When Political Spending and Core Values Conflict

Bruce F. Freed is president of the Center for Political Accountability; Karl J. Sandstrom is a former Federal Election Commissioner and practices law at Perkins Coie LLP. This post is based on a CPA report by Mr. Freed and Mr. Sandstrom.

Related research from the Program on Corporate Governance includes Shining Light on Corporate Political Spending and Corporate Political Speech: Who Decides?, both by Lucian Bebchuk and Robert Jackson (discussed on the Forum here and here), and Corporate Politics, Governance, and Value Before and after Citizens United by John C. Coates.

The Center for Political Accountability (CPA) released in mid-June a report entitled “Collision Course: The Risks Companies Face When Their Political Spending and Their Core Values Conflict, and How to Address Them.” It is the first report to analyze the heightened risk that political spending poses in today’s polarized political environment.

The report examines how ill-considered political spending creates reputational risk and raises unwanted questions for corporate governance. This perspective lends the report added importance for management, who are involved in the company’s political spending decisions, and directors, who oversee a company’s political spending and set relevant policies for it.

The report launches a new CPA educational initiative focused on the role of the corporation in our democracy. It is an invitation to the corporate. legal and academic communities, to continue the debate on the rules, internal and external, that should govern corporate political participation.

The “Collision Course” report discusses case studies of political spending by companies that triggered controversy and public backlash.

Two examples, one recent and one less so, highlight the issues at stake:

The first involves Publix Super Markets, Inc., the large grocery store chain in the southeastern United States. It attracted outrage recently over its contribution in support of a Florida gubernatorial candidate who had called himself “an NRA sellout.” The company said it gave to the candidate not because he was pro-gun but because he was pro-business. It’s explanation did not satisfy the public and found itself the target of a boycott.

The second—like a ticking time bomb—involves a raft of leading U.S. companies that have faced serious questions for contributions they made in 2010 and 2012 to political committees spending at the state level. The “bomb” itself was HB2, North Carolina’s controversial transgender bathroom law. Companies contributed millions of dollars that were critical to bringing about the change in control of the state’s legislature in 2010 and the election of a governor in 2012; these resulted in 2015 in enactment of HB2. Following the law’s enactment, a spate of media articles spotlighted certain companies, their role in helping make the law possible, and the conflict between the law and these companies’ strong policies on diversity and LGBTQ employees. The companies faced boycott threats and were put on the defensive at least reputationally.

The “Collision Course” report focuses on company political spending at the federal and state levels since 2010. It identifies a pattern in the spending, political and policy outcomes, and the escalating risks created for companies. These risks have been greatly exacerbated since the 2016 election.

The report included case studies on racial gerrymandering, attacks on LGBTQ and women’s reproductive rights, and attacks on efforts to address climate change. The studies delve into the dangers companies face when the consequences of their political spending clash with their policies, core values, positions and business strategies. These risks have bottom-line implications. They require that companies approach political spending with the same deliberation and caution that they bring to other significant corporate decisions.

As the report suggests, corporations today are in the crosshairs. As a Deloitte report warned:

“One of the greatest dangers for a company in the age of social media is acting in ways that are inconsistent with its core values.”

How should executives and their companies address this risk?

The “Collision Course” report cites a Business Roundtable statement on corporate responsibility developed in 1980. “It is important that each corporation give attention to all the consequences of its activities…,” the statement said.

“[A corporation] must be a thoughtful institution which rises above the bottom line to consider the impact of its actions on all, from shareholders to the society at large. Its business activities must make social sense just as its social activities must make business sense.”

The report closes with observations by Microsoft’s former senior director for corporate citizenship Daniel T. Bross, who best captured the challenge facing companies.

“America’s leading companies are speaking out on issues central to their values, fundamental to business success, and rooted in a commitment to enhancing global sustainability,” Bross wrote.

“Yet it is important that companies continue to fulfill their responsibility to adopt and advance strong corporate governance policies and practices for participation in the political process. These issues speak definitely to the character of a corporation—and its leaders—in the 21st century.”

The full report is available here.

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