How Corporate Political Spending Strains the Limits of the Business Judgment Rule

Abstract

A number of agency issues arise when a corporation chooses to exercise its freedom of speech by making donations to a super PAC or other political organization. This article draws a distinction between contributions designed to influence legislation and regulation of the corporation and political donations that corporations justify as goodwill or community outreach. Analyzing the issue with an emphasis on the duty of loyalty, the article argues that much corporate political spending cannot really be understood as a business decision that should enjoy the protection of the business judgment rule. It also reflects on the Supreme Court’s recent decision in Hobby Lobby to illuminate the nature of much corporate political spending. The article concludes that greater scrutiny of corporate political donations under the law of fiduciary duties will have two positive benefits: 1. it will prevent spending that is designed to enrich the corporate decision makers themselves; and 2. it will shine more light on spending that helps advance a corporation’s own interests at the expense of the public good.