Mutual funds support for corporate political spending disclosure resolutions held firm in the 2015 proxy season, according to the Center for Political Accountability’s latest survey of mutual fund voting records. This year, funds voted for disclosure 42 percent of the time on average, slightly above the 40 percent vote last year.
The 2016 U.S. election cycle is on track to break political spending records — and corporate contributions will be a large part of that. More than ever, it is the directors’ responsibility to determine when and how their company should engage in political activities. But do board members actually know how to provide proper oversight and help their companies navigate this perilous landscape? Our contention is no. Despite the prevalence of corporate political spending, our conversations with company leaders have revealed a knowledge gap on the depth and breadth of risks involved as well as the oversight needed. These risks extend to a company’s reputation, its employee relations, its customer and shareholder relationships, its legal footing, and attainment of its business strategies.
This Handbook on Corporate Political Activity explains the ways in which companies’ political expenditures may inadvertently invite problems, and describes concrete steps that companies can take to steer clear of them. It recognizes that companies will want to fashion their political spending strategies to fit their individual needs. Its central point is that thoughtful political spending decisions that are embedded in a board-approved, robust governance structure can help guard against the pitfalls always present in political spending.
When it comes to corporate governance, one area often overlooked is company involvement in politics. The amount of money companies spend for political purposes is relatively small and viewed as immaterial, even though business historically has been a major political funder. Until recently, political expenditures were not fully disclosed and were rarely subject to oversight by boards.
A company's political spending can expose it to serious risks. Wrongheaded spending can compromise a corporation's reputation, or worse, expose it to criminal liability. Open Windowsshares a survey of S&P 100's that shows how few have created codes of conduct or other publicly stated policies that would help safeguard them from unsound political spending decisions. The report then offers a model code of conduct that draws on the best practices in current company codes.
Taking Initiative is the first comprehensive study of how corporations put themselves and shareholder value at risk by failing to critically examine their contributions to ballot measures. It explores the proliferation of the initiative in American politics as a means of polarizing and galvanizing voters, and takes a close look at how initiative campaigns have become the beneficiaries of corporate cash. Recent experience— California and Arizona provide some of the starkest examples—suggests that corporations sometimes contribute without a clear business rationale.
Trade associations have become the Swiss bank accounts of American politics. Through them, corporations spend millions of dollars on political activities that can ultimately lead to a decline in shareholder value and compromise the reputations of corporations and their leaders. Hidden Riversuses case studies of hotly-contested judicial elections to show how corporations, via trade associations and other tax exempt organizations, expended resources on candidates who held views inimical to company values.
A company that effectively discloses its political spending builds trust among shareholders and financial analysts. A company that fails to disclose risks making political spending decisions that can lead to financial losses and a compromised corporate reputation. The Green Canary explores the risks posed to shareholders in the absence of disclosure, and presents two methods of evaluating corporate political activity. These methods can reveal possible management weaknesses before they damage shareholder value.
Members of boards of directors view political spending as a potentially risky pursuit and an overwhelmingly majority supports disclosure of corporate political activity, according to this survey of 225 directors commissioned by the CPA and conducted by Mason-Dixon Polling & Research. Ironically, an overwhelming majority of directors possesses little knowledge of the rules and regulations governing corporate political activity.
This CPA Report provides a guide on how to manage corporate political spending in a risky new environment. Business leaders are educated on how to avoid the business and reputational risks that come with undisclosed political spending. The risks, as seen with the recent Target controversy, are not always obvious.