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March 28, 2019

Why Focus on Corporate Political Spending?

As the 2020 elections unfold, the impact of money on our nation’s politics is emerging as one of the top issues. It’s moved to the forefront as the costs of campaigns skyrocket, fueled by the tens of millions of dollars that wealthy individuals and private companies are spending. It is a story that cannot be ignored.

With this broad concern in mind, why zero in to focus on the rivers of political dollars spent by publicly held companies? There are three fundamental reasons why.

The first is that corporate political money, and public companies in particular, play a dominant role in elections, both at the federal and state level,  which has significant policy and political consequences.

Secondly, political contributions, not spending on lobbying, lay the foundation for political relationships. These relationships—based on friendship and a sense of indebtedness—play an outsized role in shaping public policy and legislation.

Lastly, there are few, if any, checks on companies today. This stems from the demise of the countervailing power centers described by John Kenneth Galbraith in his classic book, American Capitalism. Galbraith writes about unions, business, and government in the 1950’s creating a system of checks and balances. But that’s no longer the case; unions haven’t been a counterweight for a long time, and government is much less of an independent force. Businesses now operate under  few constraints. Prof. Mark Mazruchi of the University of Michigan documents this trend in his book, The Fracturing of the American Corporate Elite.

As a result, corporations have an inordinate influence on setting the nation’s agenda and our  state politics. Their spending has a tremendous impact on our democracy and the ability of our nation to address such critical challenges as climate change, gerrymandering, racial and gender inequities, inequality, and the role of money in politics.

Companies exert influence today through their contributions to trade associations, nonprofit “social welfare” organizations and 527 political committees. These contributions seek to advance a specific business objective. The problem is that along the way, they may be supporting tactics and policies that actually undermine companies’own business goals and values as well as our democratic principles.

The Supreme Court’s Citizens United decision, subsequent court rulings and ineffectual regulation have allowed corporate influence to grow without check and effective disclosure.

Let’s look at this in terms of dollars and cents. The best way to visualize corporate political money is to think of an iceberg. Only part of the iceberg is visible. What’s above the waterline is disclosed spending. It includes contributions to candidates, party committees, independent expenditures, and 527 committees. We can calculate a sum because the amount of spending is publicly disclosed. What we don’t know is the amount that’s below the waterline, namely “dark money,” including payments to trade associations and contributions to “social welfare” organizations. That’s why we have to rely on disclosed activity, like PAC spending, in order to extrapolate the overall level of political spending.

With that caveat, here’s what we see in congressional elections and state elections:

At the federal level, companies are the biggest source of political money. According to the non-partisan Center for Responsive Politics, business “has a more than 3-to-1 fundraising advantage” over labor unions in PACs delivering funds.

At the state level, there are several measures indicative of enormous corporate political spending clout. For instance, of the $562 million raised by a single partisan committee that played a key role in governors’ races for the 2010 to 2018 election cycles, 37 percent came from publicly held corporations and their trade associations. That compares with 36 percent from individuals and 17 percent from private companies.

Of $189 million raised for the 2010 to 2018 election cycles by a single partisan committee that was instrumental in bringing about the change in control of state legislatures, 59 percent came from publicly held corporations and their trade associations. This compares with only 8.6 percent from private companies and 8.5 percent from individuals.

Of the $83 million raised by a partisan committee that was a leading contributor to attorneys general campaigns for the 2014 to 2018 election cycles, the largest share—46 percent—came from publicly held companies and their trade associations. This compares with 26 percent from private companies and 25 percent from other and individuals.

What are the consequences of this kind of eye-popping spending?

When the ticking time-bomb of corporate political spending blows up, it can bring public embarrassment, ridicule, boycotts or other backlash as we have seen from dozens of recent examples. Consider the Parkland school massacre and the protestors’ “die-ins” at Publix Super Market aisles. Or the numerous leading companies that requested refunds of PAC donations last year to Rep. Steve King and Sen. Cindy Hyde-Smith after they made racially charged and pro-white supremacist statements. Or investigative news articles suggesting leading companies preached one line on climate change or LGBTQ rights and practiced another through their political spending.

Contrast this with the emphasis that companies have recently placed on presenting themselves as responsible, concerned corporate citizens. They are touting their core values, their dedication to diversity, and their commitment to being environmentally conscious and to addressing climate change.

What we see over time is a divergence between the core values and positions of companies and the consequences of their political spending. This inconsistency has created—a more appropriate term is “aggravated” —serious reputational and bottom-line risks that, in turn, are much more immediate because of social media. All of this was detailed in Collision Course, a report released by the Center for Political Accountability last June.  

All is not gloom and doom. Forward thinking companies are recognizing the risk. Corporate political disclosure and accountability is becoming the norm. As the 2019 proxy season opened, seven leading companies—General Electric, Hilton, Ameriprise Financial, Chubb, Mondelez International, MSCI and Tractor Supply—acted on their own or agreed to shareholder requests that they beef up existing, or adopt new, political disclosure and accountability policies. This brings to 173 the number of companies with political disclosure and accountability agreements.

However, individual indicators show even more progress. Our CPA-Zicklin Index, the annual benchmarking of the political disclosure and accountability policies of S&P 500 companies, has found that three-fifths have some level of disclosure of their political spending with corporate funds. More than two-fifths have general board oversight of their political spending.

This is the result of CPA’s 15-year effort engaging companies and the impact of the CPA-Zicklin Index. Indeed, the Index’s findings demonstrate this. An ever-expanding number of companies have the policies and tools for addressing the heightened level of risk they face. It’s now a matter of using the policies. That’s the critical challenge that the business community faces today.

The effort, however, cannot wax or wane. Companies are under immense pressure to contribute and must continue to erect through good corporate governance, transparency, and accountability policies barriers to deflect that pressure. If companies want to truly pursue their commitments on the environment, diversity, and education, they must recognize that those commitments cannot be realized if their political spending undercuts them.

Bruce Freed is President of the Center for Political Accountability, a non-partisan advocacy organization that is bringing transparency and accountability to corporate political spending. Dan Carroll is the Center’s Director of Programs. Karl Sandstorm is the Center's Counsel.

Image credit: Ray Lotier via Flickr. 

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Why Focus on Corporate Political Spending?