A governance problem of political spending

Posted by Marc Hodak on July 13, 2012 under Governance, Politics | Read the First Comment

Citizens United unleashed a firestorm of controversy and apocalyptic visions of corporations spending “unlimited” amounts of money on political campaigns.  I was on a panel recently debating the governance issues related to corporate political spending.  One of the arguments against it went like this:

  • Such spending would invariably be proposed and executed by management.  As such, it is likely to be guided by the personal preferences top management, especially the CEO.
  • There is a good chance that the political preferences of management may not coincide with the best interests of the company (i.e., an agency problem).
  • Furthermore, such spending is guaranteed to offend the sensibilities of significant portion of not only a diverse shareholder base, but of employees and customers as well, and that can’t be good for the company.
  • Therefore, corporate political spending–although allowed as a matter of law–should still be discouraged, if not banned, by boards and investors as a matter of good governance, if not public decency.

This point was raised by both my fellow panelists and members of the audience.  The audience was largely anti-corporate, and frankly willing to accept any excuse to prevent corporations from exercising any influence on the political arena.  That is probably why my retort seemed to cause nothing but a hush in the crowd.  That retort was:

  • Agency is inherent in all organizations.
  • For example, the non-partisan Center for Responsive Politics says that about 92 percent of union contributions go to Democratic candidates.  Yet, about 38 percent of union members vote for Republican candidates.
  • AARP, Sierra Club, and all kinds of broad-membership non-profits have similar agency issues.

I don’t point this out to suggest that unions or anyone else should be prevented from spending on politics, but to suggest that the existence of agency is not per se a reason to prevent one kind of organization from indulging in such spending when all other kinds of organizations, suffering from the same agency issues, are considered OK for such spending.

For the record, I believe that union leaders are probably as conscientious in allocating their political pelf in a manner that supports their organizational interests as corporate leaders are be about allocating theirs.  The main difference between union and corporate spending is how lopsidedly different they are in their support for parties and candidates.  Unions are remarkably monolithic in their support or “liberal” or “progressive” causes.  Corporations, in contrast, ironically follow the Obama prescription, and spread the wealth around, giving about equally to both parties.

  • Steven said,

    I have neither a theoretical argument for whether unions or corporations should have bigger agency problems nor broad/random empirical evidence, but the anecdotal evidence I’ve seen suggests that unions have the bigger problem. For example, Walter Russell Mead just wrote this piece on unions providing support for issues that have little obvious connection to labor issues. When I was a shareholder of Wal-Mart there were a lot of positions they lobbied for that I thought were bad for society, but I always understood why they would tend to increase Wal-Mart’s profits (generally by stifling competition).

    Though now that I think of it, I did see Reuters take a position on a same-sex marriage ballot question the other day; they claimed it had to do with their ability to attract employees, but I didn’t see the connection.

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