Corporate Law Constraints on Political Spending

James Kwak, “Corporate Law Constraints on Political Spending,” North Carolina Banking Institute Journal 18 (2014): 251–95

Abstract

Corporations currently can participate in electoral politics in the United States through various means: affiliated PACs, super PACs, 501(c)(6) organizations like the Chamber of Commerce, 501(c)(4) “social welfare” organizations, and traditional 501(c)(3) charitable organizations. Corporate law, as generally interpreted by the courts, places few constraints on the ability of corporate insiders to engage in politics as they choose. I argue that existing statutes and case law could be interpreted to impose greater constraints on corporate political activity. Political contributions should be reviewed as potential violations of the duty of loyalty whenever they could provide personal benefits to board members and executives (e.g., by making a cut in their individual income tax rates more likely). The simplest standard would be to require that insiders must reasonably believe that political contributions (and “charitable” contributions to organizations that engage in politics) will result in a net benefit to the corporation — not just some arbitrary benefit that could be worth less than the value of the contribution itself. This standard would be more consistent with the rest of corporate law, according to which insiders are not allowed to expend shareholder assets without at least some belief that they are doing so for the good of the corporation.

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Kwak (2013) Corporate Law Constraints on Political Spending

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Improving Retirement Savings Options for Employees

James Kwak, “Improving Retirement Savings Options for Employees,” University of Pennsylvania Journal of Business Law 15, no. 2 (Winter 2013): 483-540

Abstract

Americans do not save enough for retirement. One reason is that our retirement savings accounts — whether employer-sponsored defined-contribution plans such as 401(k) plans or individual retirement accounts — are heavily invested in actively managed mutual funds that siphon off tens of billions of dollars in fees every year yet deliver returns that trail the overall market. Under existing law, as interpreted by the courts, mutual funds may charge high fees to investors, and companies may offer expensive, active funds to their employees. This paper argues that the Employee Retirement Income Security Act should be reinterpreted, in light of basic principles of trust investment law and the underlying purpose of the statute, to strongly encourage employers to offer low-cost index funds in their pension plans. Existing Department of Labor regulations should be modified to clarify that the current safe harbor for participant- directed plans (in which participants select among investment options chosen by plan administrators) does not extend to plans that include expensive, actively managed funds. This would improve the investment options available to American workers and increase their chances of generating sufficient income in retirement.

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Kwak (2013) Improving Retirement Savings Options for Employees