Navigating Politics

Winter 2013

Navigating PoliticstcbrPDF normal

Rethink your company’s political spending—before the next election cycle.

By Bruce F. Freed & Karl J. Sandstrom

Bruce F. Freed is president and co-founder of the Center for Political Accountability. Karl J. Sandstrom is counsel of the Center and of counsel to the political-law practice of the Washington, D.C. office of Perkins Coie. They both serve on the advisory committee of The Conference Board Committee on Corporate Political Spending and co-authored The Conference Board’s Handbook on Corporate Political Activity and, in the Winter 2012 issue, “Dangerous Terrain.”

The elections are over, but the aftereffects of all those negative ads linger, both for shell-shocked TV viewers and for corporate donors that gave millions to put the thirty-second spots on the air. In boardrooms across the country, executives and directors are taking on uncomfortable questions about the money given to super PACs, trade associations and 501(c)(4) “social welfare” groups rather than toward opening new markets or restoring employees’ 401(k) matching funds.

  • Are executives pleased with the increased prominence of business in electoral politics? Notwithstanding the Citizens United decision that made it easier for companies to give money secretly, the issue of corporate involvement in politics has never been more public.
  • Will companies feel a need to explain to their shareholders why certain candidates were supported and others opposed? Will directors and senior managers even be aware of the legal, policy, and regulatory agendas of the candidates that corporate funds were used, directly and indirectly, to advance?
  • Will those that devoted substantial resources to politics have buyer’s remorse when they discover that a number of their preferred candidates share neither the company’s values nor its public policy agenda?
  • And maybe most importantly, will companies be pleased with a campaign financing system that is cloaked in darkness? Or will they find that secret funding exposes them to shakedowns by powerful political figures?

Many companies have already begun to grapple with these questions. Leading corporations are recognizing the legal, business, and reputational risks involved in political spending and are choosing transparency and accountability over secrecy and presumption. Voluntary disclosure and board oversight of political spending is increasingly a mainstream corporate practice. Companies recognize that an increased role in campaigns must be accompanied by greater responsibility for how that role is exercised. Today, more than one hundred large public companies, including more than half of the influential S&P 100, have adopted political disclosure and accountability policies. They include Merck, Microsoft, Aflac, Exelon, Time Warner, Gilead Sciences, and Wells Fargo.

Elections have consequences, and management and directors need to look more broadly at their role and responsibility as significant actors in our nation’s political life. Corporations can no longer narrow their understanding of political spending to the signing of a check—they must realize the effects of their contributions down the long roads and intersections of politics, business, and society.

Real consequences flow from a company’s decision to devote resources to campaign activity. Whether as a result of unawareness, miscommunication, or what businesses may have come to think of as part of the “price” of having a seat at the table, company funding of campaigns can be contrary to the company’s interest in both the short run and the long run.

Management teams need to define their companies’ political and policy goals and how they can best be accomplished without sacrificing the company’s values, interests, or independence.

For example, the Pharmaceutical Research and Manufacturers of America (PhRMA), the drug industry’s principal trade group, gave $4.8 million in 2010 to two GOP-leaning 501(c)(4) organizations that used the money to support twenty-three successful congressional candidates. More than a few major drug companies manufacture and market contraceptives, but every one of those twenty-three representatives later voted to limit access to birth control, cut federal funding for it, and cut medical research funds on which pharmaceutical companies depend for their long-term health.

PhRMA was in the news again this past summer, when after a Bloomberg report about those contributions, angry investors wrote to Merck, Pfizer, Johnson & Johnson, and Bayer AG—all leading producers of contraceptives—to complain about the companies’ membership in the trade association, which had taken “actions that are contrary to their members’ interests,” in a “case of a trade association using its members’ payments against those same members’ best interests.”

Political spending should not be a casual decision, a choice defaulted to companies’ government-relations managers—or to trade associations or c4s. The spending, whether done directly or through third-party groups, needs to reflect the deliberate choices of senior managers and the board. When it comes to political engagement, a company must adhere to its values, keep its broader interests in mind, and understand that giving money to candidates or entities whose behavior is uncertain or at odds with those values and long-term business interests ultimately harms the company and its shareholders. To understand political spending fully is to understand its full consequences.

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The Conference Board Review is the quarterly magazine of The Conference Board, the world's preeminent business membership and research organization. Founded in 1976, TCB Review is a magazine of ideas and opinion that raises tough questions about leading-edge issues at the intersection of business and society.