Handbook on Corporate Political Activity

Handbook on Corporate Political Activity: Emerging Governance Issues

Executive Summary

American corporations are generous contributors and significant players in the political process and companies may choose to offer financial support to further their long-term goals or support public policies that are aligned with their business strategy. However, political spending always involves an element of the unknown, and these expenditures and activities can represent risks to corporations, their boards, and their shareholders. Companies need to rigorously evaluate the means, rewards, and risks of political spending or they could suffer penalties, prosecutions, and tarnished reputations as a result of political spending activities.

This Handbook on Corporate Political Activity explains the ways in which companies’ political expenditures may inadvertently invite problems, and describes concrete steps that companies can take to steer clear of them. It recognizes that companies will want to fashion their political spending strategies to fit their individual needs. Its central point is that thoughtful political spending decisions that are embedded in a board-approved, robust governance structure can help guard against the pitfalls always present in political spending.

As a manual for business leaders seeking to assert greater control over their companies’ political spending, this handbook takes a practical approach. It seeks to educate directors and senior management on the legal issues surrounding political expenditures and provide them with the facts and tools they need to make considered spending decisions and to oversee them effectively.

Chapter One explains the context for oversight of political spending:

• Describes the current political landscape and the risks that political spending in this context can present for companies.
• Notes the recent recognition of corporations’ First Amendment rights to political spending and the likely increase in pressure on corporations to spend.
• Reviews federal campaign finance law and other relevant regulations, and the legal underpinnings of board oversight of political spending.
• Identifies and explains the numerous destinations for corporate political dollars - including candidate contributions, ballot measure committees, “527s”, “501(c)(4)s”, and trade associations, also known as “501(c)(6)s.”
• Summarizes studies, referred to above, regarding directors’ and shareholders’ attitudes toward oversight of corporate political spending and disclosure of political spending activities.

Chapter Two describes ways to establish an effective oversight program:

• Explains how a company can establish a program of political spending and board oversight.
• Discusses how corporate political spending decisions can be made and audited, and describes model political spending codes adopted by certain major corporations.
• Describes the ways in which payments to trade associations can be at cross purposes with a corporation’s intentions, and how corporate leaders can help assure that trade associations and other groups are using their dollars for activities that are in alignment with company values and positions.
• Notes the increased interest in corporate disclosure of political activity and examines the pros and cons of disclosure.

Chapter Three grounds a responsible corporate political spending program in an ethical corporate culture:

• Considers an ethical corporate culture as the strongest possible defense against risky political entanglements. While the practices described in Chapter Two are necessary for a prudent political spending program, they are not sufficient.
• Outlines the key components of an ethical corporate culture - honesty, respect, and responsibility.
• Pays particular attention to the interplay between personal and corporate ethics, and the challenges of sustaining an ethical corporate culture in the global marketplace.

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