Are corporate super PAC contributions waste or self-dealing? A closer look.

Author:Leahy, Joseph K.
Position:Political action committees - IV. Challenging Corporate Political Contributions as Waste C. A Better Argument for Waste? through VI. Conclusion, with footnotes, p. 329-370
  1. A Better Argument for Waste?

    1. How Charitable Donations Differ from Political Contributions

      Nelson's only promising argument seems to be that corporate political contributions constitute waste because they differ from charitable contributions (which are upheld if reasonable). Yet, he offers no compelling basis for concluding that political contributions in fact differ from charitable contributions. He fails to articulate any material or inherent differences between the two.

      In contrast to Nelson, Professor Bainbridge posits (in criticizing Nelson), that corporate campaign contributions are no different than corporate charitable donations. (255) Yet, in his brief blog post (256) Professor Bainbridge offers little factual support for his position. (257) As a result, we ought to inquire: Are corporate political contributions inherently different from charitable contributions in a material way, such that political contributions damage shareholder value (thereby constituting objective waste) or fail to advance any legitimate corporate purpose (thereby constituting subjective waste)? The remainder of this sub-Part explores seven ways in which political contributions differ from charitable donations and assesses whether these differences render political contributions corporate waste.

      1. Binary, Winner-Take-All Nature of Elections

        While Nelson's Target example is a poor one, his Tesoro example actually hints at a good argument. Nelson urges shareholders to file a derivative lawsuit against Tesoro, on the grounds that it "spent $1.5 million" opposing California's Proposition 23 and "received nothing in return" (258) because the proposition failed to pass. This is not unusual. Indeed, it is the way of politics! On average, more than half of all candidates for political office presumably lose their election bids. (259) As a result, after each election, some contributors are arguably left with "nothing to show for" their support of a candidate.

        In this way, corporate political contributions in support of a candidate for elected office or a ballot initiative (and, to some extent, funds spent lobbying for a certain result) differ starkly from the typical charitable contribution: political elections are an all-or-nothing proposition. After each election for public office, one candidate wins the election and gains the power of that office; the other candidates lose and go home, with no power whatsoever. As a result, in each election, only one candidate's supporters have a realistic chance that their candidate will be able to keep her campaign promises by enacting legislation or making policy in some way. All of the other candidates' supporters must either await the next election or hope that the candidate who they opposed will reach across the aisle when governing.

        Civic, social and educational organizations do not necessarily work this way. They can serve a charitable, social, or educational mandate without "defeating" competing organizations, either by besting like-minded organizations in the battle for scarce resources or by defeating the policy goals of organizations that oppose their charitable, social or educational goals. Although charities undoubtedly set goals that are uncertain to come to fruition, such benefits do not inherently present the same sort of all-or-nothing choices that political elections do. (260)

        As a result, even if some corporations make charitable donations in support of contingent benefits, those contingencies will rarely be (or at least, are not inherently) all-or-nothing propositions. What's more, even in those instances where a donation to a charitable organization supports a win-or-lose proposition--like class action litigation--the gains from funding that proposition may not be so starkly all-or-nothing as in the context of politics. All litigation does not end in victory for one party and defeat for the other. (261)

        Although this "winner take all" argument may seem compelling at first glance, it nonetheless has flaws. First, political campaigns are not always solely about the election of a particular candidate. Advertisements in support of a candidate may fail to get that candidate elected but may nonetheless inform voters' opinions for future elections. Indeed, sometimes elections are more about raising awareness or laying the groundwork for future elections than about winning office. Politicians may run for the same office again, or for different offices. (262) It is certainly possible that expenditures made in support of a politician in one election cycle will help that same politician win in a later election. Or, the expenditures to support one candidate may lead voters to vote for a different, like-minded candidate in a future election. This is particularly true with primary elections, where the candidate who loses the primary is from the same party and may end up supporting the candidate who wins the primary in the general election.

        Second, losing candidates do not necessarily disappear after the election. If they already hold a lower elective office, they may remain in that office and continue to wield power for many years after failing to win higher office. (263) Or, even if the losing candidate never runs for higher office again, she may later be appointed to higher office. (264) As a result, a corporate political contribution that results in influence over or goodwill from a losing candidate or her supporters may benefit the corporation down the road, despite that the candidate was defeated.

        Third, this "winner take all" argument proves too much. Although charities are not typically win-or-lose endeavors, businesses often are. Businesses compete with each other for customers--sometimes winning and sometimes losing. As a result, business decisions, like political contributions, regularly result in zero or negative returns to a company. (265) Although business out comes are not necessarily binary, win-or-lose propositions, businesses nonetheless regularly spend large sums of money with little or no financial return. This is the nature of business. Yet, a board does not waste the corporation's assets simply by betting on a project that does not pay off. Such a standard would eviscerate the business judgment rule. Rather, the waste inquiry is whether, in light of the facts known at the time of the board's decision, it made an irrational gamble with the corporation's money. (266) The same question could easily be asked for political contributions.

      2. Zero-Sum Nature of Politics in the Two-Party System

        Donations to one charitable organization do not necessarily harm the interests of a different charitable organization that does not receive the donation. (267) Although there are certainly some divisive political issues--for example, abortion or religion in public schools--where social welfare organizations advocate on both sides of an issue, the vast bulk of charities are not in direct competition with each other (other than in the hunt to raise funds). Thus, if a corporation donates money to Charity A, while that may disappoint Charity B because of the loss of potential funds to "move the ball forward" on that charity's own issue of choice, the funds going to Charity A rarely will result in a loss to Charity B's issue of choice. Even charitable organizations that are competing for scarce resources that have similar missions are not actually harmed by a donation to their rival organization. (268) For example, it would seem that a $1 million gift to education is a benefit to education everywhere, whether it goes to Princeton or Harvard. (269)

        Corporate political contributions differ, especially in the United States. In our largely two-party system, money given to Republicans is not simply unavailable to Democrats; it is money that probably will be used to advance an agenda that is squarely at odds with the Democrats' agenda. That is to say, money spent for the purpose of electing Republican candidates is money spent either directly or indirectly for the purpose of defeating Democratic candidates and the ideas they espouse. Accordingly, corporate political contributions in support of a Democratic candidate in a particular election will in theory cancel out corporate political contributions in support of the Republican candidate in that same election.

      3. Political Spending is an Arms Race

        Because a dollar spent to elect a Democrat essentially cancels out a dollar spent to elect the opposing Republican, more spending on political elections does not necessarily result in greater societal welfare (even assuming the money is spent on the "best" candidates). This is another key difference from spending on charitable, social or educational institutions. In theory, there is no limit to the amount of societal welfare that can be created by giving to these types of organizations. Thus, each dollar spent on charity (if used efficiently by the charity) expands societal welfare. There is every reason to believe that $1 million in donations to a charity increases societal welfare more than $1 donated to charity. (270)

        By contrast, spending on political elections is an arms race. In each election, only one candidate will win office regardless of the overall amount of money that is spent on that election. As a result, in an election between Candidate X and Candidate Y, each additional dollar spent to support Candidate X does not increase societal welfare. At best, that dollar simply increases the chances that Candidate X will be elected rather than Candidate Y. Hence, unless spending to educate the electorate on the candidates inherently promotes societal welfare, (271) the societal welfare resulting from either candidate's victory is necessarily the same whether the candidate spends $1 or $1 million. No matter how much money is spent, either Candidate X or Candidate Y will be elected, with the benefits that result from that candidate taking office. Allowing deep-pocketed corporations to...

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