The Journal of Corporation Law
Andrew A. Schwartz, Financing Corporate Elections, 41 J. Corp. L. 863 (2016), available at https://scholar.law.colorado.edu/faculty-articles/20.
Elections for corporate directorships have become more competitive and expensive in recent years, raising important questions of corporate campaign finance, such as whether an insurgent campaign must disclose the source of its funding and whether a director is permitted to receive third-party compensation during her term in office (known as a "golden leash"). These present novel and unanswered issues of corporate law, but many analogous issues have been resolved in the political sphere using the First Amendment and a well-developed line of Supreme Court case law beginning with Buckley v. Valeo and continuing through Citizens United and other key precedents. This body of law, known as the "Buckley framework," is premised in part on the need to defend a republican form of government from incumbent officials who may seek to entrench themselves in office by imposing tight financial constraints on campaigns that seek to unseat them.
This Article contends that the underlying logic of the Buckley framework is transferrable to the corporate context. Corporations are organized based on a republican form of governance akin to our political democracy where shareholders vote for directors who serve a fixed term. Just as in the political arena, there is a concern that incumbent directors may seek to thwart corporate democracy and entrench themselves in office. For this reason, the famous Blasius doctrine of corporate law calls for searching judicial scrutiny when an incumbent board interferes with the ability of shareholders to vote them out of office. This Article argues that the Blasius doctrine should apply when an incumbent board of directors imposes regulations on the financing of challengers' campaigns, and that the doctrine should in such cases incorporate the teachings of the Buckley framework. Under the combined Blasius-Buckley framework developed herein, incumbent boards have authority to regulate the financing of corporate elections so long as there is a compelling corporate interest at stake. Finally, to illustrate the Blasius-Buckley framework, the Article analyzes corporate bylaws that regulate or prohibit the golden leash, concluding that while the so-called "Wachtell Bylaw" may go too far, a modified version would likely pass muster.
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