In this op-ed in Bloomberg Law, NYU School of Law’s Allison Herren Lee and Niskanen Center’s Ed Dolan explore how the Erb Principles for CPR can provide a framework to enable companies to responsibly engage in political activity without losing focus on creating value for shareholders.
Despite the ongoing debate surrounding shareholder primacy versus stakeholder capitalism, corporate leaders can find hope in common ground when it comes to corporate political activity, write NYU Law School Adjunct Professor and former acting chair of the Securities and Exchange Commission Allison Herren Lee and Niskanen Center Senior Fellow Ed Dolan. The Erb Principles for Corporate Political Responsibility (CPR) offer a roadmap for responsible participation by businesses in our political system.
In a recent op-ed in Bloomberg Law, Herren Lee and Dolan take up Milton Friedman’s famed prescription for businesses to prioritize profit generation and the interests of shareholders. Friedman wrote: “In a free society … there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
While acknowledging the lasting impact of Friedman’s philosophy, the authors raise concerns about a “political activity loophole” in his theory. This loophole is created when business is able to “engage in political activities, legal in themselves, to skew the laws that govern what constitutes free competition or deceit, or what kinds of spending and lobbying are legal at all.” Lee and Dolan argue that unrestricted use of corporate power distorts the very laws meant to safeguard fair competition and prevent deceptive practices.
A Case in Point
To illustrate their point, Lee and Dolan highlight a real-world example: a fossil fuel company using its significant influence to finance campaigns — including social media disinformation campaigns — aimed at obstructing green energy initiatives. This use of power, although technically compliant with existing regulations, exemplifies how corporate interests can shape and manipulate regulatory frameworks to their advantage. By doing so, they effectively detach financial prosperity from the overall societal well-being that free markets are intended to cultivate. “If the ones with the gold are allowed to make the rules, the whole case for an economy based on fair competition and free markets falls apart. Shareholders lose, stakeholders lose, we all lose,” they write.
Dolan and Lee posit that the Erb Principles for CPR “lay out rules of corporate conduct that reasonably address the political activity loophole regardless of one’s position in the broader shareholder-stakeholder debate.” By setting new standards for legitimacy, accountability, responsibility, and transparency, the Erb Principles for CPR help companies enhance value for all stakeholders while guiding companies toward responsible corporate political activities for a free and democratic society.