Shareholder proposals that seek enhanced “political spending” disclosure garnered high levels of support last year, and I recently blogged on our “Proxy Season Blog” that proponents are continuing to pursue more transparency this year. Not only that, but Emily blogged that proposals are also taking aim at contributions that appear to conflict with companies’ publicly stated values. As Dave wrote last week, the Principles for Responsible Investment further encourages investors to examine political engagement by portfolio companies.
When it comes to oversight of political spending activities, a recent survey from The Conference Board found that most people expect corporate political activity to be an even more challenging topic this year than last year, now that many corporate PACs have resumed political donations (and groups are tracking whether those funds go to politicians who objected to the 2020 presidential election results).The Conference Board suggests these “best practices” to manage this topic in the year ahead:
1. Prepare for backlash. 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.
2. Ramp up educational and engagement efforts with stakeholders. Corporate political activity is multifaceted, of growing importance to multiple stakeholders, and an ongoing source of controversy and risk. This reality places a premium on not just educating, but appropriately engaging, key audiences.
- Focus on employees. 69 percent of our recent survey respondents cited pressure and attention from employees as a significant driver in making corporate political activity challenging in 2021. Employees often expect companies to take stands on issues that 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 employees – and, indeed, the general public – about your company’s activities. 84 percent of survey respondents say they are going to increase their efforts to engage and educate employees in 2022.
- Clarify the role of PACs. Company-sponsored PACs are funded by voluntary contributions from 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. Companies and their PACs should reinforce the message about the purpose and governance of PACs on an ongoing basis, not just in a crisis.
- Clarify the process for publicizing PAC decisions. A majority (51 percent) of corporate PACs surveyed changed their contribution criteria in light of January 6th. But 30 percent changed their standards last year in response to other social and environmental issues, and 24 percent have not yet resumed their contributions. This means that more changes to PAC programs are still to come. Companies need to have a clear process for deciding whether and how to get word out. Be mindful that the legal, communications, and government relations functions may have conflicting views on disclosing PAC decisions.
3. Augment board oversight. 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.
4. Align political activity with corporate values. Aligning politics and values is much easier said than done because 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 or other risks. Consider, for example, giving to candidates only through PACs and not via direct corporate contributions, and limit contributions to third-party organizations.
- Thoroughly vet third-party organizations to which you donate money, including the governance process in place to control their activities. Our survey found that companies have become more vigilant about their affiliations with external organizations in 2021: For example, 38 percent increased vetting of/supporting for/membership in industry trade associations.
- 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.
5. 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 government relations and communications team are caught off guard.
For more thoughts on how to navigate board oversight, shareholder proposals and disclosure, visit our “Political Contributions” Practice Area. Included there is the CPA-Wharton Zicklin “Model Code of Conduct for Corporate Political Spending” that I blogged about during the 2020 election season. There is a new Directors & Boards article from the CPA’s Bruce Freed & Karl Sandstrom that advocates for companies to use the Model Code to guide decisions.
-Liz Dunshee, TheCorporateCounsel.net February 8, 2022