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.
Corporations and unions are subject to widely different disclosure requirements of their political spending with treasury funds. Citizens United freed up both unions and corporations to spend unlimited amounts of treasury funds on political expenditures, but none of the disclosure requirements for either group were updated along with the loosened spending restrictions. The result is that corporations have no formal political spending disclosure regime, while unions have many stringent disclosure requirements.
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?
The role of corporations in politics has changed dramatically. From the passage of the Tillman Act in 1907 to the Supreme Court's decision in 2010 in Citizens United, corporations played a limited role in the financing of federal elections. Corporations were prohibited from using corporate treasuries to make any contributions or expenditures in connection with a federal election. They had to use funds voluntarily contributed by employees and stockholders to a political action committee to make a contribution or expenditure in a federal election. All activity by the political action committee had to be fully disclosed to the Federal Election Commission, but Citizens United changed all that.
Mutual funds’ support for corporate political disclosure reached a new high in 2013, according to a ten-year analysis by the Center for Political Accountability. Forty large US mutual fund families voted in favor of corporate political spending disclosure an unprecedented 39% of the time, on average.
The Center for Competitive Politics issued a "fact-checker" on May 1, 2013 that purported to tell "the truth about corporate political spending issues." Unfortunately, it was filled with misstatements and inaccuracies. The following one-page information sheet corrects them.
The “Roundtable on Corporate Political Accountability: The Importance of Educating Future Business Leaders Post-Citizens United” was convened by four leading American business and law schools and the Center for Political Accountability. Deans and faculty at these schools identified an urgent need to educate future business leaders about issues of corporate political engagement that did not exist a generation ago. The Supreme Court’s Citizens United decision in 2010 rewrote the rules for corporate participation in American politics; in its wake, educators believe it is important to teach current and future corporate leaders how to navigate the new political process responsibly.
Mutual funds’ support for corporate political disclosure dipped slightly in 2012 from its record high in the previous year, according to an analysis by the Center for Political Accountability. The review looked at how 40 of the largest mutual fund families voted on CPA’s model shareholder resolution that asked companies to disclose their political spending from corporate funds. It found that these fund families supported corporate political disclosure about 34 percent of the time in 2012, on average, compared with 35 percent in 2011.
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.