=54767 (reporting that in re-sponse to the question, "Should corporations be required to get approval from their shareholders for expenditures related to political campaigns?", 84.5% of those polled answered "Yes").
68. See Shareholder Protection Act of 2010, H.R. 4790 § 4(a).
69. Political Parties, Elections and Referendums Act, 2000, c. 41, §§ 139-40 (U.K.).
70. While shareholder rights in the United Kingdom and other common law countries are generally stronger than those in the United States, the annual shareholder approval requirement with respect to political spending is unique among U.K. shareholders' voting rights. See generally Paul L. Davies, The United Kingdom, in SHAREHOLDER VOTING RIGHTS AND PRACTICES IN EUROPE AND THE UNITED STATES 331, 331-52 (T. Baums & E. Wymeersch eds., 1999) (describing the limited use of shareholder meetings and resolutions in the United Kingdom).
71. See, e.g., CIARA TORRES-SPELLISCY, BRENNAN CTR. FOR JUSTICE, CORPORATE CAMPAIGN SPENDING: GIVING SHAREHOLDERS A VOICE 18 (2010), available at http://brennan.3cdn.net/54a676e481f019bfb8-bvm6ivakn.pdf.
72. See id. at 18, 37 n.78
73. (citing Michael Pinto-Duschinsky, Trends in British Party Funding 1913-1987, 42 PARLIAMENTARY AFF. 197, 210 (1989)
74. Register of Donations to Political Parties, ELECTORAL COMM'N, http://registers.electoralcommission.org.uk/regulatory-issues/regdpolitical parties.cfm (last visited Oct. 2, 2010)).
75. As noted in the text, data on British corporations' contributions are incomplete and limited, and it is difficult to draw conclusions about the relationship between these rules and aggregate corporate contributions. However, the data indicate that overall contributions to the Conserva-tive Party, which receives the bulk of corporate donations, fell from €2.88 million for fiscal year 1997-1998, before these rules were adopted, to €1.74 million in 2001 and €1.16 million in 2003. Id. at 18
76. see also Register of Donations to Political Parties, supra note 45 (providing data on cor-porate contributions to the Conservative Party after 2000).
77. See, e.g., CA, Inc. v. AFSCME Emps. Pension Plan, 953 A.2d 227, 234-36 (Del. 2008) (de-scribing the types of bylaws that shareholders may, and may not, adopt under Delaware law).
78. See, e.g., Leo E. Strine, Jr., Toward a True Corporate Republic: A Traditionalist Response to Bebchuk's Solution for Improving Corporate America, 119 HARV. L. REV. 1759, 1762 (2006).
79. See Lucian A. Bebchuk, Essay, The Myth of the Shareholder Franchise, 93 VA. L. REV. 675, 688-94 (2007) (discussing the various impediments that make it costly and difficult for sharehold-ers to replace incumbent directors). The SEC has recently promulgated rules that would permit certain shareholders to place a limited number of candidates on the corporate ballot.
80. See Facili-tating Shareholder Director Nominations, 75 Fed. Reg. 56,668 (Sept. 16, 2010) (to be codified at 17 C.F.R. pts. 200, 232, 240, and 249).
81. Cf. Bebchuk, supra note 39, at 856-61 (arguing that shareholder power to replace directors does not obviate the need for shareholders to have the power to make "rules-of-the-game" decisions).
82. See, e.g., Stephen M. Bainbridge, Director Primacy and Shareholder Disempowerment, 119 HARV. L. REV. 1735, 1745-46 (2006).
83. Cf. Bebchuk, supra note 39, at 894-95 (suggesting that when shareholders decide not to defer to directors, letting shareholders overrule management may maximize expected shareholder value).
84. See supra note 15 and accompanying text.
85. We note that, after Citizens United, Iowa law was amended to require that a majority of the board approve such expenditures, and that the board give its approval in the same year as those expenditures are made. See S. 2354, 83d Gen. Assemb., 2d Reg. Sess. § 3 (Iowa 2010) (amending IOWA CODE § 68A.404 (Supp. 2009)). In addition, at least two states, Louisiana and Missouri, had already required that corporate political expenditures be expressly approved by the board of directors or a designee.
86. See LA. REV. STAT. ANN. § 18:1505.2(F) (2004 & Supp. 2010)
87. MO. REV. STAT. § 130.029.1(1) (2000). However, only a small percentage of public companies in the United States are incorporated in (and, thus, subject to the rules of) one of these three states.
88. See Lucian Arye Bebchuk & Alma Cohen, Firms' Decisions Where to Incorporate, 46 J.L. & ECON. 383, 391 tbl.2 (2003) (documenting the distribution of incorporations for U.S. public companies among the fifty states and the District of Columbia).
89. For different perspectives on the effectiveness of independent directors, compare Victor Brudney, The Independent Director - Heavenly City or Potemkin Village?, 95 HARV. L. REV. 597, 658 (1982)
90. with Ira M. Millstein & Paul W. MacAvoy, Essay, The Active Board of Directors and Performance of the Large Publicly Traded Corporation, 98 COLUM. L. REV. 1283, 1291-92 (1998). (Pubitemid 128426575)
91. See DISCLOSE Act, H.R. 5175, 111th Cong. § 212(c) (2010).
92. In contrast to the DISCLOSE Act, id., the Shareholder Protection Act of 2010, H.R. 4790, 111th Cong. (2010), would require the national securities exchanges to adopt a rule requiring all listed firms to include in their bylaws a requirement that directors must vote on any political ex-penditure exceeding $50,000. Firms would also be required to make the individual votes of each director public within 48 hours of the vote. See id. § 4.
93. See Lucian Arye Bebchuk & Assaf Hamdani, Optimal Defaults for Corporate Law Evolution, 96 NW. U. L. REV. 489, 490-91 (2002) (identifying this asymmetry)
94. Lucian A. Bebchuk & Scott Hirst, Private Ordering and the Proxy Access Debate, 65 BUS. LAW. 329, 345 (2010) (arguing that, because of the asymmetry, it is desirable for the SEC to provide a default proxy access ar-rangement rather than merely enabling shareholders to opt in to it from a no-access default).
95. Bebchuk & Hamdani, supra note 58, at 492-93 (putting forward the "reversible defaults" strategy).
96. We also note that a poll of U.S. public company shareholders conducted before Citizens United was decided reported that a majority of shareholders do not believe that existing law pro-vides sufficient checks on directors and executives with respect to corporate political spending. See MASON-DIXON POLLING & RESEARCH & THE CTR. FOR POLITICAL ACCOUNTABILITY, CORPORATE POLITICAL SPENDING: A SURVEY OF AMERICAN SHAREHOLDERS 9 (2006).
97. See supra note 17 and accompanying text.
98. See Political Parties, Elections and Referendums Act, 2000, c. 41, § 140 (U.K.).
99. See, e.g., Investors Consider Climate, Other Risk in Busy Season, CORP. SOC. ISSUES REP., June/July 2008, at 1
100. THE CONFERENCE BOARD, HANDBOOK ON CORPORATE POLITICAL ACTIVITY (forthcoming Oct. 2010) (manuscript at 31) (on file with the Harvard Law School Library).
101. See, e.g., Medtronic Medical Technology Fund: FY 2010 Contributions, MEDTRONIC, http://www.medtronic.com/wcm/groups/mdtcom-sg@mdt/@ap/@au/@corp/ documents/document/fy11-contributions.pdf (last visited Oct. 2, 2010).
102. See, e.g., 2 U.S.C. § 434(f)(1), (4) (2006 & Supp. III 2009) (requiring reporting for persons whose political speech expenditures exceed $10,000 in the aggregate annually).
103. See, e.g., McConnell v. FEC, 540 U.S. 93, 196 (2003) (noting that Congress designed FEC disclosure requirements to require those funding political advertisements "to reveal their identities so that the public is able to identify the source of the funding" (quoting McConnell v. FEC, 251 F. Supp. 2d 176, 237 (D.D.C. 2003))), overruled on other grounds by Citizens United, 130 S. Ct. 876.
104. See supra Table 1, p. 94.
105. See, e.g., CTR. FOR POLITICAL ACCOUNTABILITY, POLITICAL TRANSPARENCY AND ACCOUNTABILITY PROFILE, CATERPILLAR, INC. 3 (2009) (noting that Caterpillar's CEO is a member of the Business Roundtable, and the Caterpillar Group President serves on the board of the United States Chamber of Commerce).
106. We note that lawmakers have previously recognized the importance of contributions made through intermediaries or conduits. The Federal Elections Campaign Act imposes criminal penal-ties for those who "knowing[ly] and willful[ly]" violate contribution limits through such interme-diaries. 2 U.S.C. § 437g (2006 & Supp. III 2009).
107. We note that the Conference Board has recently recognized that it may be advisable for corporations to inquire about how their contributions to intermediaries are actually spent. See THE CONFERENCE BOARD, supra note 63 (manuscript at 24-25).
108. See, e.g., Shareholder Protection Act of 2010, H.R. 4537, 111th Cong. § 4 (2010).
109. See DISCLOSE Act, H.R. 5175, 111th Cong. § 211 (2010).
110. To survive a First Amendment challenge, content-based speech regulations must satisfy strict scrutiny: that is, they must serve a compelling interest of the state and be "narrowly tailored to achieve that interest." FEC v. Wis. Right to Life, Inc., 127 S. Ct. 2652, 2664 (2007) (collecting cases).
111. This view was elegantly expressed by Justice White over thirty years ago. See First Nat'l Bank of Bos. v. Bellotti, 435 U.S. 765, 806 (1978) (White, J., dissenting) ("[W]hen a profitmaking corporation contributes to a political candidate this does not further the self-expression or self-fulfillment of its shareholders in the way that expenditures from them as individuals would.").
112. Citizens United, 130 S. Ct. at 914 (quoting McConnell v. FEC, 540 U.S. 93, 201 (2003)) (in-ternal quotation marks omitted).
113. Securities rules result in prior restraints on speech, content-based regulations, and compelled speech under certain circumstances, yet have generally avoided the strict scrutiny ordinarily trig-gered by these characteristics. See Frederick Schauer, The Boundaries of the First Amendment: A Preliminary Exploration of Constitutional Salience, 117 HARV. L. REV. 1765, 1779-80 (2004)
114. cit-ing Pac. Gas & Elec. Co. v. Pub. Utils. Comm'n, 475 U.S. 1, 38-40 (1986) (Stevens, J., dissenting)
115. cf. Frederick Schauer & Richard Pildes, Electoral Exceptionalism and the First Amendment, 77 TEX. L. REV. 1803, 1835-36 (1999) (arguing that a context-specific approach to constitutional analysis of electoral speech regulation is consistent with the structure and purpose of First Amendment doctrine generally).
116. There are also reasons to expect courts to be relatively deferential to lawmakers' judgments regarding corporate governance rules such as those described in this Part. In particular, courts may be disinclined to make a constitutional determination regarding the circumstances under which a corporation wishes to engage in political speech. Cf. RICHARD H. FALLON, JR. ET AL., HART AND WECHSLER'S THE FEDERAL COURTS AND THE FEDERAL SYSTEM 1374-75 (6th ed. 2009) (noting that, with respect to the location of a corporation's principal place of business for purposes of diversity jurisdiction, federal courts declined to extend the treatment of corpora-tions under 28 U.S.C. § 1332(c)(1) (2006) to labor unions, concluding that judgments regarding the citizenship of these entities were better left to Congress (citing United Steelworkers v. R.H. Bou-ligny, Inc., 382 U.S. 145 (1965))).
117. D77 Citizens United, 130 S. Ct. at 916.
118. See, e.g., Austin v. Mich. State Chamber of Commerce, 494 U.S. 652, 675 (1990) (Brennan, J., concurring) ("[T]he State surely has a compelling interest in preventing a corporation it has chartered from exploiting those who do not wish to contribute to [the corporation's] political message.").
119. We note, moreover, that nothing in Justice Kennedy's opinion suggested that existing mech-anisms of shareholder protection could not be strengthened or expanded in the corporate political speech context.
120. For example, a recently enacted Iowa statute, previously discussed in note 54, requiring, inter alia, board approval of certain political expenditures, see S. 2354, 83d Gen. Assemb., 2d Reg. Sess. § 3 (Iowa 2010) (amending IOWA CODE § 68A.404 (Supp. 2009)), is currently the subject of a First Amendment challenge. See Verified Complaint for Declaratory and Injunctive Relief, Iowa Right to Life Comm., Inc. v. Miller, No. 4:10-cv-00416 (S.D. Iowa Sept. 7, 2010).
121. See, e.g., MODEL BUS. CORP. ACT § 10.03 (1985)
122. CAL. CORP. CODE § 903 (West 2004)
123. DEL. CODE ANN. tit. 8, § 242(b) (2001 & West 2010)
124. N.Y. BUS. CORP. LAW § 803 (McKinney 2003).
125. In these transactions, a significant majority shareholder often merges a corporation that is wholly owned by the majority on terms that divert resources from minority shareholders to the majority shareholder. See infra note 96.
126. See, e.g., In re Primedia, Inc. Derivative Litig., 910 A.2d 248, 260, 261 (Del. Ch. 2006) (finding that allegations that a preferred stock redemption exclusively benefited a controlling share-holder provided the basis for a claim for breach of the directors' duty of loyalty). See generally Sinclair Oil Corp. v. Levien, 280 A.2d 717, 721 (Del. 1971) (holding that large dividend payments made at the behest of a majority shareholder do not provide the basis for such a claim where the dividends were distributed to all shareholders pro rata).
127. See, e.g., Simeon Djankov et al., The Law and Economics of Self-Dealing, 88 J. FIN. ECON. 430, 430-32 (2008)
128. see also Brudney, supra note 7, at 261-64 (describing this argument in the con-text of corporate political speech).
129. See, e.g., Edward Glaeser et al., Coase Versus the Coasians, 116 Q.J. ECON. 853, 896-97 (2001)
130. see also Bebchuk, Limiting Contractual Freedom in Corporate Law, supra note 25, at 1835-51 (showing that, in firms with a dominant shareholder, market forces alone will not prevent the adoption of value-decreasing charter amendments).
131. Boy Scouts of Am. v. Dale, 530 U.S. 640, 648 (2000) (alterations in original)
132. (quoting Roberts v. U.S. Jaycees, 468 U.S. 609, 623 (1984)). This Term the Court expressly acknowledged the rela-tionship between these associational freedoms and free speech rights in a case addressing the con-stitutionality of rules requiring student organizations to comply with a university's nondiscrimina-tion policy. See Christian Legal Soc'y Chapter of the Univ. of Cal., Hastings Coll. of the Law v. Martinez, 130 S. Ct. 2971, 2985 (2010) ("Insisting that an organization embrace unwelcome mem-bers ⋯ 'directly and immediately affects associational rights.'" (quoting Dale, 530 U.S. at 659)).
133. See, e.g., Dale, 530 U.S. at 648
134. N.Y. State Club Ass'n v. City of New York, 487 U.S. 1, 13 (1988).
135. See, e.g., Abood v. Detroit Bd. of Educ., 431 U.S. 209, 235-36 (1977)
136. see also Brudney, supra note 7, at 269-70 (recognizing first the relevance of this principle in the corporate law context).
137. See Abood, 431 U.S. at 240-41
138. (citing Bhd. of Ry. & S.S. Clerks v. Allen, 373 U.S. 113, 122 (1963) (describing such a remedy)).
139. Citizens United, 130 S. Ct. at 911.
140. See id.
141. Id.
142. As discussed earlier, see supra section III.C.1, p. 102-03, lawmakers should consider wheth-er such opting out should sunset after several years to ensure that opting out continues to enjoy the requisite shareholder support.
143. See Brudney, supra note 7, at 259-60 (concluding that there is "little basis in law or logic" for the notion underlying the claim that "a requirement of unanimous consent would run afoul of the First Amendment,"
144. id. at 259 (footnote omitted)).
145. Kenneth A. Borokhovich et al., Variation in the Monitoring Incentives of Outside Stock-holders, 49 J.L. & ECON. 651, 657 (2006) (noting that supermajority requirements for mergers are "typically between 66 and 80 percent")
146. see also JERILYN J. CASTILLO & PETER J. MCANIFF, THE PRACTITIONER'S GUIDE TO INVESTMENT BANKING, MERGERS & ACQUISITIONS, CORPORATE FINANCE 355 (2007) (describing such requirements as typically around two-thirds).
147. See DEL. CODE ANN. tit. 8, § 203(a) (Supp. 2008) (requiring that a fifteen percent or great-er shareholder seeking to complete a freezeout obtain (i) approval of the target board; (ii) eighty-five percent of the outstanding shares in a single transaction; or (iii) approval of two-thirds of the other shareholders in order to complete a freezeout). These requirements survived a preemption challenge because they give bidders a "meaningful opportunity for success,"
148. BNS Inc. v. Koppers Co., 683 F. Supp. 458, 469 (D. Del. 1988), but recent work has sought to question this conclusion on empirical grounds.
149. See generally Guhan Subramanian et al., Is Delaware's Antitakeover Stat-ute Unconstitutional? Evidence from 1988-2008, 65 BUS. LAW. 685 (2010) (finding that no hostile bidders in the nineteen years since the Delaware statute's adoption have been able to overcome the eighty-five percent threshold).
150. While we have focused on political speech decisions, the framework we put forward may also be used to assess the rules governing corporations' decisions to make charitable contribu-tions. Like political speech, corporate charitable contributions are, under current law, governed by the rules that govern companies' ordinary business decisions. And, like political speech, there may be reason to believe that special rules are needed to ensure that decisions regarding corporate charitable contributions are in shareholders' interests. For a comprehensive analysis of corporate governance rules that could address corporate charitable contributions, see Victor Brudney & Allen Ferrell, Corporate Charitable Giving, 69 U. CHI. L. REV. 1191 (2002).