The Modern Corporation and Campaign Finance: Incorporating Corporate Governance Analysis into First Amendment Jurisprudence
112 Pages Posted: 16 Nov 2000
Date Written: Undated
The U.S. Supreme Court has often faced the question of whether business corporations should enjoy the protections of the Bill of Rights. In doing so, the Court has repeatedly failed to assimilate the fundamental insight of corporations law - that a large business corporation is a complex organization and not a monolithic entity. While corporations law has struggled with the issue of corporate complexity for the past century, constitutional law as applied to corporations has relied on antiquated, simplistic models of corporations. The Court's application of the First Amendment to corporate campaign finance regulation is an example of this tendency. This Article critiques the existing jurisprudence and suggests how it may be made consistent with corporations theory. According to the Supreme Court, spending money to support a political campaign is a form of political speech. Thus, campaign finance regulations must withstand First Amendment scrutiny. The Court's opinions on campaign finance regulations that affect corporations have been inconsistent. The two basic justifications for protection of speech under the First Amendment are the protection of speakers' right to express themselves, and society's interest in hearing diverse views. The Court has failed to grapple with the fact that election-related spending by corporations is fundamentally different from individual speech in that it does not involve the exercise of individuals' expressive rights. A corporation does not serve as a medium for expression by its constituent individuals. A small group of professional managers controls a corporation's actions, and corporate governance norms do not require management to be responsive to shareholders' political values. Management duties are indeterminate, and shareholders' ability to challenge management too limited, to impose meaningful constraints on management behavior. The extension of the business judgment rule into areas such as charitable contributions suggests that management political spending is immune to court challenge by shareholders. It is sometimes argued that shareholders who disagree with management can simply sell their shares, but divestment only allows a shareholder to dissociate; it does not provide a remedy. Furthermore, divestment is not costless. It might be argued that management control over a corporation's political spending is a bargained-for management perquisite and, thus, corporate political spending is a legitimate form of management expression. But it is unrealistic to posit that shareholders have consented to management control of corporate resources subject to no meaningful limitations or accountability. In the absence of legitimate expressive rights, the social interest in hearing political views is not by itself sufficient to justify constitutional protection of corporate election-related spending. Constitutional protection of management's use of corporate property to fund this social interest results in a random tax on shareholders and other corporate constituents, and gives managers unwarranted authority to control the political views the public hears.
Keywords: Corporations, Corporate Governance, Constitutional Law, Law and Economics, Campaign Finance, First Amendment law, Election law
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