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Corporate Political Spending: The Risk, The Solution
Companies
are not required under current law to report or
account for their soft money political
donations or their payments to trade
associations and other tax exempt organizations
that are used for political purposes.
The
problem of unaccountable corporate political
spending was exacerbated by the U.S. Supreme
Court’s Wisconsin Right to Life v Federal
Election Commission decision (2007) which
allows companies to spend unlimited amounts on
"issue ads" in the weeks leading up to an
election. These ads will often harshly attack a
candidate.
Moreover, trade associations, which are often employed as conduits for corporate spending, are not required to report funds they receive for or spend on political activity, including ads, and many do not disclose even the names of their corporate members.
As a
result, hundreds of millions of corporate
dollars flow into the political process,
including state judicial races
and initiative and referenda campaigns, often
without controls, board oversight, or public
knowledge.
A
substantial amount of this money underwrites
candidates, issues and activities that are
contrary to the publicly stated values,
policies and practices of the contributing
companies.
This
spending can embarrass companies and create
serious risks for shareholders. As The New York
Times noted on May 28, 2009, “In the wake of
the Jack Abramoff scandal, greater political
activism by trade groups and demands by
candidates and causes for corporate money,
boards are now seeing that their corporate
image could be tarnished if these contributions
or political activities go awry.”
The
Solution
Companies
are dealing with this problem by adopting
political transparency and accountability.
A growing
number, including many in the S&P 100, have
agreed to disclose and require board oversight
of their political spending with corporate
funds. (Click here to view corporate leaders
that disclose their political spending.)
Indeed, it is fast becoming a basic corporate
governance standard. RiskMetrics’ ISS
Governance Services and Proxy Governance,
leading proxy voting advisory services, have
recommended support for most of political
disclosure shareholder resolutions of the
Center for Political Accountability (CPA) and
its partners since the 2007 proxy
season.
Shareholders and directors strongly
support disclosure as demonstrated by two
Mason-Dixon Polling & Research surveys
commissioned by the CPA in 2006 and 2008.
The
Conference Board, the preeminent business
research organization, sees political
disclosure as a key item on the directors’
agenda. “For directors, an understanding of the
details and nuances of political spending is
becoming essential in order to carry out their
oversight responsibilities,” according to a
Board report published in April
2008.
