It's presidential campaign season, so, predictably, we're seeing lots of media and activist attention on political spending. This year, much of the hype surrounds spending by corporations -- again, predictably, in light of the Supreme Court's 2010 Citizens United decision that political expenditures by organizations such as corporations and labor unions constituted free speech protected by the First Amendment. Most of that hype is downright disingenuous.
It simply isn't the case, as is often alleged, that corporate dollars flowing into the super-PACs that have dominated this political season are undisclosed. And the inconvenient truth for critics of corporate political speech is that among the largest such committees spending money during the Republican nominating campaigns, less than 1 percent of the funds came from publicly traded corporations.
That doesn't mean that companies are politically inactive. Rather, they tend to spend money the same way they always have: through direct lobbying, membership in trade associations that communicate an aggregate industry or corporate message, and corporate political action committee giving to politicians on both sides of the aisle.
Such spending is itself under indirect attack this campaign season. According to data in the Manhattan Institute's Proxy Monitor database, in 2012, shareholder activists have introduced a record number of ballot items in public corporations' annual meetings seeking to force companies to limit or disclose their political activities.
Because most institutional shareholders, like mutual funds and pension funds, are bound to vote their shares in a manner that is intended to maximize share value, such activists have had to advance the counterintuitive notion that corporate political spending actually hurts shareholder returns. To buttress this claim, such activists have touted three recent academic studies by academics that seem to advance their case, the two most prominent of which came from Harvard Law School's John Coates.
Skeptical, the Manhattan Institute commissioned a study analyzing the literature, led by two economists, Robert Shapiro and Doug Dowson -- the former of whom is a former Clinton administration official and co-founder of the left-leaning Progressive Policy Institute. Shapiro and Dowson found, unsurprisingly, that the studies touted by shareholder activists are outliers in a vast 20-year academic literature that generally finds corporate lobbying and PAC activity to benefit corporate returns.
The new outlier studies, given their methodologies, likely showed not that companies' political spending itself depresses returns, but rather that struggling corporations with lower prospects in the marketplace invest more money in the political process in an effort to improve their position. While it's possible to make statistical corrections to reduce "reverse causality," these studies failed to do so.
Indeed, the initial Coates study, somewhat incredibly, failed to control even for firms' size or industry. His second study did so, with the result that regulated industries -- comprising some one-third of the economy -- showed positive returns on political spending.
Moreover, in running his statistical tests that show a negative relationship between shareholder value and corporate lobbying and PAC spending, Coates implausibly uses a variable that only expresses whether the company engaged in any lobbying or spending whatsoever. When one looks at the level of such spending, his numbers tend to reverse.
That corporate political spending tends to benefit corporate shareholders is hardly shocking. That's probably why shareholders have been rather emphatically rebuking activists' proposals to tie corporations' hands.
In 2012, more than 50 shareholder proposals seeking to force disclosure of corporate political spending or otherwise limit corporate political activity have been introduced at Fortune 200 companies. None of these has received as much as 40 percent of the vote, and the average vote in support has hovered around 20 percent -- down from last year.
The merits and drawbacks of corporate political spending will continue to be debated. But most shareholders are smart enough to know that such spending is not against their interests.
James R. Copland is the director of the Center for Legal Policy at the Manhattan Institute, which sponsors a publicly available database of corporate shareholder proposals, ProxyMonitor.org.