Contribution Clarity

Good corporate governance assumes basic transparency when it comes to political giving.

By Dan Bross and Trevor Potter

Corporate participation in the public policy process is beneficial to free and democratic societies, as well as providing a means of appropriately enhancing shareholder value through improved government policy. Corporations are significant drivers of employment and economic growth, and wise public policies informed by all stakeholders benefit shareholders, employees, and the general public. While some on the fringes of the political spectrum will disagree with this premise, it is a well established principle that business has a responsibility to shareholders to engage with a range of external stakeholders, including governments.

The 2008 global financial crisis has led to a growing interest—among shareholders, the media, public interest groups, and others—in better understanding the governance policies guiding corporate practices on a range of issues. Those range from say on pay to majority voting to sustainability reporting. However, no corporate governance issue has received the amount of attention or has been the subject of such intense (and at times mean-spirited) debate as the issue of corporate influence and participation in the public policy process. This debate has been greatly spurred by the United States Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission. The ruling allows profit corporations for the first time to use their funds without limit to support or oppose candidates for public office at the local, state, or federal level through independent expenditures.

This interest is understandable, reasonable, and logical. Even the Court’s decision itself invited this scrutiny, with Justice Anthony Kennedy stating for eight justices, “With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.” Justice Kennedy concluded: “The First Amendment protects political speech; and disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way.”

What is disappointing is not the interest in corporate political activity but the tone of the current debate. Reasonable people (and corporations) can and will disagree about the appropriate role for corporate spending in elections, the role of disclosure, and the governance rights of shareholders. However, unless the Constitution is amended, or the Supreme Court majority on this shifts again, corporations now have the right to make unlimited direct expenditures in elections at all levels of government (rather than more limited expenditures through PACs composed of voluntary individual donations as before), and those interested in the issue could be more productive by focusing on the best standards for the exercise of that right.

Corporations have responded to the Court’s ruling in a variety of ways. While some have decided to fully exercise their right under current law, others—including Microsoft—have decided not to fully exercise their rights. For us, this range of responses is also understandable, reasonable, and logical.

However, much of the rancor of the current discussion is a result of only focusing on one aspect of corporate participation in the political process—whether corporations chose to make direct expenditure of corporate money in elections. In our view, we should be having a broader discussion about the principles and policies that inform and govern how individual corporations elect to participate (or not) in the process. To focus only on the right of corporations to support or oppose candidates in elections, without discussion of the standards of governance that ought to guide such decisions, is to distort the debate.

We believe corporations subject themselves to perhaps unwarranted criticism and risk by not sharing with stakeholders a broad overview of their governance philosophy related to participation in the political process. This could begin with a discussion of how they see their responsibilities in this area. Is their engagement with government guided by a public policy agenda? What means do they use to advance that agenda—direct lobbying, membership in industry and trade associations? Do they empower, support and encourage their employees to participate in the political process by holding voter registration events, hosting speakers on key topics related to their policy agenda? Do they have a corporate PAC? How are PAC funding decisions made? Does the corporation provide direct financial support to candidates with corporate funds? Does the corporation provide funding to so-called “super PACs”? Finally, is the process transparent? All of these are important and legitimate questions of interest to a broad range of stakeholders.

We believe that while the range of public policy and political activities will vary, the underlying “best practices” governance tenants remain constant—transparency, accountability, compliance, oversight, and responsibility. Microsoft, Pfizer, Merck, and an increasing number of Fortune 500 companies have developed policies across the range of their individual political activities to address these tenants. This seems to us to be good corporate governance.

The Conference Board’s Committee on Corporate Political Spending has published a report: “Corporate Political Spending: Policies and Practices, Accountability and Disclosure” (see CR Magazine, January/February 2012) designed to help corporations deepen their understanding of issues related to involvement in the political process and offers a variety of approaches for political spending, disclosure, and accountability. Corporations have a broad range of options for political engagement, and the report discusses many of those options.

Unfortunately, some companies have paid the price in public controversy for making decisions without the appropriate standards or processes in place. We have seen senior executives responding “on the fly” to requests for political funds, only later realizing that such decisions might appear hasty and ill-considered to their boards, shareholders, and customers.

The next few months will provide all corporations with an opportunity (and we believe responsibility) to address the many misconceptions and misunderstandings related to the role that corporations play in our political process. This role remains a mystery to too many stakeholders. Corporations have the ability to change the tone of the current debate, by establishing internal governance’s processes that are transparent and reduce risk, and to address image and reputation challenges by unraveling and solving the mystery. If corporations do this, they should be in a strong position to explain and defend their positions to all of the stakeholders in our society, including those who might disagree with those decisions.

Dan Bross is senior director of corporate citizenship at Microsoft in Redmond, WA, and a former corporate lobbyist in Washington, D.C. Trevor Potter is the head of the political activities practice at Caplin & Drysdale in Washington D.C., and a former chairman of the Federal Election Commission.

Posted May 9, 2012 in Compliance & Governance