Active Firms and Active Shareholders: Corporate Political Activity and Shareholder Proposals
48 Journal of Legal Studies 81 (2019)
33 Pages Posted: 3 May 2015 Last revised: 5 Nov 2019
Date Written: April 30, 2015
This article reveals the positions of corporations not only as active players in politics but also as targets of activist shareholders with opposing political preferences. We examine whether a firm’s political orientation, as measured by its political spending, serves as a driver of shareholder proposal submissions, one manifestation of shareholder activism. Using data on S&P 500 companies for 1997–2014, we find that the divergence in political orientation between shareholders and corporate management is strongly associated with the number of submissions of shareholder proposals on environmental or social issues. Firms that contribute more to the Republican Party are more likely to be targeted by nonindividual, Democratic-leaning shareholders. This pattern remains even after controlling for firms’ records of corporate social responsibility and labor relations. This finding implies that corporate political spending prompts shareholders with strong political preferences to target firms on the opposite end of the political spectrum.
Keywords: corporate political activities, PACs, lobbying expenditures, shareholder proposals, shareholder activism, ESG, Citizens United, corporate governance, pension funds, labor unions, conflicts of interest
JEL Classification: K22, K23, P26
Suggested Citation: Suggested Citation