The First Amendment and corporate governance

Larry Ribstein —  24 May 2011

Robert Jackson recently discussed an SEC staff ruling that the ordinary business exception for shareholder proposals under Rule 14a-8 did not justify excluding a proposal recommending that the board disclose and let shareholders vote on its policies related to corporate political spending. Jackson opines that “the decision will help bring corporate political speech decisions into line with the interests of shareholders” in the wake of the Supreme Court’s Citizens United decision. 

Meanwhile, Jackson’s article with Bebchuk, Corporate Political Speech: Who Decides? 124 Harv. L. Rev. 83 (2010), proposes going beyond merely permitting shareholder recommendations under 14a-8 to, among other things, majority shareholder voting on corporate speech decisions.

The idea of bringing corporate political speech into line shareholder interests sounds unobjectionable until you ask, “which shareholders?” As I discuss in my recent paper, First Amendment and Corporate Governance, shareholder voting on corporate speech could amplify activist business skeptics while muting the diversified shareholders who would prefer that business views be heard.  

There’s also the clash between diversified and non-diversified pro-business shareholders.  The latter may prefer rules that facilitate costly wealth transfers between firms, while the former want only corporate acts and legal rules that maximize the value of their entire portfolios.

And then we could ask why shareholders’ interests should matter more than those of other stakeholders, particularly including employees, whose political interests may sharply diverge from those of shareholders with broadly diversified portfolios.

The most likely effect (and possible intent) of requiring shareholder voting on corporate contributions would be to burden and therefore reduce corporations’ ability to speak at all.  This could promote government censorship of corporate speech, precisely what the Supreme Court said in CU the First Amendment didn’t permit.  

I note in my article that it’s far better to delegate business decisions regarding corporate political spending, like others, to the board. I, of course, cite Steve Bainbridge (who posts to similar effect).  Corporate law provides many ways to deal with directors who act contrary to corporate interests, including fiduciary duties and shareholder exit.  This discipline may be imperfect, but it doesn’t work worse for corporate speech than for other types of decisions where managers’ interests conflict even more directly with those of the corporation.   

The main point to emphasize here is that there is no special free speech reason to protect shareholders from managerial control of corporate speech.  If anything, the arguments cut the other way.  Government control of corporate speech surely raises some voices, and therefore some ideas, above others.  And legislators and regulators seek to promote their own interests, which is the First Amendment’s main concern.

The bottom line is that First Amendment should constrain government regulation not only directly of corporate political speech, but also of the governance processes that produce it. The SEC’s 14a-8 ruling and Bebchuk and Jackson’s proposals would move securities regulation toward a confrontation with the First Amendment that has been brewing since 1933.  See my article with Butler, Corporate Governance Speech and the First Amendment, 43 U. Kans. L. Rev. 163 (1994).

Larry Ribstein


Professor of Law, University of Illinois College of Law

3 responses to The First Amendment and corporate governance


    Larry, I’m sorry but you are descending into some bizarre logic on this one. Your rationale would be akin to me arguing that the government’s imposition of laws against stealing is a restriction on my liberty interests which in my view would include the right to run around and steal from anyone I want.

    The Supreme Court came up with a hackneyed opinion in Citizens United that grants free speech rights to non-human beings. Now we are all left perplexed at who these new “persons” are. Obviously the government must now impose regulations that insure that the free speech of these new “persons” is actually controlled by the “persons” in question and not, for example, by a tiny group of rich executives and self-appointed boards. Obviously.

    As for your idea of just leaving it to the self-appointed directors, your statement, “Corporate law provides many ways to deal with directors who act contrary to corporate interests,” was quite humorous.

    For precisely the same reasons that I found your statement to be laughable, the government must insure that mechanisms are put in place to insure that the actual persons granted free speech rights by the Supreme Court (the owners of the corporations) are the ones actually exercising their new rights instead of having those rights stolen by fat-cat executives and self-appointed boards. That’s not a “burden” on the new speech rights any more than it is a “burden” on me that I am not allowed to run around stealing from anyone I want.


    The problem with allowing companies a voice in the political process is that all it really does is give a handful of company executives the authority to finance their personal political views at the expense of their shareholders. I doubt that there is any convincing evidence that these individual executives either consider the interests of their company or know which politician would best advance them. No, they follow their own emotional prejudices at everyone else’s expense. In an ideal world political contributions would be limited to individuals and neither corporations nor unions would be permitted to disburse other people’s money.

Trackbacks and Pingbacks:

  1. Securities Law Practice Center - PLI – Top 5 Corporate & Securities Blog Posts This Week - May 27, 2011

    […] Truth On the Market: The First Amendment and Corporate Governance – In this post, Larry Ribstein discusses the SEC’s Rule 14a-8 ruling as well as a […]