Businesses Should Expect – and Prepare for – Even More Scrutiny on Political Giving

January 22, 2021
By Michael Hotra, Liz Sidoti, and Sarah Knakmuhs

What began with a few companies and organizations pausing political giving after the Capitol riot and GOP-led efforts to overturn the presidential election results has now turned into a movement. According to one recent article, businesses representing nearly half the value of the S&P 500, have suspended donations to all lawmakers or to Republicans who voted “no” on presidential election certification.

Over the last few weeks, a significant number of large publicly traded companies, including, for example, Johnson & Johnson, Chevron and Toyota, announced they would review their entire political action committee (PAC) programs, or the way businesses legally collect employee and board member donations that flow to lawmakers as campaign contributions. Many other companies say they are still considering what to do.

These moves follow a tumultuous 2020 that presented businesses with unprecedented challenges and opportunities, including addressing not only the COVID-19 pandemic and subsequent workforce and supply chain disruptions amid an economic recession, but also their roles in ameliorating systemic racial injustice, income inequality and civil discourse.

Now, businesses must continue navigating this chaotic and divisive political moment while answering tough questions their stakeholders, especially shareholders and employees, are posing: What do you value? Do your words and your actions on issues like political giving reflect those beliefs? Why do you support elected officials who do not share your corporate values?

Further, businesses must navigate a potentially unintended consequence of suspending donations to Republicans who voted against election certification: they have now explicitly linked their campaign support to a specific vote. Now, companies likely will face new pressure to support or withhold political support based on other consequential economic and social issues that span the ideological spectrum.

Indeed, businesses will face added stakeholder demands to weigh in on cultural issues and use PAC money to register support for or opposition to lawmakers’ stances or votes on issues like climate change, racial injustice, law enforcement and LGBTQ rights.

Here’s what businesses should think about as they prepare for the future:

GET UNDERNEATH THE HOOD OF YOUR PAC: Evaluate the entire program. Survey the PAC board as well as donors to address concerns about how decisions are made and where their money is going. Review donation policies and PAC solicitation materials. Ask whether processes and procedures need to be updated. Be transparent. Consider sharing with employees the decision-making process.

EXPECT SCRUTINY OF YOUR POLITICAL ACTIVITY TO EXPAND – ESPECIALLY ON SOCIAL MEDIA: Stakeholders will scrutinize PAC contributions to candidates and call for corporate disclosure of soft money contributions, especially to 527 advocacy groups that don’t disclose donors. Know to whom your contract lobbyists are giving; their social media accounts will be “audited” for alignment with client values.

ANTICIPATE PARTISAN BACKLASH: Today, Republicans who voted to overturn the presidential election results are prime targets for businesses withholding donations. But, tomorrow, any other segment of the political class – such as liberals who vote to “defund” law enforcement – could be next. Resist the urge to only donate to the party in power; be consistent in your reasons for giving.

DEVELOP A “NEXT STEP” STRATEGY: Businesses that paused donations need to figure out what to do next. If and when they decide to resume political giving, they need to determine what to say about their decision. If they choose to halt donations entirely, they need a plan to communicate that, wind down their programs and adopt different ways to influence policy.

PREPARE FOR EARNINGS SEASON AND ANNUAL MEETINGS: Like executive compensation, climate change and DE&I matters, shareholders likely now will press for disclosure about lobbying and influence efforts. Have clear, consistent answers. Also, presumptive Securities and Exchange Commission Chairman Gary Gansler may pursue regulations requiring political giving disclosures in SEC filings.

AVOID SPLITTING HAIRS: While legally the distinction is important, the fact that company leadership does not directly control employee-run PACs matters less from a reputational perspective. PAC donations reflect on the corporate brand and stakeholders don’t differentiate between a corporate board of directors and the legally required separate PAC board.

INVEST IN RELATIONSHIP BUILDING: Businesses with a history of building relationships with lawmakers and regulators get more leeway when they pause or stop donating. Politicians understand how these companies serve the public interest and their constituents’ interests. Most such relationships will survive a donation suspension, a testament to the benefits of sustained, non-transactional engagement.

Every business has its own corporate political culture and comfort level with donating to politicians. But a thorough evaluation of that culture and whether their PAC fits with the times will allow companies prepare for the future as they inevitably continue to be confronted with political controversies and policy issues.

Contact the authors

Michael Hotra
Managing Director

Liz Sidoti
Managing Director

Sarah Knakmuhs
Managing Director, Head of DC Office