Conservative Collision Course?: The Tension between Conservative Corporate Law Theory and Citizens United

57 Pages Posted: 17 Aug 2014 Last revised: 26 Feb 2015

See all articles by Leo E. Strine

Leo E. Strine

Government of the State of Delaware - Supreme Court of Delaware; Harvard Law School; University of Pennsylvania Law School

Nicholas Walter

Wachtell, Lipton, Rosen & Katz

Date Written: 2015

Abstract

One important aspect of Citizens United has been overlooked: the tension between the conservative majority’s view of for-profit corporations, and the theory of for-profit corporations embraced by conservative thinkers. This article explores the tension between these conservative schools of thought and shows that Citizens United may unwittingly strengthen the arguments of conservative corporate theory’s principal rival.

Citizens United posits that stockholders of for-profit corporations can constrain corporate political spending and that corporations can legitimately engage in political spending. Conservative corporate theory is premised on the contrary assumptions that stockholders are poorly-positioned to monitor corporate managers for even their fidelity to a profit maximization principle, and that corporate managers have no legitimate ability to reconcile stockholders’ diverse political views. Because stockholders invest in for-profit corporations for financial gain, and not to express political or moral values, conservative corporate theory argues that corporate managers should focus solely on stockholder wealth maximization and non-stockholder constituencies and society should rely upon government regulation to protect against corporate overreaching. Conservative corporate theory’s recognition that corporations lack legitimacy in this area has been strengthened by market developments that Citizens United slighted: that most humans invest in the equity markets through mutual funds under section 401(k) plans, cannot exit these investments as a practical matter, and lack any rational ability to influence how corporations spend in the political process.

Because Citizens United unleashes corporate wealth to influence who gets elected to regulate corporate conduct and because conservative corporate theory holds that such spending may only be motivated by a desire to increase corporate profits, the result is that corporations are likely to engage in political spending solely to elect or defeat candidates who favor industry-friendly regulatory policies, even though human investors have far broader concerns, including a desire to be protected from externalities generated by corporate profit-seeking. Citizens United thus undercuts conservative corporate theory’s reliance upon regulation as an answer to corporate externality risk, and strengthens the argument of its rival theory that corporate managers must consider the best interests of employees, consumers, communities, the environment, and society — and not just stockholders — when making business decisions.

Keywords: Corporate governance, political spending, Citizens United, conservative corporate theory, regulatory externalities, lobbying, profit maximization, constitutional law, election law, labor law

JEL Classification: D72, G34, G38, K22, K31, L21

Suggested Citation

Strine, Leo E. and Walter, Nicholas, Conservative Collision Course?: The Tension between Conservative Corporate Law Theory and Citizens United (2015). Harvard Law School John M. Olin Center Discussion Paper No. 788; U of Penn, Inst for Law & Econ Research Paper No. 14-42. Available at SSRN: https://ssrn.com/abstract=2481061

Leo E. Strine (Contact Author)

Government of the State of Delaware - Supreme Court of Delaware ( email )

820 N. French Street
P.O. Box 1997
Wilmington, DE 19801
United States

Harvard Law School ( email )

1563 Massachusetts Ave
Cambridge, MA 02138
United States

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

Nicholas Walter

Wachtell, Lipton, Rosen & Katz ( email )

51 West 52nd Street
New York, NY 10019
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
746
rank
31,561
Abstract Views
6,507
PlumX Metrics