Constitution / Economy / Politics

Questioning the “Shareholder Solution”

On October 3, the Washington Post ran an opinion piece entitled “A shareholder solution to ‘Citizens United.’” As the title indicates, the article presents a way to control corporate campaign financing permitted by Citizens United. Specifically, the article introduces proposed legislation in Maryland that would require corporations to disclose and subsequently receive support from a “majority” of its shareholders to spend money on political campaigns.


Corporations donate money that has been, in part, supplied by shareholders. However, to state that corporations donate “in the name of their shareholders,” with “shareholders’ money,” or “speak” for the shareholders politically fails to understand a corporation as a financial entity and the purpose of corporate donations.

First, the corporation has independent rights and authority distinct from a majority of its shareholders. Upon purchasing shares in a corporation, shareholders consent to the administration of the corporation by the managers. Indeed, this is the case with most other corporate spending and I see no reason why an exception should be carved out for political spending? Thus, it does not follow that shareholders retain some right over their money, and therefore must be (a) notified and (b) consent to any political spending done by corporations.

Second, Corporate political spending is simply an investment. The article states, “it is fanciful to argue that a corporation’s political spending reflects the political beliefs of the shareholders. What unites shareholders…is not our political beliefs but our financial investments.” Indeed, but no one would argue that a corporation’s political spending neither does nor necessarily should align with the political beliefs of its shareholders. As aptly put by Milton Friedman, “the social responsibility of business is to increase its profits.” Therefore, shareholders should assume that corporate political spending accords only with the financial interests of the respective corporation–it is a political investment. As with any investment, the political donations only continue if they provide a return. This is all we, as shareholders, should hope for.

Even if one subscribes to the view of corporations inherent in the “shareholder solution,”  would the proposed legislation be desirable? The article offers a democratic process by which a majority of shareholders could authorize a corporation to invest in political campaigns. But democratic process does not ensure majority-will; collective action may be manipulated by an agenda-setter a la Arrow’s Impossibility Theorem.

Even if majority will were successfully implemented, is majority will even desirable? It has been well documented that the population displays general ignorance with regard to important yet basic political issues.  Shareholders’ understanding of the connection between business interests and politics is even more doubtful.  Thus, it is fanciful to think that shareholders are generally knowledgeable enough about politics, much less the business interests of corporations to provide a valuable check on corporate spending.

Corporations do not “speak” for the political beliefs of their shareholders; they tactically decide to invest in the political process to secure a greater return for their shareholders.   Just as shareholders defer to corporate leadership to make decisions on a host of other business decisions, shareholders should likewise defer to corporate leadership to decide whether or not to donate to political campaigns.

It may be socially beneficial to restrict corporate political donations but the “shareholder solution” is a poor vehicle to accomplish that goal.