Over the past several years, judicial decisions involving Citizens United, McCutcheon and SpeechNow.org have lifted caps on total political contributions and also expanded the number of avenues through and amounts which companies can lawfully contribute to political campaigns. Corporate donations can still be made to recipients like political action committees and third-party organizations (such as trade associations). Now, however, companies can also contribute directly to campaigns and to organizations that support candidates and political causes, including Section 501(c)(4) social welfare organizations.
The unshackling of corporate political spending has made it a major target of corporate governance advocates, the media and liberal and progressive politicians and groups, all of which strongly oppose corporate political spending on ideological and/or policy grounds. In the wake of the loosening of legal limits on corporate spending, strong antipathy to corporate political contributions is frequently expressed in demands for detailed disclosure.
A patchwork of laws and regulations currently exists that require public disclosure of only certain kinds of corporate political contributions. This system is not only unwieldy to access, but also fails to account for political contributions made to 501(c)(4) and 527 organizations and to third parties such as trade associations, for which no contribution limits exist and no company disclosure is legally required. The lack of mandatory disclosure of these types of contributions has led many critics to characterize the recipients as “black money pools” that operate in the shadows of the political process and keep investors and the public in the dark about how corporate funds are being used and which candidates and issues are being supported.
Advocates for transparency of corporate political spending have been lobbying for years for both legislation and SEC rule-making to fill the existing informational lacunae and to require public companies to disclose the entire range of their political spending, policies and practices. To date, efforts aimed at legally mandated comprehensive disclosure have not borne fruit. It is uncertain, at best, whether they will in the future.
Simultaneously, advocates for political spending disclosure have filed numerous shareholder proposals calling for voluntary disclosure by companies, and they are resorting to the court of public opinion to motivate companies to take that step. In fact, this category of shareholder proposal is the largest among all shareholder proposal topics—with 115 shareholder proposals relating to the disclosure of political spending and lobbying activities in 2013 rising to 126 in 2014.
The campaign is bearing fruit, with an increasing number of public companies adopting voluntary disclosure policies. For example, according to the 2013 CPA-Zickling Index of Corporate Political Accountability and Disclosure, about 70 percent of the S&P 200 disclose political contributions made directly to candidates, parties and political action committees. Similarly, over 40 percent disclose their payments to trade associations for lobbying and political purposes and more than 35 percent disclose their payments to, or have a policy of not contributing to, 501(c)(4) social welfare organizations.
It is possible, and many would say probable, that political and lobbying disclosure will become the corporate norm, at least among larger public companies, within the next few years. Against this backdrop, it is important that companies that voluntarily disclose their political spending policies and practices—and those that are considering doing so—understand that such disclosures need to be prepared and evaluated in the context of a strategic communications plan. The critical elements of any such a plan should include:
- An explanation of the internal corporate decision-making process, including the Board’s role in the process and in supervision of management’s political spending decisions, to quell potential concerns that such spending favors the interests of senior management above those of the corporation and its shareholders.
- Rigorous internal coordination and controls to ensure that the amounts of political spending reported by the company are consistent with the data contained in public filings, including tax returns of recipients (such as 527 organizations).
- Accuracy in the description of policies and practices. The world of political finance is very confusing and filled with technical terms and categories that can be perplexing to many, including communications specialists, who might not be familiar with the different categories and nomenclature. It is not enough to get the amounts right. It is also critical that those amounts are correctly characterized and that a company’s policies and procedures be couched in precise terminology.
- A decision on breadth of disclosure. For example, if a company plans to make donations to 501(c)(4) organizations, which are not subject to mandatory reporting, will it be able to successfully limit its voluntary disclosures to other types of political spending? Advocates for corporate disclosure of political spending who recognize gaps in voluntary disclosures might well launch company-specific campaigns designed to embarrass a company into disclosure or cessation of its unreported political spending.
- Finally, the most fundamental strategic communications decision: whether or not to voluntarily report political spending at all. Before a company decides to disclose its political spending policies and procedures, it should carefully weigh the pros and cons of doing so. The decision, after all, is still voluntary.
To sum up, voluntary disclosure of corporate political spending is a topic that arouses intense and, most often, negative passion. Therefore, it plants a proverbial target on a company’s back. For this reason, it is critical that any company confronting the decision whether to voluntarily disclose its political spending policies and practices, as well as every company that has decided to do so, understand the need to develop and implement a comprehensive strategic communications program surrounding its political spending. Piecemeal decision making, like piecemeal implementation, is all too likely to lead to negative public and investor relations. While corporate disclosure of political spending and practices remains a voluntary decision, strategic communications planning should always be mandatory.
Chuck Nathan advises global clients on M&A, financial transactions, governance, Board issues and shareholder matters at RLM Finsbury, a leading global strategic communications firm.
