A Board Member’s Guide to Corporate Political Spending

Supreme Court Justice John Paul Stevens wrote in the Citizens United campaign finance decision that “Business corporations must engage the political process in instrumental terms if they are to maximize shareholder value.” Yet the freedom bestowed on corporations by Citizens United comes with serious risk.

Directors in a range of industries have been stung by media reports that political intermediaries used corporate money to help fund causes or candidates adverse to a firm’s business interests or its espoused values and positions. This is acutely the case when companies “outsource” political contributions by funding trade associations, politically active nonprofit organizations, and other groups that do not disclose their donors. Such “dark money” spending is a fast-growing share of campaign expenditures: the total spent by tax-exempt organizations that conceal their donors increased from $5.2 million in the 2006 off-year cycle to more than $300 million in the 2012 presidential cycle. Experts predict it will surge even more in 2015-2016.

Political disclosure and accountability are becoming best practice. According to the 2015 CPA-Zicklin Index of Corporate Political Disclosure and Accountability, half of the companies in the S&P 500 Index disclose some or all of their contributions of corporate funds to candidates, parties, and committees or have policies not to make such contributions. Moreover, 43% said their boards regularly oversee their political spending. Such corporate leaders as Merck, Capital One, Noble Energy, Exelon, Prudential, and Microsoft recognize that disclosure and oversight protect not only the company but also its shareholders and other stakeholders. In addition, these practices help promote the integrity of the democratic political process, especially in the wake of Citizens United.

Where Corporate Campaign Finance Laws Stand Now
To conduct effective oversight, directors need to understand how companies are allowed to spend money to influence elections.

Corporations are prohibited from tapping their treasuries for direct contributions to federal candidates and national political parties. They may, however, engage in electioneering spending. This includes funding advertising that targets or promotes a specific candidate as long as it’s independent from the candidate and party committees.

They may also give to candidates through political action committees (PACs) or support candidates by giving to Super PACs, which can accept unlimited contributions and make unlimited independent expenditures. Direct contributions to a Super PAC must be disclosed but indirect contributions may remain undisclosed.

Companies may also give unlimited sums to trade associations (called 501(c)(6) groups for their tax code classification) and “social welfare” organizations (called 501(c)(4) groups). These tax-exempt groups must have a “primary purpose” other than elections. Unlike most political committees regulated by federal election law, they don’t have to disclose their donors. Accordingly, these organizations appeal to corporate donors that wish to remain anonymous.

Companies also may give to political committees known as 527s, such as the Republican Governors Association and the Democratic Governors Association. These groups are devoted to elections and may engage in independent spending, but they must disclose their donors.

States have a patchwork of laws dictating when companies may contribute to state campaigns and, if permitted to do so, whether there are donation limits.

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via A Board Member’s Guide to Corporate Political Spending.

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