The John M. Olin Center

Paper Abstract

1022. Leo E. Strine, Jr., Fiduciary Blind Spot: The Failure of Institutional Investors to Prevent the Illegitimate Use of Working Americans’ Savings for Corporate Political Spending, 11/2019.

Abstract: Abstract: The major mutual fund families—BlackRock, Vanguard, State Street, and Fidelity (the “Big 4”)—invest much of the capital of American workers saving for retirement (“Worker Investors”). The Big 4 are more willing than ever to second-guess company management to fulfill their fiduciary duties.

In one area, however, the Big 4 continue to have a fiduciary blind spot: they let corporate management spend the Worker Investors’ entrusted capital for political purposes without constraint. The Big 4 abdicate in the area of political spending because they know that they do not have Worker Investors’ capital for political reasons and because the funds do not have legitimacy to speak for them politically. But mutual funds do not invest in public companies for political reasons, and public company management has no legitimacy to use corporate funds for political expression either. Thus, a “double legitimacy” problem infects corporate political spending. This Essay identifies and illustrates this double legitimacy problem, and shows why unconstrained corporate political spending is contrary to Worker Investors’ interests.

As of now, the Big 4 refuse to support even proposals to require the very disclosure they would need if they were to monitor corporate political spending. And their capacity to monitor if they have the information is lacking. But, if the Big 4 open their fiduciary eyes and follow the recommendation of industry icon Jack Bogle, and vote to require that any political spending from corporate treasury funds be subject to approval of a supermajority of stockholders, they alone could cure the double legitimacy problem of corporate political spending. Because of their substantial voting power, the support of the Big 4 would ensure that this check on illegitimate corporate political spending would be put in place and thus make an important contribution to restoring some basic fairness to our political process.

1022 PDF