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Under a Microscope: A New Era of Scrutiny for Corporate Political Activity

Companies are facing ever-greater scrutiny of their political activities, with some of the US' biggest businesses still grappling with a response to January’s Capitol riot. As companies reevaluate their role in the political sphere, a new report by The Conference Board highlights considerations and best practices regarding corporate political activity.

EXECUTIVE SUMMARY

On January 4, 2021, the US business community did something remarkable. Through statements issued or organized by Partnership for New York CityBusiness RoundtableUS Chamber of Commerce, and National Association of Manufacturers, business leaders called on Congress to accept the results of the Electoral College in the 2020 presidential election without delay.

Then, in the wake of the January 6 attack on the US Capitol—and the objections by certain members of the House and Senate to the certification of the electoral votes—many major US companies announced that their employee-funded political action committees (“PACs”) were stopping their contributions to the objectors or, more broadly, to federal lawmakers.1

These are only the latest examples of corporations (and their PACs) acting in the political sphere. Of course, companies have long been engaged in politics—making political contributions, lobbying policymakers, funding ballot initiatives, and taking public stands on policy issues.

But things are different today. In this era of intense political polarization in the United States, and with the immediacy, ubiquity, and (often) inaccuracy of social media, companies are subject to ever-greater scrutiny for their political activities. The combination of polarization and scrutiny is enough to make some companies choose to limit, or avoid engaging in, political activity, including spending.2 Others have focused on get-out-the-vote efforts that are presented as nonpartisan, good citizenship efforts that can find support across the political spectrum.But banning, or severely limiting, a company’s political activities to just those focused on areas like voter registration isn’t a realistic option for many firms.

In the wake of the 2020 US election, The Conference Board ESG Center held a roundtable to discuss the current regulatory environment for corporate political activity, the prospects for shareholder proposals on the topic, and best practices in addressing this era of scrutiny and polarization. Following the events of January 6, the ESG Center also conducted a survey of 84 large public and private firms on how companies and their employee-funded PACs are responding to the Capitol riot and objections to the election certification. The discussion and survey generated the following insights for what’s ahead on corporate political activity:

  • Prepare for backlash. Don’t expect a letup in scrutiny (or occasional outrage) about your firm’s or PAC’s political activity. Have a clear set of standards and guidelines that you can use in making and defending any positions you take—whether through a statement from your CEO, political contributions, or lobbying efforts.
  • Align political activity with corporate values. Aligning politics and values is much easier said than done because, for example, companies or their PACs often support candidates whose positions do not fully align with their stated corporate values, and companies may advocate policy positions that are not evidently in the interests of their stakeholders, such as employees and customers. But there are ways to achieve greater alignment:
    • Keep it simple—the more complex your political activity, the more difficult it can be to manage reputational and other risk. Consider, for example, giving to candidates only through PACs and not via direct corporate contributions, and limiting contributions to third-party organizations.
    • Thoroughly vet third-party organizations to which you donate money, including the governance processes in place to control their activities.
    • Consider involving the corporate citizenship function or executives in reviewing political activity.
    • Adopt (or have your PAC adopt) a policy for political contributions that incorporates your company’s and your employees’ values as part of the framework for managing political spending.
  • Ramp up educational and engagement efforts with stakeholders. Corporate political activity is multifaceted, of growing importance to multiple stakeholders, and likely an ongoing source of controversy and risk. This reality places a premium on not just educating, but appropriately engaging, key audiences.
    • Augment board oversight. Over half of S&P 500 companies now have board oversight of their corporate political contributions and expenditures.While boards have traditionally focused more on political contributions than on lobbying activities, companies should consider what kind of role boards should play with respect to lobbying (and other forms of political activity). Their role might include approving broad principles and processes for corporate political activity.
    • Expand disclosure to investors. Investors increasingly care about political activity, particularly as a source of risk. Average support for political contributions and lobbying proposals went from 33.6 percent in 2019 to 34.5 percent in 2020, when six proposals received majority support. Expect even more support for such proposals in 2021. In response to investor interest, companies have been ramping up their disclosure: three-fifths of S&P 500 companies now have some level of political disclosure. Of the Center for Political Accountability’s 378 core companies (companies that have been on the CPA-Zicklin Index since 2015), over 200 now disclose contributions to candidates, parties, committees, 527 groups, independent expenditures, and ballot groups, and a growing number of companies disclose contributions to trade and 501(c)(4) organizations. But your company should prepare to provide a comprehensive overview of its types of political activity and the policies and controls in place as part of engagement during the 2021 proxy season, especially in the wake of the Capitol riot and objections to the certification of the presidential election.
    • Involve employees. Employees often expect companies to take stands on issues, which may be politically divisive and may not be related to the firm’s business or align with its core corporate values. It’s vitally important to educate your employees—and, indeed, the general public—about your company’s activity. In terms of engagement, companies have been successfully bringing employees into select conversations with policymakers, which educates employees about the process and brings extra authenticity and effectiveness to conversations with legislators.
  • Increase coordination internally and with third parties. It’s important to ensure that the multiple ways your company can engage in political activity are coordinated. You don’t want your CEO to take a stand on an issue, only to discover that it’s at odds with your PAC’s political contributions or the work of one of your third-party lobbyists. Coordination is particularly important with respect to lobbying. New state and local regulations are forcing more and faster disclosures about lobbying activities, sometimes within 48 hours. There’s reputational exposure if a consultant discloses activity on a sensitive topic and the company’s legal, government relations, and communications teams are caught off guard.
  • Use the resumption of PAC contributions as an opportunity for education. Corporate PACs took unprecedented action in the wake of the January 6 events, but pausing contributions by PACs may have been easy compared to resuming them. Three areas for attention when it comes to resuming PAC giving:
    • Clarifying the role of PACs. Company-sponsored PACs are funded by employees, not by corporate funds. But the press, employees, and others conflate corporate giving and PAC giving. To some extent, that’s understandable given the legal authority companies have to create, administer and, if they wish, determine who receives funds from the PAC. Leading up to, and while announcing, any resumption of PAC contributions, your company can focus on educating employees and others about the purpose and governance of PACs.
    • Clarifying the process for publicizing PAC decisions. The January 6 events highlighted the challenges in reconciling the sometimes-conflicting views of the legal, communications, and government relations functions, especially when it comes to announcing PAC decisions. Communications executives often tended to lean in favor of the company making the announcement about PAC contributions, while the legal and governance functions focused on preserving the distinction between corporate and PAC activity. Before your company’s PACs resume making contributions, it may be helpful to clarify who makes the announcement and who is involved in the process.
    • Updating criteria for PAC giving. Most PACs have not yet figured out the steps they will take before resuming contributions, but options include deeper vetting of potential recipients and Incorporating criteria relating to: a) supporting democratic processes; b) opposing violence; and c) aligning with company values.


[1] Alex Gangitano, “Here Are the Companies Suspending Political Contributions following the Capitol Riots,” The Hill, January 12, 2021.

[2] Rachel Sandler, “Twitter Shuts Down PAC, Donates Remaining Money to Charities,” Forbes, October 22, 2020; Apple’s Public Policy Advocacy Statement.

[3] Amanda Mull, “Why Is Uber Begging Me to Vote?The Atlantic, September 29, 2020.


AUTHORS

Washington.jpg

Paul Washington

Executive Director, ESG Center
The Conference Board

Merel Spierings.jpg

Merel Spierings

Program Manager, ESG Center
The Conference Board

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