No. of Recommendations: 7
Well, I'll chime in briefly in opposition to Selena's point.

The American people conduct most of their economic activity through corporations. Virtually no one runs their business as an individual enterprise (or "sole proprietorship"); even folks that work for themselves have usually set up a corporate shell that they are nominally employed by. But the real core of American business is transacted through the corporate form. Chances are that 90% or more of the economic transactions you conduct are with a corporation.

It's not just limited to businesses, either, but countless other aspects of American life. Most charitable activities are organized through corporations, including many churches and synagogues and other eleemosynary institutions.

(Actually, I've been referring to "corporations," but really I'm talking about the whole panoply of artificial entities: corporations, l.l.c.'s, partnerships, and general partnerships)

It's simply inefficient, and thoroughly unreasonable, to exclude so large and important a segment of our society from participation in the political process. And I'm surprised to see that type of position taken on the Fool, which normally is such a staunch advocate of the individual investor.

Suppose big bad Philip Morris wishes to participate in the upcoming California "no-smoking" referendum. They want to do $50K or $100K of media buys. It might be populist to suggest that each of the many hundreds of thousands of individual MO shareholders should each kick in a couple of pennies - but realistically, there's no practical mechanism for doing so. For large corporations - heck, even for smaller companies - there is no efficient mechanism for collective action in the interests of the shareholders outside of acting through the corporate form. Transaction costs and free rider problems preclude any meaningful activity. That's why the corporate form exists in the first place - to eliminate those problems.

I also disagree with Bill's suggestion that shareholder approval is necessary before allocating capital in this fashion. Management makes all kinds of capital allocation decisions without checking with the shareholders. Again, delegated management exists because coordinated activity among large number of shareholders cannot be efficiently implemented. If the shareholders disagree with the effectiveness of management's capital allocation decisions, then there is a mechanism for expressing that. Quite frankly, given the portrayal of the political process in the press, it appears that for most companies the allocation of capital to the political process is the only thing that management is getting right.

It is naive to suggest that business interests can participate in the political process through means other than donating money. Virtually everything you might suggest as such an alternative is usually deemed an "in-kind" contribution, and would be barred along with corporate donations. That includes mailers, organizing rallies or events, or printing and posting signs. Put simply, the only effective way that shareholders can advance their business interests as shareholders is through the corporate form.

Here in Miami-Dade, we do not permit corporate donations to local elections. As a result, most political fund-raising is conducted by gathering smallish groups of high net-worth individuals. Once organizations cannot participate, the only source for efficient fund-raising is the individual who can afford a large contribution. Many organizations that might be able to make meaningful contributions as organizations, but who are not comprised of wealthy individuals, get shut out of the process. It has not worked out well.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.