A battle of major consequence for American democracy is slowly unfolding behind closed doors at the Securities Exchange Commission. A proposal sent to the SEC by a group of law professors would give the shareholders of publicly traded corporations the right to know how their invested funds are being put to political use.
The immediate paroxysm that the proposal, which was extremely modest, unleashed among both corporate managers and in the major business press is telling. Corporate managers sense that this could be a major setback for their ability to ensure that government looks carefully to their interests – often to the detriment of shareholders.
In a letter to the SEC signed by the U.S. Chamber of Commerce and several other trade associations – including the American Gaming Association – the central argument is that shareholderss’ financial interests are not being harmed when a company in which they have invested engages a high-priced lobbyist to influence Congress or the regulatory bodies charged with overseeing it.
On the contrary, according to a study by economist Robert Shapiro cited in the Chamber’s letter, firms that aggressively engage in lobbying consistently outperform their competitors, generating a substantial 7 percent higher annual returns relative to firms that do not lobby.
The study shows, in effect, that one of the best investments a firm can make is in a politician – either through a campaign contribution or lobbying activity. It exposes the central practices of an extreme form of crony capitalism, and the very arguments put forth by the Chamber confirm that fact unequivocally.
Since the Citizens United ruling, it has been established law that corporations are entitled to freedom of speech and related political rights. But what has not yet been made clear is in whom those rights are vested – shareholders or managers.
It stands to reason that because corporate managers – CEOs, CFOs, COOs, and the like – are simply the hired employees of the shareholders, who actually own the company, that the right to determine the political stance of a corporation should lie with the shareholders.
But that is not the way it works. U.S. corporate law gives a totally inordinate amount of power to managers – much more that other advanced capitalist countries. These have grown to include, often, the ability to appoint members to the compensation boards that determine the managers’ pay. The absolute absurdity of the incentive structure thereby created ought to be immediately obvious.
This country should be moving toward a legal structure that gives shareholders more rights to determine the political activities of publicly traded corporations. The proposal currently before the SEC is a very minor step in that direction since it requires only disclosure, and not an affirmative right for shareholders to have a voice in their firm’s political activities.
This is not a proposal aimed at stifling corporate speech, as some have claimed. This is a proposal that would give the owners of the corporation a very small modicum of power over that speech. That is good, proper, and in strict keeping with the nation’s capitalist economic system.
The same basic system ought to hold for labor unions, by the way, whose membership ought to have either voting power or veto power with regard to political contributions, political advertising and lobbying activity paid for with dues.