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E-MailMilton Friedman famously claimed that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” That view is consistent with the vision of perfectly competitive markets that dominated the field of economics half a century ago and justified economists’ trust in “the free market” to deliver results that serve the public interest. Friedman’s position is powerful if business takes the “rules of the game” as exogenously given and plays no part in shaping them. In the US today, however, business is a major source of campaign funding and the dominant force in lobbying in the US. On what basis should business influence those rules? Businesses today face increasingly difficult tradeoffs between the pro-market and pro-society policies needed to support their own long-term goals, and narrower pro-business policies that may pay off more directly in the near term. Moreover, much of current campaign activity and the content of lobbying influence is hidden from public view. When business operates behind closed doors to shape the rules of the game, the presumptions that markets are “free” and faithfully serve the public interest no longer hold. Public opinion and academic research increasingly suggest the influence of political spending and lobbying behind closed doors are major drivers of dangerously high levels of distrust in government. In response to that distrust, companies are facing increasing pressure to step in to solve societal issues, increasing scrutiny of their political activities and more recently, serious questions about the legitimacy of their political engagements.
Given these conflicting imperatives and broader threats to free market capitalism and constitutional democracy if current trends continue, businesses, investors and stakeholders are looking for independent non-partisan guidelines. With Congress showing no inclination to wean itself from money, nor to require the transparency the Supreme Court endorsed (but did not require) in its Citizens United decision, private ordering offers a path forward. Since 2021, the Erb Institute at the University of Michigan has convened a group of business leaders through the Corporate Political Responsibility Taskforce (CPRT) to hammer out a set of guardrails which, if widely adopted, would ensure that corporate political influence is legitimate and serves the public interest. The Principles were launched publicly in Washington, DC, on March 7, 2023, and their text is reproduced below. For the next year, the CPRT is focusing on concrete actions that demonstrate a meaningful commitment to the Principles, with the first three being adopting the CPA-Zicklin Model Code of Conduct for Corporate Political Spending, GRI Standard 415: Public Policy, or a publicly stated policy prohibiting the use of corporate treasury funds for election-related spending.
A formatted PDF of the Erb Principles for Corporate Political Responsibility, including the Statement of Support from the firms that have endorsed the Principles, can be found here.
Legitimacy
Firms’ political activities reflect legitimate use of resources and authority, and an authentic basis for engaging. This means firms have certain foundational responsibilities, including:
a. Any political activities using company resources or management authority reflect the company’s views, not those of the individual manager or officer, and they comply with all laws and regulations pertaining to political activities.
b. Companies do not pressure or coerce employees, shareholders or other stakeholders when engaging in political activities.
c. Companies articulate an authentic basis for their engagement on key matters of public policy and societal issues, drawing on the criteria below:
- Contribution: The firm has caused or contributed to the issue or is involved through its products, practices or people; or
- Commitments: The issue affects the firm or its business, has a material impact on key stakeholders, or relates to its purpose or commitments; or
- Consequence: The issue represents a threat to the foundational systems on which the economy, society or life depend — and the company has the capability to help.
If a firm determines that it has an authentic basis for engagement, the remaining principles of accountability, responsibility and transparency outline how to do so responsibly.
Accountability
Firms are accountable for their political activities, actively striving for alignment with their commitments to purpose, values, stated goals and stakeholders. This means firms have certain foundational responsibilities, including:
a. Companies actively strive for alignment between their political activities (including those of trade associations and other third parties influencing on their behalf) and their commitments to purpose, values, stated goals and stakeholders.
b. Companies establish integrated governance processes to oversee their political activities (including those of trade associations and other third parties influencing on their behalf),
in order to consult stakeholders who will be significantly impacted, minimize risks to the
firm, advance alignment as outlined in item a) above and evaluate responsibility items
a) through d).
c. Companies commit to take meaningful and proactive steps to address any misalignment in their political activities as outlined in item a) above, providing mechanisms for hearing stakeholder concerns and prioritizing based on impact to affected stakeholders.
Firms also have discretionary opportunities to demonstrate leadership, such as:
d. Companies model responsiveness and inclusion by identifying and consulting a broad range of stakeholders and considering their interests and concerns when planning political priorities, positions and activities.
Responsibility
Firms’ political activities demonstrate active support for the systems on which the economy, society and life depend. This means firms have certain foundational responsibilities, including:
a. Companies champion healthy market “rules of the game” that foster competition on the basis of quality, price and long-term value, minimizing costs externalized to other stakeholders and aligning private interests with the broader public good.
b. Companies support and protect America’s constitutional democracy; the rule of law; civic freedoms; effective, transparent and accountable civic institutions; and equitable access to civic and political processes for all eligible participants.
c. Companies’ contributions to policy-making and civic discourse are made in good faith, based on evidence and respect for independent, peer-reviewed science.
d. Companies strive to ensure their political activities do not cause or contribute to adverse impacts on environmental sustainability, human rights or the public good.
Firms also have discretionary opportunities to demonstrate leadership, such as:
e. Companies may promote civic engagement if they do so in unbiased ways that respect stakeholder choice.
f. Companies may participate in civic discourse to clarify and advance the public good, consistent with their foundational responsibilities under these principles.
Transparency
Firms communicate openly and honestly about their political activities to promote informed stakeholder decision-making and public trust. This means firms have certain foundational responsibilities, including:
a. Companies provide transparency in their political activities, publicly reporting on their CPR oversight processes and policies, all direct political spending, spending through trade associations or other third parties influencing on their behalf, and any actions to address misalignments under accountability item c).
b. Companies communicate openly about their political influence approaches, outlining criteria, issues, positions, goals, stakeholder consultation processes and affiliations, to foster trust and enable stakeholders to make informed decisions.
c. Companies provide timely, accurate information and expertise to elected representatives at all levels of government as needed to support fully informed, effective policy-making.
