Bloomberg Law
March 21, 2023, 8:00 AM

How to Juggle Corporate Political Activity with Stakeholder Goals

Allison Herren Lee
Allison Herren Lee
New York University School of Law
Ed Dolan
Ed Dolan
Niskanen Center

Should a socially responsible corporation give primacy to shareholders or balance the interests of a broader set of stakeholders? The debate has been going on so long it might seem there is nothing new to say. Yet, in at least one area—corporate political activity—there is hope for common ground.

The Erb Institute’s new set of principles for Corporate Political Responsibility claim that common ground and offer a roadmap for more responsible participation by businesses in our political system.

Friedman’s Legacy

Half a century ago Milton Friedman framed the debate with a famous golden rule: “In a free society … there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

Clearly, Friedman was an advocate of shareholder primacy. He saw corporate agents who put any interest above the pursuit of profit as stealing from their principals, the shareholders. But his provisos regarding open competition and rules of the game made clear that he favored a do-unto-others version of shareholder primacy.

Friedman envisioned a world where corporations would enrich their shareholders by innovating, improving service and product quality, and offering value for money, while expecting others to compete on the same fair and honest terms.

In practice, however, Friedman’s golden rule is often reduced to a narrow duty to stay within the letter of the law. But that approach opens a huge loophole in the Friedmanite position. The law, after all, is not immutable. What if corporate leaders are not content to stay within the law as they find it? What if they engage in political activities, legal in themselves, to skew the laws that govern what constitutes free competition or deceit, or what kinds of spending and lobbying are legal at all?

That is where the new CPR principles come into play. They are not meant to resolve the issue of primacy. Their purpose is to lay out rules of corporate conduct that reasonably address the political activity loophole regardless of one’s position in the broader shareholder-stakeholder debate.


Let’s look at a real-world example. Converting the economy to run on clean electric power is a key part of the fight against climate change. Some fossil-fuel companies are starting to get on board with clean electrification, but even for those firms, there is often a large gap between green messaging and actual green investment.

More to the point, some companies are not just slow to move, but actively fight clean electrification using questionable, if not outright deceptive, maneuvers that fly in the face of the facts and broad scientific consensus.

For example, as detailed in a recent report, the Propane Education and Research Council, a not-for-profit operated and funded by the propane industry, plans to spend $13 million in 2023 on anti-electrification efforts, including $600,000 paid to social media influencers.

According to the CEO of a large propane company, PERC should “combat the growing narrative that fossil fuel combustion is the main cause of climate change …” This is reminiscent of disinformation promoted by tobacco companies regarding the health risks of smoking.

One common tactic in the energy sector is to support local opposition to green power projects, often using social media to spread disinformation.

Although these efforts may mostly fall within the letter of the law, it is a stretch to see them as open and free competition, without deception. The Erb Institute’s CPR principles address such tactics directly. They set new standards for legitimacy, accountability, responsibility, and transparency. They define political activities broadly, to include not just campaign spending, but lobbying, philanthropy, activities undertaken through trade associations, and public discourse on policy issues.

Many of the tactics used in opposing green electrification would be inconsistent with the CPR principles as well as Friedman’s vision of corporate purpose. Lobbying for rules that make it harder to build transmission lines than gas pipelines is not competition on the basis of quality, price, and long-term value.

Using social media to spread disinformation at odds with accepted science is not good-faith civic discourse. Routing political spending through layers of PACs or tax-exempt entities is not transparency.

Nor are such activities limited to the single example of clean electrification. The CPR principles offer a method for filtering out unacceptable political activities in any relevant area—international trade, the use of noncompete clauses or compulsory arbitration in employment contracts, risk-taking by financial institutions, antitrust laws, accounting rules or myriad other laws and regulations.

Corporations wield tremendous resources and public influence. The CPR principles offer a way to attest with words and deeds what responsible corporate political activities mean in a free and democratic society.

If the ones with the gold are allowed to make the rules, the whole case for an economy based on fair competition and free markets falls apart. Shareholders lose, stakeholders lose, we all lose. Responsible corporate stewards, whatever their philosophical differences, can help avoid this by adopting the CPR principles.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Allison Herren Lee is an adjunct professor at NYU Law School and former acting chair of the Securities and Exchange Commission.

Ed Dolan is an economist and a senior fellow at the Niskanen Center.

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