The Risk 

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 companies that have agreed to 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.