Corporate Political Spending and the Size Effect

Authors

Reilly S. Steel, Columbia Law SchoolFollow

Author ORCID Identifier

0009-0005-2290-7062

Document Type

Article

Publication Date

2017

Abstract

In the years since Citizens United v. FEC, corporate-political-spending disclosure has become an increasingly heated public policy issue. The portion of the Court’s opinion that championed shareholder rights to make decisions about corporate political speech generated a substantial, interdisciplinary literature, and shareholders responded by demanding political-spending disclosure through a bevy of shareholder proposals. However, many commentators have argued that shareholder activists’ efforts to bring about disclosure on their own are bound to be inade­quate, and in 2011, a group of law professors petitioned the Securities and Exchange Commission (SEC) for rules that would mandate disclo­sure by public companies — a petition that generated over a million comment letters (and considerable controversy). Critics of the petition have charged that mandatory rules are unnecessary because private or­dering should be sufficient to induce the optimal level of disclosure, while supporters have questioned the assumption that private ordering is enough in light of shareholders’ collective-action problems. This debate has continued unabated, with Senator Elizabeth Warren calling on President Obama in October 2016 to remove then-SEC Chair Mary Jo White for failing to act on the 2011 petition. Although the 2011 petition may, given the current political environment, languish for the time be­ing, the push for political-spending disclosure seems unlikely to disap­pear for long.

Despite the persistence of this debate, there has been virtually no empirical investigation into vote outcomes for shareholder proposals related to political spending. This Comment begins to fill this gap in the literature through an empirical study of approximately six years of vote-outcome data for political-spending proposals, focusing on the potential for a “size effect.” If shareholders’ collective-action problems are indeed a barrier to private implementation of effective political-spending disclo­sure, then it should be more difficult for shareholder proposals to achieve high levels of support at larger companies—where one would expect these collective-action problems to be the most severe. Consistent with this theory, I find that even controlling for firm-specific characteristics, doubling a company’s market capitalization is associated with a two-percentage-point decline in shareholder support. Although this research design does not permit a conclusive causal inference, the evidence nevertheless provides suggestive empirical support for one of the most compelling justifications for mandating disclosure of compa­nies’ political spending.

The rest of this Comment proceeds in three Parts. Part I provides background information and explains the Comment’s theory, while Part II undertakes the Comment’s empirical analysis and considers objections and limitations. Part III discusses implications for lawmakers and policy­makers. A brief conclusion follows.

Disciplines

Business Organizations Law | Law

Comments

This article originally appeared in 118 Colum. L. Rev. Online 1 (2017). Reprinted by permission.

Recommended Citation

Reilly S. Steel, Corporate Political Spending and the Size Effect, 118 Colum. L. Rev. Online 1 (2017).
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/4673