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When Government Contractors May or May Not Spend Money On Political Speech

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Abstract

Some leading economists maintain that corporate managers have no social responsibilities other than to maximize profits and obey the law. To support that thesis, they rely, in part, on the agency theory of the firm. The theory provides that managers are agents of shareholders and must do what shareholders want, which is generally to make as much money as possible. For purposes of this article, I accept that managers are agents of shareholders, but I reject the conclusion that the relationship dilutes their moral obligations. Managers, as agents, cannot justify immoral decisions on the grounds that their shareholders direct their actions. Similarly, shareholders, as principals, lack moral bases to authorize managers to take actions the shareholders could not justify taking themselves. I apply this thesis to the ethical challenges managers of government contracting businesses face when they consider whether to make independent political expenditures. I argue that where it is in the interests of government contractors to publicly disclose, limit, or forego making independent political expenditures, they can legally do so, and that in the absence of financial advantage or legal obligation, agency theory highlights the ethical obligations of shareholders and their managers agents. It does not grant them an ethical free pass.

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Notes

  1. Citizens United v. Federal Election Commission, 130 S.Ct. 876 (2010).

  2. Gora (2013), Sepinwall (2012), Fulcher (2012), Hasen (2011), Issacharoff (2010), Sigler (2010) and Sullivan (2010).

  3. Issacharoff, “On Political Corruption,” p. 127.

  4. Issacharoff, “On Political Corruption,” p. 127.

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  6. That is so because courts subject state limits on free expression to strict scrutiny [Citizens United v. Federal Election Commission, 130 S.Ct. 876 (2010)] whereas, they apply a permissive balancing test to assess the enforceability of contractual provisions, even those limiting expression [Board of Commissioners v. Umbehr, 518 U.S. 668, 674 (1996)].

  7. Scherer and Palazzo (2007).

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  9. Freeman (2009).

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  11. Mitnick (1992), Jensen (1983) and Stout (2002).

  12. Quinn and Jones (1995).

  13. Quinn et al., “An Agent,” p. 35.

  14. Goodpaster (1991).

  15. Richard DeGeorge, “Chapter 3: Agency Theory and the Ethics of Agency,” in Ethics and Agency Theory, ed. Norman Bowie/Edward Freeman (New York: Oxford University Press, 1992), 59–72.

  16. Quinn et al., “An Agent,” p. 35.

  17. DeGeorge, “Chapter 3”.

  18. 52 U.S.C. § 30119.

  19. Federal Election Commission Citizens’ Guide.

  20. Federal Election Commission Citizens’ Guide.

  21. 31 U.S.C. §1352.

  22. Malone (2016) and Renaud and Kenny (2015).

  23. DeLacy and Tompkins (2016).

  24. 48 C.F.R. 31.205-22.

  25. 48 C.F.R. 31.205-22.

  26. 48 C.F.R. 31.205-22.

  27. 48 C.F.R. 31.205-22(c)(d).

  28. OMB Form LLL available at https://www.whitehouse.gov/sites/default/files/omb/grants/sflllin.pdf.

  29. 48 C.F.R. 31.205-22.

  30. Restatement (Second) Contracts, Section 164.

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  46. 18 U.S.C. §201.

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  48. Bagley et al. (2015).

  49. Herman (2016).

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  57. Cooper et al. (2016).

  58. Fluor Corp. Proxy Materials (2016).

  59. 17 CFR § 240.14a-8; Trinity Wall Street v. Walmart Stores, 792 F.3d 323, 353 (3d Cir. 2015).

  60. National Ass’n of Manufacturers v. SEC, 800 F.3d 518 (D.C. Cir. 2015); Central Hudson Gas & Electric Corp. v. Public Service Commission, 100 S. Ct. 2343 (1980).

  61. Brandeis (1932).

  62. Fed. R. Crim. P. 11 and 23; Brady v. United States, 90 S. Ct. 1463 (1970).

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  66. Fed. R. Civ. P. 38.

  67. Eljer Mfg. Inc. v. Kowin Dev. Corp., 14 F.3d 1250, 1253 (7th Cir. 1994).

  68. Federal Arbitration Act, 9 U.S.C. § 10.

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  75. Issacharoff, “On Political Corruption”.

  76. Solove and Richards (2009).

  77. 40 U.S.C. §471; 41 U.S.C. § 405; Federal Acquisition Regulation; 31 U.S.C. § 501 note; 48 CFR § 1.601; OMB Circular No. A-76 Revised.

  78. Minesen v. McHugh, 671 F.3d 1332 (Fed. Cir. 2012).

  79. Do-Well Mach. Shop, Inc. v. United States, 870 F.2d 637, 641 (Fed. Cir. 1989).

  80. Lynch v. United States, 54 S. Ct. 840, 843 (1934).

  81. Seaboard Lumber Co. v. United States, 903 F.2d 1560 (Fed.Cir. 1990).

  82. McCall v. United States Postal Service, 839 F.2d 664, 667 (Fed. Cir. 1988).

  83. Torncello v. United States, 681 F.2d 756, 762-63 (U.S. Ct. of Claims 1982).

  84. Do-Well Mach. Shop, Inc. v. United States, 870 F.2d 637, 641 (Fed. Cir. 1989).

  85. Garfield (1998).

  86. Cohen v. Cowles Media Co., 445 N.W.2d 248, 258 (Minn. Ct. App. 1989), aff’d in part and rev'd in part, 457 N.W.2d 199 (Minn. 1990), rev, 501 U.S. 663 (1991).

  87. Torncello v. United States, 681 F.2d 756, 762-63 (U.S. Ct. of Claims 1982).

  88. Louisiana Crisis Assistance v. Marzano-Lesnevich, 827 F. Supp. 2d 668 (E.D.La. 2011).

  89. Snepp v. United States, 444 U.S. 507 (1980); Wilson v. CIA, 586 F.3d 171, 183, 184 2nd Cir. 2009).

  90. Erie Telecommunications, Inc. v. City of Erie, Pa., 853 F. 2d 1084, 1099 (1988).

  91. Goodpaster, “Business,” 68.

  92. Quinn and Jones (1995).

  93. Goodpaster, “Business”.

  94. Orts et al., “Putting”.

  95. Sucher and Hsieh (2011).

  96. Sucher and Hsieh, “Framework”.

  97. Werhane (1994).

  98. Sandel (2011) and Rosalind Hursthouse et al., “Virtue Ethics,” Stanford Encyclopedia of Philosophy, https://plato.stanford.edu/archives/win2016/entries/ethics-virtue/.

  99. “Guns, Prisons, Crime, and Immigration.” ALEC Exposed and Sullivan (2010).

  100. “Community Corrections Performance Measurement Act Exposed,” ALEC Exposed; “Minimum Mandatory Sentencing Act Exposed,” ALEC Exposed.

  101. “Community Corrections Performance Measurement Act Exposed,” ALEC Exposed; “Recidivism Reduction Act Exposed,” ALEC Exposed.

  102. “Community Corrections Performance Measurement Act Exposed,” ALEC Exposed; “Juvenile Identification Act Exposed,” ALEC Exposed.

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  1. Fox School of Business, 1801 Liacouras Walk, Philadelphia, PA, 19122, USA

    Daniel M. Isaacs

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Correspondence to Daniel M. Isaacs.

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Isaacs, D.M. When Government Contractors May or May Not Spend Money On Political Speech. J Bus Ethics 161, 91–102 (2020). https://doi.org/10.1007/s10551-018-3947-6

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