Roll Call, CEOs Shouldn’t Use Corporate Treasury as Personal Political Piggy Bank, by Donal B. Tobin (Ohio State):
Recent reports indicate that News Corp., based on the wishes of CEO Rupert Murdoch, contributed $1 million to the Republican Governors Association, and through it, to Ohio gubernatorial candidate John Kasich. This contribution could create legal problems for Murdoch and News Corp. and highlights the need for new regulations of corporate contributions to political campaigns.
News Corp.’s contribution sheds light on the significant potential for abuse as powerful CEOs use corporate treasuries as their own private pocket books to make large political contributions to their friends. Such use of corporate funds potentially creates corporate waste and thus violates the CEO’s duty to shareholders and may also violate an executive’s fiduciary duty. Under existing law, corporations may make political contributions, but corporations still have a duty to shareholders to make sure that the contributions are in the best interest of the corporation and its shareholders.
News Corp.’s contribution raises concern because Murdoch reportedly admitted that it did not have a business purpose but was instead to support a friend. When Murdoch was asked about the contribution and how it affected Fox News (which is owned by News Corp.) and its credibility, Politico reports that Murdoch explained: “It doesn’t reflect on Fox News. It had nothing to do with Fox News. The RGA [gift] was actually [a result] of my friendship with John Kasich.”
A corporation can have a business purpose for making a political contribution, and such a contribution would not necessarily violate the executive’s fiduciary duty to the shareholders, but the CEO cannot make a contribution from the corporation that is based solely on the CEO’s friendship with the candidate. CEOs simply cannot use the corporate treasury as a personal piggy bank. Why didn’t Murdoch simply write a check out of his own personal bank account? Why did he have to spend shareholders’ money? The probable answer is that, thanks to the tax code, it is less expensive to donate the money from the corporate treasury. …
The recent Supreme Court decision in Citizen’s United has created a free-for-all with regard to corporate contributions for political advocacy. The Wild Wild West is now in Washington, D.C. There are few rules and checks on the potential abuse by corporations. However, several first steps — putting corporate donations on par with individual donations and requiring shareholders of corporations to approve any political contribution over a certain amount — will help ensure that corporations are actually operating on behalf of the shareholders and not on behalf of an executive’s friend.
