[EL] Too Brave for the "Home of the Brave"?

[Scarberry, Mark]

I'm not a corporation law expert, but a key feature of corporations is separation of management and ownership. For corporation law scholars who don't think shareholders own the corporation, make that separation of management and equity investment.

That separation serves various functions, perhaps including overcoming collective action problems by in effect preventing shareholders from pullng their money out of the corporation every time they disagree with a decision made by the managers. (Selling your shares is not the same as pulling money out of the corporation once the money has been invested in it. Sale of shares does not deplete the corporation's resources, though if a lot of sell, the price of the stock may be reduced, with the effect that that the corporation's cost of raising further equity capital is increased. At least that's how I understand it late at night.)

Thus, one function of separation of management and ownership is to allow the enterprise to be operated with some continuity by persons who the investors think will make good decisions. One good decision might be to support a candidate whose policies would help the corporation be successful (for example, by reducing regulation that would prevent the corporation from producing natural gas to sell to customers). 

Is such support is a kind of corruption? Is it corrupt for corporations to enable election of officials whose policies will allow them to be more profitable? I have mixed feelings on that point. I suppose most of us would prefer candidates whose policies are likely to improve our economic lot, all else being equal. It's not clear to me that supporting officials whose policies will allow a company to operate profitably is necessarily a kind of corruption. It may instead protect pension funds, 401(k) accounts, and jobs. It may also lead, on the negative side, to more pollution being permitted than we as a whole would prefer, and to rent-seeking behavior. In any event, I think the whole issue is more complex as a matter of corporation law than has been suggested.

I suppose that as long as we're willing to allow media corporations to have freedom of speech (e.g., NY Times), we will need to allow other corporations also to engage in free speech, and shareholders will need to either vote out the rascals (if rascals they be) or vote with their feet by selling their shares. Managers don't stay managers very long if a lot of shareholders sell, so that the price of the stock is depressed.

Mark

Mark S. Scarberry
Professor of Law
Pepperdine Univ. School of Law

 

-----Original Message-----
From: law-election-bounces at department-lists.uci.edu [mailto:law-election-bounces at department-lists.uci.edu] On Behalf Of Susan Lerner
Sent: Tuesday, May 01, 2012 3:18 PM
To: Smith, Brad; law-election-bounces at department-lists.uci.edu; Joseph Birkenstock; JBoppjr at aol.com; wmaurer at ij.org; Trevor Potter
Cc: law-election at uci.edu
Subject: Re: [EL] Too Brave for the "Home of the Brave"?

Doesn 't this line of argument overlook some basic elements of corporation law? It seems to me that people use the corporate organizational form not to overcome collective action problems, but to take advantage of the privilege of limited personal liability and other legal privileges granted by law in setting up this special entity. If it's just collective action, you don't need to bother incorporating (oh, the burden of that paperwork!),you can form an association or let the entity be a partnership.  But because corporations are granted special privileges by their creator - the Legislature - they have special attributes not available to the rest of us.. There are perfectly good reasons why we as a society might want to create this specialized entity and grant it special status and privileges, but with those privileges should come obligations and controls.

There is another distinction which perhaps I missed being raised, which is how humans behave with their own money and with money which belongs to others. It may well be that the individuals associated with a corporation are reluctant to use their own $ in contributing to a PAC, while there is no similar reluctance in using corporate treasury $ of a profitable corporation.. Corporate $ has the advantage of belonging to the faceless mass of shareholders and is thus easier to spend.. .  
Susan Lerner
Sent from my Verizon Wireless BlackBerry, Please excuse any typos. Susan Lerner, Common Cause/NY 917-670-5670