The latest Supreme Court ruling: What were they thinking?
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On January 21, the US Supreme Court ruled 5-4 that corporations and labor unions have the right to unlimited spending during political campaigns. Specifically, the ruling overturned two parts of the previous law that prevented them from using organization funds for commercials either supporting or undermining named candidates and/or issue viewpoints expressed by particular candidates. This is not to say they can contribute unlimited amounts of money directly to political candidates or to their campaigns, because those types of contributions are still limited in the same manner as for individuals.
The supposed logic is (I think), since corporations and labor unions are considered "legal entities," they are afforded the same first amendment rights as individuals. Personally, I do not think the framers of the US Constitution gave much thought, one way or the other, to freedom of speech for organizations. But, then again, I am not a US Constitution expert.
However, there are many accompanying issues and possible outcomes associated with this ruling. Many of the more emotional and controversial issues have been aired in the popular press, but to my knowledge, many other, perhaps more subtle, issues have not been widely discussed. Therefore, in this article, I will suggest several feasible outcomes to contemplate that may follow in the years to come.
Will corporations spend their profits on political campaigns? If so, how much and will they attempt to create and put before the public such ads based on sound financial analyses? For example, corporate spending on political campaigns should be subject to positive net present value (NPV) scrutiny, like any other type of corporate investment. As we teach in the classroom, this is consistent with optimizing stockholder wealth. Will corporate managers do the right thing for stockholders and do the appropriate financial analysis of potential campaign spending or will they adhere to their own agendas and produce yet another type of agency problem?
Assume for the moment that corporate managers do the proper financial analyses for political spending. What happens when some shareholders vehemently disagree with the political positions of their corporation? They can sell their stock as a passive protest. Or, they can challenge corporate management in proxy fights and stockholder meetings. These are the same responses to any traditional agency problem within a corporation. However, is it possible, that over time, the population of a given corporation's stockowners will be of very homogeneous political persuasions? Is this outcome in the best interest of our country and economy? And, will the potential customers of politically active corporations boycott to protest, over buy to support or ignore political spending all together when deciding to purchase said corporation's products?
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