Corporate Donations on Different Sides of the Atlantic

Monday, January 30, 2012

By Maryam Naghavi

Corporations play such vivid and vital role in our 21st century lives that it is unrealistic to define them as mere value maximizing entities whose sole purpose is to benefit their shareholders.  In our era, individual power and influence is to a great extent substituted by corporate power. As a result, philanthropic donations, once allowed only when they resulted in a direct and proximate benefit to the corporation, have gradually become an inevitable and desirable task for corporations to undertake. The growth of organized charities, changes in tax laws making corporate donations deductible from federal income taxes, and the statutory grant of donative powers to business corporations in most jurisdictions were some of the measures adopted to encourage corporations in becoming responsible citizens[1]. However, aware of pervasive effects corporate money could have on the society, every legal system has tried to frame corporations’ donative capacities. 

The kind and extent of such limits depend directly on the public policy a legal system adopts towards corporations. In the United States of America, for instance, where corporations have always enjoyed an extremely liberal and pro-corporation environment, the curbs seem to be few. A perfect example of this approach is the recent decision of the United States Supreme Court in Citizen United[2], where the Court raised corporations to the same social level as a natural person by granting them freedom of speech. The Court found that the government may not, under the First Amendment, suppress political speech on the basis of the speaker's corporate identity, and that a federal statute barring independent corporate expenditures for electioneering communications violated First Amendment. Even if in a later decision[3], the 2nd Court of Appeals strived to limit the holding of Citizen United to campaign expenditures and not campaign contributions[4], Citizens United is still the law of the land and reflects the super liberal view of Americans to corporations.

This liberalism is uncomfortably welcomed on the other side of the Atlantic by the French who keep a close eye on corporations and their so-called charitable acts. Suspicious of fraud and corruption, it was not until1987 that the French Legislature started easing the legal and fiscal environment for corporate donations. Initially conceived as a means to preserve cultural heritage and to promote art and history, corporate philanthropy was gradually expanded to cover areas such as education, sport, environment and science.[5] French law distinguishes publicity and sponsorship from donations in that the first two give the donor company a direct benefit whereas the latter only indirectly promote the image of the company. Therefore publicity and sponsorship are subject to much stricter legal limitations than donations. For example, while advertisements for alcoholic drinks are either prohibited or strictly regulated, alcohol companies are allowed to participate in philanthropic causes and make donations. This exception, however, does not apply to tobacco companies which were prohibited by the Court of Cassations from participating in any type charity. In a decision rendered in 1999, the Court argued that such acts may in some way promote these companies image in the public even if they were not engaged in a direct publicity of their products[6]. Thus, even in a liberal environment, French courts stay strictly cautious and refuse to apply a “one fits all” approach. As for political contributions, they were all together prohibited to corporations by two laws passed in 1995. A memo on the Official Site of French Senate entitled “The Financing of Political Life” opens with this sentence: “Democracy is priceless, but costs a price.” The memo continues by listing different measures necessary to avoid opaque financing and eliminate financial powers excessive influence. One of the measures on the list is the 1995 Act defined as “an attempt to cut the umbilical cord between corporate money and political power.” This coupled with capping campaign donations and allocating some public budget to equally air all candidates on national television channels and radio stations help to prevent corporate clout from running the country.

When the founding fathers of the U.S. contemplated the separation of powers to avoid the monopoly of one branch of the government over the other two, they were little, if at all, aware that centuries later, all the branches would somehow be controlled by a new entity called corporations. The impact of corporate money on political campaigns in the U.S. in so high that one can doubt whether American democracy can still be defined as “the government of the people by the people for the people”. Perhaps, it is time for the Legislature and the Judiciary to reconsider their approach and draw a line between philanthropy and self-interest by limiting, if not eliminating, the role of corporate money in political campaigns. If the Supreme Court wants to protect corporations’ right of speech under the First Amendment, why not also try to provide them with equal protection under the Fourth Amendment and put an end to the present “pay to play” situation by giving corporations equal chances regardless of their lobbying powers?

[1]William Meade Fletcher, Chapter 36. Power of Corporations to Transfer Their Property II. Gifts or Donations

[2] Citizens United v. Federal Election Com'n, 130 S. Ct. 876, 175 L. Ed. 2d 753(2010)

[3] Ognibene v. Parkes, F.2d, WL 6382451, 2011

[4] Id, (holding that “a stricter scrutiny applies to restraints on the former, while limits on the latter are more leniently reviewed because they pose only indirect constraints on speech and associational rights.”)

[5] Article 238 bis of French General Tax code

[6] Crim. 29 juin 1999, Dalloz Affaires 1999. 1357