The argument that corporate spending on political campaigns is making companies rich has been screamed ad infinitum by the media and pro-regulation groups like Common Cause.
It comes as somewhat of a surprise then, that Harvard Law Professor John Coates IV argued in a research paper published a few months ago that corporate spending is bad for the opposite reason, i.e., that it “correlates negatively with shareholder value” in “a majority of industries.” In other words, the more corporations spend on political activity, the more their shareholders are losing value.
According to the paper:
…the negative politics-value relationship is stronger in firms making large capital expenditures, suggesting that politics may lead firms to pursue value-destroying projects… After the exogenous shock of Citizens United, corporate lobbying and PAC activity jumped, in both frequency and amount, and firms that were politically active in 2008 had lower value in 2010 than other firms, consistent with politics at least partly causing and not merely correlating with lower value.
It seems opponents of corporate speech have gotten so tangled up in their fury over Citizens United that they no longer agree whether corporate campaign giving is actually good or bad for a corporation’s bottom line.
The paper concludes that “the results are inconsistent with politics generally serving shareholder interests, and support proposals to require disclosure of political activity to shareholders.” Coates fails to note, however, that over the past two years alone there have been proxy votes in dozens of corporations (nearly all brought by pro-regulation organizations coordinating with the Center for Political Accountability that likely bought shares merely to influence corporate governance) to demand companies disclose their political giving. All of them failed.
It is important to remember that shareholders retain the power to rein in corporate political donations should they not serve the interest of the company, just as voters are free to reject a candidate if they are concerned with the amount of support he gets from sources they are uncomfortable with. The overwhelming failure of disclosure votes should tell Professor Coates that he is barking up the wrong tree.
If the Coates paper is correct and corporate political activity is causing declining value for shareholders, this may indicate why corporate donations to super PACs have remained modest, and may provide a natural ceiling of sorts for the utility of campaign contributions. However, a recent study published by the Manhattan Institute contradicts Coates’s claim. From the Wall Street Journal:
In a report to be released Tuesday by the Manhattan Institute, economist (and former senior Clinton Administration official) Rob Shapiro and co-author Douglas Dowson sort through the academic literature and find that “corporate political efforts generally have positive effects on a firm’s market value and its shareholder returns.”
The relationship between business and government is complex, but Messrs. Shapiro and Dowson find that “most firms, like most individuals, behave rationally and strategically in their spending decisions on campaigns and lobbying, devoting resources in ways that, they have reason to expect, will benefit the corporations themselves and their shareholders.”
Hopefully regulation advocates will be able to untwist their knickers long enough to figure out whether campaign donations are good or bad for corporate shareholders. They have not often been burdened by the need for proof, so it’s safe to say their jimmies will remain rustled.