Post-Citizens United: Using Shareholder Derivative Claims of Corporate Waste to Challenge Corporate Independent Political Expenditures

Abstract

The Supreme Court’s recent decision in Citizens United v. FEC allows companies to spend unlimited sums from their treasuries on advertisements that promote or oppose political candidates. This issue has taken the main stage in American politics, especially with the current Republican primary race and the Presidential election in November. This article discusses how shareholders may use derivative claims of corporate waste to challenge independent political expenditures that they believe are detrimental to the corporation. The article begins by discussing the history of the corporate waste doctrine and looks at the standard for pleading a claim of corporate waste. The article then transitions into a discussion of statutory and case law defining corporate discretion to refrain from profit-maximizing activity, primarily looking at charitable donations.

The article then discusses the issue of the lack of transparency of a corporation’s political expenditures and the evolution of case law concerning shareholders using the corporate waste doctrine to invalidate corporate political expenditures. The article suggests that shareholders file a request for corporate records as a prerequisite to filing a derivative action and provides arguments shareholders should make when challenging corporate independent political expenditures. The article concludes by discussing approaches that courts may use to determine the “benefit” and “business purpose” of these independent political expenditures and proposes a model corporate political expenditure program and the formation of a Political Spending Compliance Committee.

Keywords: shareholder, derivative, corporate waste, political expenditure, Citizens United