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Will CEOs Decide the US Presidential Election?

, by Fabio Todesco
A new study by Viktar Fedaseyeu and colleagues highlights the political power of corporate bosses: American employees donate almost three times more money to political candidates supported by their CEOs and are 11.5% more likely to vote when CEOs make campaign contributions

When they want to influence the democratic process in the US, tycoons can run for office, as Donald Trump is doing, or finance their favorite candidates. And even though the US federal law caps individual donations to a candidate at $5,400, CEOs' contributions - along with other factors such as emails, sex scandals and Putin - can be one of the forces at work that will decide the forthcoming presidential election. CEOs' behavior has a substantial effect on employees' political choices, according to a new working paper by Viktar Fedaseyeu (Bocconi University's Department of Finance), Ilona Babenko (Carey School of Business at Arizona State University) and Song Zhang (University of Lugano) - Do CEOs Affect Employees' Political Choices? (available on SSRN, doi: 10.2139/ssrn.2814976) - already featured in the Harvard Business Review, The New York Times, and The Washington Post among others.

Using a large sample of S&P 1,500 firms between 1999 and 2014 (23,765 firm-year observations for 2,287 unique firms, as S&P constituents vary over time), Fedaseyeu and colleagues find that employees donate almost three times more money to CEO-supported political candidates than to candidates not supported by the CEO.

As the relation between CEOs' and employees' contributions could be driven by common interest ("the possibility that both CEOs and employees simply recognize political candidates who are instrumental to the firm's success and contribute accordingly"), the scholars investigate what happens around CEO changeovers and find that, when the new CEO supports a different set of candidates, employees tend to redirect their donations.

Electoral turnout also indicates that CEOs are a political force, as employees from congressional districts in which CEOs make campaign contributions are 11.5% more likely to vote, and this effect is driven almost entirely by less wealthy and less educated employees. "This suggests that CEOs, in some cases, can act as information providers for the employees who are less likely to seek out election-relevant information," says Fedaseyeu.

"CEOs' influence on their employees' political choices is not necessarily a bad thing," Fedaseyeu continues. "This influence is a problem when it results from coercion or pressure, but it can potentially have positive effects when CEOs provide employees with relevant information." The paper provides some evidence that the effect stems, at least in part, from CEOs' deliberate attempts to advocate for certain political candidates: in firms that publicly report their communication costs in favor of a candidate, the effect of CEOs on employee contributions is five times higher. The scholars also present a case study of Murray Energy, showing that employees increase their contributions to CEO-favored candidates immediately following the CEO's explicit attempts to advocate for them, but not before.

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