News Items

December 02, 2010

Suggested Reading: Recent publications of interest to PAC Managers

Two recent reports that offer PAC professionals additional insight about participation in the political process are now available.  “How Companies Influence Elections: Political Campaign Spending Patterns and Oversight At America’s Largest Companies” examines the nature and extent of the voluntary governance practices adopted by companies. [1] The authors use a broad definition of “political spending” in an effort to determine the manner in which these practices are applied.

 Using responses to a survey of S&P 500 companies about what they say are their practices and aligning those responses to federal and state campaign contribution data produced a number of important findings:

Key Findings

·        Nearly 80 percent of the S&P 500 companies have disclosed political campaign spending policies. However, only a distinct minority has stand-alone policies that are easily found on company websites, with clear descriptions for how spending occurs and who oversees it. Most often, companies include a short statement in their code of conduct about political contributions, providing little information about how spending decisions are made and overseen, and by whom. The public language companies use to describe their political spending is usually not precise, particularly with regard to indirect spending.

·        Less than one-quarter of S&P 500 companies require their boards to oversee political spending; nearly all such oversight is confined to the largest companies. But just over half of the top 100 companies have board oversight, which may be a leading indicator. Health Care companies are the most likely to involve their boards in oversight; firms least likely to have oversight are in the Consumer Discretionary sector (including Autos, Consumer Durables & Apparel, Consumer Services, and Media & Retailing). This is especially telling since health care reform was one of the most hotly contested issues in the last election cycle and contentiously debated in Congress leading up to passage of health care reform legislation in March 2010.

·        Just over half of all large companies provide some information on which company officers make spending decisions, but Financials firms provide the least amount of information. This is of particular note since financial reform was another high-stakes debate waged in Washington leading to enactment of sweeping reforms in July 2010. Management transparency is most common among Consumer Staples companies (Food & Staples Retailing; Food, Beverage & Tobacco; and Household & Personal Products).

·        Nearly 60 percent of the largest U.S. companies spend shareholder money from the corporate treasury on political campaigns and two-thirds have political action committees that spend money contributed by corporate executives. Utilities—amongst the most highly regulated industries—are more likely than any other sector to support candidates, parties and interest groups’ political committees, while Information Technology companies are the least likely to spend in these categories.

·        Only 100 companies in the S&P 500 do not appear to have spent any money in political campaigns—either from the corporate treasury or via PACs—in the last four election cycles.  Only 52 companies have indicated they do not use “independent expenditures” to advocate for or against the election of candidates, although they now may do so at all levels of government because of the Citizens United decision. Only seven companies mention this method of spending in their stated policies; information on the rest comes from research conducted by Si2 and the Center for Political Accountability.

·        Only 14 percent of the S&P 500 has stated policies on indirect political spending funded by companies through their contributions to trade associations and non-profit interest groups. Financials firms are notably less likely than other sectors to say anything about indirect spending, a growing area of concern for some investors others worried about the impact and funding sources for well-endowed non-profit groups active in the current election.

·        More than 80 percent of the S&P 500 companies do not provide information on what they spend and almost all companies that report are at the top end of the revenue scale. One-third of Health Care companies disclose spending but only about 10 percent do in three other sectors—Financials, Telecoms and Consumer Discretionary.

·        The jury is still out on whether increased board oversight puts any brake on spending, but it clearly encourages disclosure of what companies do spend. Further research looking at spending by unit of revenue is needed to establish clear connections between governance and the amounts companies spend in political campaigns, as well as whether greater oversight helps align spending with shareholders’ best interests.

For the companies that acknowledge reviewing the U.S. Supreme Court’s Citizens United decision, it appears the ruling has had little influence on their spending policies, at least for now.

The report detail is enlightening and worth the time.  Examples of what a company professes to be its political practices and what in reality occurs are cited.  For those less familiar with the Center for Political Accountability’s (CFA) campaign for pursuing through the proxy statement process increased disclosure of a company’s political spending, a section in the report provides some useful detail and statistics. 

 “Handbook on Corporate Political Activity: Emerging Corporate Governance Issues” published by The Conference Board addresses a number of critical issues for political affairs professionals, especially those directly involved in campaign spending.[2]

The Handbook focuses on the challenges confronting corporations and other groups looking to comply with the myriad of inconsistent and ever-changing campaign laws and regulations.  There are also some useful best-practices provided by companies actively engaged in the political spending process.

Highlights in the study include:

• The legal framework for understanding political giving, including an overview of federal/state pay-to-play laws.
• How corporations can monitor the political engagement and policy positions of the trade associations to which they belong .
• Standards of director conduct that can potentially be applied to political activity. 
• The rewards of a robust political engagement program, and the risks if such programs aren't managed well. 
• Examples of companies that have successfully managed political engagement programs. 
• The importance of embedding political-spending decisions into a corporation's ethical framework.

The report contains valuable information about the importance of a robust compliance program for any form of political activity, but especially where campaign spending is involved.  And the steps suggested go well beyond simply adhering to campaign laws and regulations.  Political activities if not managed appropriately can create public relations nightmares that can require months if not years to repair. Without proper oversight of its political activities, a company can find itself “de-listed” from bidding on state and local procurement opportunities.

 In light of court decisions permitting greater latitude by companies to use treasury resources for political purposes, the pressure to restrain or end such practices will continue to mount and in making the case for their demise, oftentimes the advocates will find “an abuse,” typically a spending decision that could have been prevented had the proper controls and/or governance process been in place and followed.  Obviously no one chooses to be the “poster-child” in these circumstances, and there are some excellent suggestions in this report to avoid such a disaster. This is definitely a report worth sharing up the management line, especially with PAC chairs and others involved in the political activities of the organization.