Abstract
This paper examines whether corporate political speech intended to further economic gain poses a special and potent threat to corporate governance within the "speaking" corporation. In so doing, I have chosen to examine this issue through the lens of a particular economic issue: tax. This is for two reasons. First, as this paper will show, tax issues are particularly divisive between managers and shareholders, thus providing fertile ground for potential agency cost issues.
Additionally, the connection between tax and corporate governance has a distinguished history. Adolfe Berle and Gardiner Means were motivated to study the separation of ownership and control in the modern corporation because of the role of tax in changing the ownership patterns of corporations. Tax considerations continue to lurk as a primary motivation behind many corporate decisions. The Wall Street Journal recently reported that tax considerations lay behind a "divide" on Wall Street between private equity-controlled corporations and publicly traded companies regarding the payout of dividends to investors.
Moreover, in the wake of Citizens United, corporations are likely to engage in political speech. Empirical data from the 2010 midterm elections show firms beginning to exercise their newfound speech rights. Moreover the promise (or threat) of campaign interventions on behalf of incumbents also presents corporations with a powerful new tool in lobbying efforts. In addition, this paper predicts that due to the risks and rewards inherent therein, corporate managers will be most likely to engage in corporate political speech in support of corporate tax breaks—a tax reduction strategy that at least in theory poses a particular risk of agency costs. Therefore, this paper will endeavor to show not only that corporate political speech is indeed likely to occur in the wake of Citizens United, but that the tax initiatives corporate managers will be likely to pursue through such political speech increases the risk of agency costs and by extension the probability of corporate governance problems at our nation's firms.
To address such a problem, this paper proposes a solution with both legal and extralegal components: (1) state and perhaps federal regulation requiring disclosure of corporate speech, including contributions to intermediary groups that participate in political speech, which will in turn enable (2) monitoring of corporate political speech by third-party gatekeepers such as proxy advisory firms. In response to a robust investor-driven market for information, such third-party monitors already scrutinize corporations for symptoms of weak governance, and could easily expand their role to monitor the corporate governance implications of tax-motivated campaign interventions. Moreover, the holistic approach taken by proxy advisory firms, which attempts to analyze corporate action in the context of each particular firm, is superior to an outright ban on corporate tax benefits received as a result of campaign intervention, which will be over-inclusive since not all exercises of corporate political speech will necessarily reflect a corporate governance problem.
Recommended Citation
Michael A. Behrens,
Citizens United, Tax Policy, and Corporate Governance,
12 Fla. Tax Rev.
(2012).
Available at: https://scholarship.law.ufl.edu/ftr/vol12/iss1/8