TheCorporateCounsel.net

This summer, the Center for Political Accountability (CPA) and the Wharton School announced the joint release of a research primer that addresses the risks that corporate political spending may pose to companies and ways companies can improve the transparency, accountability, risk management and alignment with messaging when it comes to political spending activities. I’ll freely admit that I find this space very confusing — with all the different terms and types of entities that are used to pool money and resources — but I try not to fault myself for feeling a bit lost because I assume it’s confusing by design so that the parties involved can keep the details of donations private if and until they choose to disclose them. What I didn’t appreciate, though, is that the confusing design that seems like it might benefit a sophisticated corporate donor may actually work against it.

That’s because it may not actually keep donations private. We know from news reports that “[p]olitical spending that companies expected would never become public has.”

It can also present risks to those corporate donors because they have less control over the ultimate recipient or cause their spending supports when they give to third-party groups that may “use the companies’ funds for a wide variety of political support, often without informing corporate donors of the details of their activities.”

When companies decide to make political donations, they may attempt to donate to causes or candidates they believe reflect the core values of the company. Yet the reality is that once the money goes into a third-party group, firms lose all control of their donations [. . .] In many cases, corporate donations may be transferred from the original recipient to additional third-party groups before being spent on an election. This process can obscure the ultimate destination of funds both to the detriment of firms who donate [. . .] They end up supporting any and every endeavor of the recipient and its affiliattes—which means that firms may donate to campaigns or causes misaligned with their stated values or the values of their stakeholders. Such misalignment poses a very real threat to a firm’s reputation.

The primer suggests that companies ask themselves the following key questions before moving forward with political spending:

– Can a strong case be made that the spending advances the corporation’s key business objectives?
– Does the spending threaten the company’s reputation or expose it to unnecessary risks?
– Regardless of legal risks, is this kind of spending ethical?

Also check out Liz’s blog sharing the CPA’s 10-page guide to corporate political spending and our “Political Contributions” Practice Area here on TheCorporateCounsel.net.

– Meredith Ervine