[A different version of this piece was posted on the Harvard Law School Corporate Governance Forum on February 8, 2021.]
The fallout from the storming of the Capitol building by members of QAnon, the Proud Boys, and other militant and militarized Trump supporters at the behest of the President himself has been widespread, and there has been a backlash by corporate America. As has been widely reported, scores of major corporations were quick to alter or altogether press the “pause” button on their political action committee (PAC) contributions.
Corporate political spending has long been an issue in corporate governance, and the objections have become louder and gained more support. Prominent corporate governance experts have been calling for regulatory action for years now, most notably 10 professors (including future SEC Commissioner Robert Jackson) who filed a rule-making petition to the SEC in 2011 that received over one million comment letters in support, and Bruce Freed of the Center for Political Accountability who has led the movement to persuade corporations be more transparent about their political contributions. Former Delaware Supreme Court Chief Justice Leo Strine has also contributed scholarly work to the conversation.
Shareholder proposals on this issue are receiving increasingly higher levels of support.[1] And in December, after years of indicating that it didn’t place much importance on corporate political contributions disclosures, BlackRock said it has started to “evaluate a company’s disclosure and other publicly available information to consider how a company’s political contributions and lobbying may impact the company,” and where it sees “material inconsistencies with [the company’s] stated public policy priorities, [BlackRock] may support a shareholder proposal requesting additional disclosure or explanation for such inconsistency.”
Immediately after the hostile takeover of the Capitol, well over 50 major corporations announced that they would be suspending their corporate PAC giving, some isolated to the 147 members of Congress who voted to object to the electoral votes counted on January 6, and some from all members of Congress. At least one company sent greeting cards to two objecting Senators asking them to return the company’s PAC contributions! (Political spending claw-back policy, anyone?)
The pundits have said that these moves are largely symbolic since the dollar amounts from corporate PACs are now dwarfed by the unlimited amounts that super PACs and über wealthy individuals, like George Soros and Charles Koch, make to politicians. Also, some of these corporate PAC pauses don’t mean a lot since the companies have said they will be brief, and they happen to coincide with a natural down period for contributions. Plus, they likely won’t be permanent. Companies will probably un-pause once some piece of legislation they need passed (or blocked) comes along or when the 2022 election cycle begins. By then, some of the public anger will have died down, and memories are short. Plus, there won’t be press releases about resuming PAC contributions, so only people who closely track the disclosure will know. And there is always a time lag for the disclosure.
I’ll chime in with a few of my own thoughts:
This will (or should) become a bigger board issue.
Most large companies now give their boards some kind of report on corporate political spending, including contributions to trade organizations, such as the U.S. Chamber of Commerce, the National Association of Manufacturers (NAM), and the Pharmaceutical Research and Manufacturers of America (PhRMA). However, we don’t really know how in-depth those board reports are. They could be very high-level and just lay out how much the company gave to Republicans, Democrats, and large trade organizations in a given year without providing any analysis on strategy, flagging potential controversy with particular contributions, or providing information about contributions at the state level. These reports might be given to a committee and not the full board. For all we know, they could take the form of a slide deck posted to the board portal as “For Information Only” and not even be on any meeting agenda. Expect boards to start asking for more. I’m sure directors are already calling their CEOs to ask how much their PACs gave to Senators Ted Cruz and Josh Hawley… and why.
Another sign that corporate America has taken a left turn.
Based on what we’ve seen over the past four years, corporations and their leaders (a) are not as shy about wading into social and political issues; (b) have become more progressive on the issues; and (c) are not as solidly Republican as they used to be. That’s actually not entirely new. Many prominent companies signed on to amicus briefs to support cases before the U.S. Supreme Court on affirmative action[2] and LGBT rights[3] well before Trump came onto the political scene. And the trend has accelerated as employee demographics and societal attitudes have changed. Over the past four years, corporations have gone further to publicly object to Trump’s Muslim ban, lobby to support Deferred Action for Childhood Arrival (DACA), and make strong statements supporting the Black Lives Matter movement. And recall how the President’s Manufacturing Council quickly disbanded after Trump’s response to the 2017 “Unite the Right” rally in Charlottesville. A large chunk of corporate America has been supporting tougher climate change policies. And many CEOs themselves publicly supported Hillary Clinton in 2016. The cynics say that a lot of this is just PR, but even doing these kinds of things for PR purposes is a departure from the traditional corporate playbook—don’t get involved in social or political issues because you’re just going to end up upsetting half of your customers.
But keep in mind that everything is a business decision.
Every corporate decision is basically an assessment of what’s the upside versus the downside, and that ultimately gets measured in dollars. "How many customers or advertisers do we risk losing?" "How might this impact our reputation rankings?" Yes, many companies do sincerely try to “do the right thing,” but even those moves are made with earnings per share in the back of the minds of the decision-makers. Do executives do the right thing so they themselves can sleep at night or so they can be seen as doing the right thing in the eyes of their customers?
This corporate PAC pause reminds me of the time in 2012 when many companies were pressured to give up their membership in the American Legislative Exchange Council (ALEC). ALEC supported the “stand your ground” laws connected to the fatal shooting of 17-year-old Trayvon Martin. Not all of those decisions to ditch ALEC were knee-jerk moral reactions. As they have a responsibility to do, company executives weighed the benefits their companies were receiving from their ALEC memberships—namely opportunities to have access to and influence state legislators—against whether they could get those same benefits in other ways. Factor in the reputational hits they were already taking, and the choice became pretty clear.[4]
Today, part of went into the equation for pausing PAC contributions was probably the fact that corporations already got the big-ticket items they wanted from Republicans—tax cuts and deregulation. With the White House, Senate, and House of Representatives under the control of the Democrats for the next few years, there’s not as much risk with cutting off 147 Republicans as there would have been in say 2017.
Shareholder proposals that stick around for a while can eventually become relevant.
As we've seen in many instances, a major unexpected event can create the opportunity for a draft policy that never generated much support, but continued to hang around, to all of a sudden become relevant. NorthStar Asset Management has been submitting proposals for companies to issue reports on what they call “congruency between political contributions and company values” for probably 10 years now, even though those proposals rarely received meaningful support. Look for NorthStar to have wind in its sails this proxy season, given its congruency proposal gets to the essence of the corporate PAC pause issue. In general, I’m pretty sure we’ll see more political contributions disclosure proposals receive majority, or at least significant bump-ups in support, especially if BlackRock starts to vote in favor of them.
Watch how this impacts trade associations.
Corporations fund trade associations directly in the form of membership dues. So, corporations’ taking a breather on PAC contributions won’t impact the budgets of trade associations for the most part. This may make trade association memberships even more important. After all, if a company is no longer giving to politicians through its corporate PAC for access to the halls of Congress, trade associations might be their only means of getting it. That’s going to make activists redouble their efforts to force corporate disclosure of trade association dues. If you talk to the biggest proponents of shareholder resolutions on political spending disclosures, they’ll admit that the disclosure of trade association dues and other funding is the Holy Grail of their crusade. They can already get most of the corporate PAC information publicly, but payments to the trades are not in the public domain. Some of the major trade organization themselves (including the U.S. Chamber of Commerce and PhRMA) have paused contributions to political candidates in the wake of the raid on the Capitol for many of the same reasons corporations did. But like with companies, it’s hard to see that lasting forever.
Can we please get rid of corporate PACs?
I’ve always found the very notion of corporate PACs to be unseemly and even distasteful. How awkward is it to be asked by your company if they can keep some of your after-tax salary for them to give to the politicians of their choosing? Of course, it’s voluntary, but who isn’t worried that that the company is keeping score (it is), and when it comes time for that promotion, they’re going to look at whether and how much you gave? It’s one thing for the company to have formal fundraising drives for charity, but openly campaigning employees for political contributions is… yucky. For all you know, the company is going to give your money to the very politician you think is a complete dirtbag and want voted out! The theory is what’s good for the company is good for you. If that’s the case, give me the names of the politicians you want me to support, the reasons why, and I can decide whether to vote for and maybe give money to some of them. (That and give me a damn raise!)
I’ve been told that some companies’ manner of suggesting that employees make voluntary contributions to the PAC is about as subtle as putting a horse’s head under your desk. Some companies actually give perks to those who contribute to the corporate PAC, including matching contributions to your favorite charities and… get this… preferred parking spots at the office lot! Are you kidding me? No. The law actually allows companies to use “special events and promotions” to entice employees to give its PAC, including:
Golf tournaments;
Raffles;
Silent auctions;
Special prizes or recognition events for contributors of a certain amount;
Concerts; and
Any other fundraising event or promotion using prizes or entertainment as an inducement to make a contribution to the [PAC].
How about doing some of those things to show genuine appreciation for employees without strings attached to political motives!?! This is what I mean when I say “distasteful.” Corporate matching of charitable contributions seems especially cynical. Some companies describe that kind of program as a “win-win.” I see it as a cleansing mechanism.
The whole concept of allowing employers to mix work with politics can lead to very bad behavior. I’ve seen CEOs use company resources to “ask” employees, particularly their direct reports and other senior executives, to give large amounts to particular presidential candidates. Talk about pressure. No one vying for the c-suite can afford to be labeled as “not a team player.”
Given the diminished importance of corporate PACs in the campaign finance game, it’s time for companies to assess how necessary they really are. I say, press pause, reconsider the value, and get rid of them. Defund the PACs. Cancel them. I honestly think no one will be worse off. Andrew Ross Sorkin wrote a great piece in his New York Times DealBook column about how IBM doesn’t have a corporate PAC and never has. Good for Big Blue. I doubt IBM has any trouble getting access to the legislators they want to influence. Charles Schwab Corporation announced on January 13 that it will discontinue its corporate PAC and donate the remaining assets to the Boys & Girls Club of America and historically black colleges and universities, believing “a clear and apolitical position is in the best interest of our clients, employees, stockholders and the communities in which we operate.” The stakeholder model of corporate governance gains steam!
[1] Gibson Dunn, “Shareholder Proposal Developments During the 2020 Proxy Season” (Aug. 4, 2020). [2] Grutter v. Bollinger, 539 U.S. 306 (2003); Fisher v. University of Texas at Austin, 570 U.S. 297 (2013). [3] United States v. Windsor, 570 U.S. 744 (2013). [4] I had some direct involvement with this.