One partial solution is to require public corporations to disclose how much money they are spending on politics and where it is going. After all, in Citizens United, the Supreme Court relied on shareholders to monitor corporate political spending and ensure that directors and officers are only engaging in political activity that is in the company's (and the shareholders') interests. Last month, an all-star committee of corporate law professors* petitioned the Securities and Exchange Commission to write rules requiring corporate disclosure of political activities.

Although political contributions may not seem as important to investors as, say, a company's income statement and balance sheet, the SEC certainly has the power to require their disclosure. The Securities Exchange Act of 1934 authorizes the SEC to write regulations that are "necessary or appropriate in the public interest or for the protection of investors." There is a strong argument that mandatory disclosure is in the public interest, since it helps voters know who is paying for the attack ads they see on TV. In addition, disclosure also helps investors make ordinary investing decisions. The more money a company spends on politics, the lower the profits available for shareholders--unless it is earning a positive rate of return on its political spending.

Now, public companies don't have to disclose how they spend every single dollar. To a large extent, what they do is left up to the judgment of executive managers, who are periodically evaluated by the board of directors, who are nominally elected by shareholders. This is to protect companies from having to disclose huge amounts of information and from being micromanaged by their shareholders. So arguably the board could monitor political spending and make sure it is in the shareholders' interests. But that argument, as people say in law school, "proves too much." If we could always trust boards to ensure that companies only act in the shareholders' interests, then we would hardly need any disclosures at all.

There are certainly other areas where disclosures are already required in a level of detail out of proportion to their immediate economic significance. The most obvious is compensation of directors and officers. Here, the fear is that the directors and officers have a conflict of interest--their bank accounts versus the shareholders' bank accounts--and that therefore the usual mechanisms of corporate governance may not work.

The exact same thing is true of political spending. Corporations certainly do spend money on political activities that they expect to improve their bottom lines: hence the hundreds of millions of dollars financial institutions spent on lobbying against financial reform. But if their political spending is left solely up to executives and maybe directors, those people also have personal interests that they can advance by directing money to their preferred political organizations. For example, corporate executives often own a lot of stock, so they have an incentive to support politicians who will be friendly to their companies. But they are also rich people, so they have an incentive to support politicians who will reduce taxes on the rich (and especially taxes on gains from stock)--even though lower taxes mean less money for the infrastructure spending that many businesses want and even the Chamber of Commerce wants. (For more on this topic, see Part II.C of this paper by Lucian Bebchuk and Robert Jackson.)