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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, such as “social welfare”
501(c)(4) groups, that are used for political
purposes.
The
problem of unaccountable corporate political
spending was exacerbated by the U.S. Supreme
Court’s Citizens United v. Federal Election
Commission decision (2010), which unleashed
a surge in corporate political spending.
Companies now face greater pressure to spend
corporate dollars either directly or indirectly
through trade associations and (c)(4) groups.
Moreover, these groups are not required to
report funds they receive for political
activity, including ads.
As a
result, hundreds of millions of corporate
dollars flow into the political process,
including state judicial elections and
initiative and referenda campaigns, often
without controls, board oversight, or public
knowledge. A substantial portion of this
money supports 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. “[P]olitical spending always
involves an element of the unknown, and these
expenditures and activities can represent risks
to corporations, their boards, and their
shareholders,” the Handbook
on Corporate Political
Activity, published by The
Conference Board, cautioned in 2010. “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.” The
Conference Board is the preeminent business
research
organization.
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.
Institutional Shareholders Services Inc. (ISS),
the most influential proxy advisory service,
revised its proxy voting policy in November
2011 to recommend generally for a vote in favor
of political disclosure. The previous ISS
policy was to recommend for disclosure on a
case-by-case approach.
Shareholders and directors strongly
support disclosure as demonstrated by two
Mason-Dixon Polling & Research surveys
commissioned by the CPA in 2006 and
2008.
In 2011, a committee of The Conference Board examined corporate political spending. It reported, “At a time when public trust in U.S. corporations is at near-record lows, and both companies and consumers are struggling in a difficult economy, demonstrating greater disclosure and accountability can help corporations build public trust and investor confidence—and strengthen their relationships with the people they count on to support their business and contribute to their success.”