Corporate Law Constraints on Political Spending

James Kwak

University of Connecticut - School of Law

January 15, 2014

North Carolina Banking Institute Journal 18 (2014): 251–95

Corporations currently can participate in electoral politics in the United States through various means: affiliated PACs, super PACs, 501(c)(6) organizations like the Chamber of Commerce, 501(c)(4) "social welfare" organizations, and traditional 501(c)(3) charitable organizations. Corporate law, as generally interpreted by the courts, places few constraints on the ability of corporate insiders to engage in politics as they choose. I argue that existing statutes and case law could be interpreted to impose greater constraints on corporate political activity. Political contributions should be reviewed as potential violations of the duty of loyalty whenever they could provide personal benefits to board members and executives (e.g., by making a cut in their individual income tax rates more likely). The simplest standard would be to require that insiders must reasonably believe that political contributions (and "charitable" contributions to organizations that engage in politics) will result in a net benefit to the corporation — not just some arbitrary benefit that could be worth less than the value of the contribution itself. This standard would be more consistent with the rest of corporate law, according to which insiders are not allowed to expend shareholder assets without at least some belief that they are doing so for the good of the corporation.

Number of Pages in PDF File: 45

Keywords: corporate law, corporate political activity, campaign finance, charitable contributions

JEL Classification: K22, L31

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Date posted: March 4, 2014  

Suggested Citation

Kwak, James, Corporate Law Constraints on Political Spending (January 15, 2014). North Carolina Banking Institute Journal 18 (2014): 251–95. Available at SSRN: http://ssrn.com/abstract=2403293

Contact Information

James Kwak (Contact Author)
University of Connecticut - School of Law ( email )
65 Elizabeth Street
Hartford, CT 06105
United States
HOME PAGE: http://https://law.uconn.edu/faculty/profiles/james-kwak
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