Eking Out a Win? Corporate Political Activity in 2022
Corporate Counsel Magazine
This article aims to highlight some of the challenges of corporate political activity, as well as discuss key points for in-house counsel to consider when advising on those matters.
Dolly Parton told a reporter in 2020 that she doesn’t “like to get involved in politics, because first of all, I have as many Republican fans as I do Democrats.” While that stance might work for a beloved singer/songwriter, your company’s brand likely isn’t as strong as Dolly’s. The events of 2020 kicked off a new phase for American companies, one in which the choice was not whether a company should participate in American democracy, but rather, how to engage and which side of the argument to take. Business leaders feel the pressure from many sides, particularly during an election year: from some shareholders and employees to take a stand that represents their own viewpoint; from other shareholders to focus on growing the business and returning capital. In addition, companies have begun issuing internal policies to align themselves on one side or the other of charged political issues.
Corporate counsel and advisors need to understand the nuances surrounding such engagement to be able to provide strategic and legal advice on political activity by a company and its executives, whether a company is looking to get involved, or to simply issue policies to try to stay out of the fray. This is particularly true in pivotal election years like 2022, where the press is laser-focused on any real or perceived corporate scandal that could be fodder for editorial clickbait. This article aims to highlight some of the challenges of corporate political activity, as well as discuss key points for in-house counsel to consider when advising on those matters.
The Minefield of Unintended Consequences
The business community’s increased involvement in political controversies has led to greater scrutiny and consequences when a company acts on an issue. Inaction, or even deciding to take no position on an issue, often is not enough. Indeed, there are several high-profile examples as of late of companies facing scrutiny by simply staying quiet. Without identifying any by name, readers of this publication are no doubt familiar with those instances where major corporations have alienated (and lost) key employees and customers, been the target of legislative retribution or shareholder initiatives, or been subjected to a damning exposé because of some statement on public policy or contribution by its corporate PAC.
Methods and Rules of Engagement
Knowing the landscape, it falls to legal counsel to think strategically about how its company can wade into the political process while mitigating liability or embarrassment. In this regard, there are three principal methods that might apply, depending on the situation: (1) the company may directly engage with its own voice; (2) the company’s executives and board members may act in their personal capacity; and (3) the company or its employee-funded PAC may give money to third parties aligned with its philosophy.
Direct corporate engagement can take several forms. It includes activities like retaining lobbyists to advocate for or against legislation, supporting candidates and ballot measures through advertisements or other public statements, and hosting events at which public officials will be present. When a company engages in its own capacity, corporate counsel should ensure that such activity is consistent with other public-facing corporate activity, lest the company be accused of hypocrisy. Counsel should consider what the company has stated in its ESG report, how the company invests in its communities, and the nature of its corporate partnerships to determine the right opportunities and timing for involvement. Depending on the manner and scope of engagement selected, a company may be required—under lobbying disclosure and campaign finance laws at the federal, state, and local levels—to report the time and money spent on those activities. Corporations must also be wary of applicable gift restrictions when hosting or interacting with public officials in their official capacities, and must pay special attention to the federal, state or local campaign finance rules regulating the types of political events or fundraisers that may be conducted on company premises or with company resources. However varied, these are areas where in-house counsel can provide invaluable support to corporate leadership.
With respect to the political activities of a company’s executives and board members, a key consideration for counsel is whether such activity avoids conflicts of interest for the company. For those companies that sell to governments at any level or provide financial advisory services, for instance, senior corporate leaders, other public-facing employees, and their spouses should be required to pre-clear personal political contributions in order to ensure compliance with federal and state “pay-to-play” rules. Corporate counsel should play a key role in guiding the company’s government relations team through such a pre-clearance process.
Finally, a company may wish to financially engage in politics, either directly or through its PAC, by giving money to third parties in furtherance of the company’s interests. This includes making contributions to candidates running for office, donating to PACs, Super PACs, and other tax-exempt organizations (such as social welfare entities exempt under Section 501(c)(4) of the Internal Revenue Code), and paying dues to trade associations and business coalitions that engage in lobbying and electoral activities. Most of these activities are highly regulated under campaign finance and tax law at the federal and state levels. For example, businesses are in many instances prohibited from donating directly to candidates or PACs. Depending on its needs, therefore, a company might establish and manage a corporate PAC out of which to conduct its political activity. Likewise, a company wishing to support tax exempt organizations should be aware that those groups may be required to disclose donors on their tax returns. Finally, publicly-traded companies are often the targets of political transparency advocates who “score” the company on a number of voluntary disclosure metrics. Corporate counsel can help executives navigate these considerations and assess their potential impact on the company’s image.
Having examined the methods by which businesses get involved in politics, two tactics particularly relevant to election year activity warrant specific consideration.
Corporate Events. Companies may wish to engage and build relationships with candidates and officeholders through a variety of events, including fundraisers, meet-and-greets, roundtables, candidate forums, and facility tours. Because of campaign finance prohibitions on the use of corporate money for political activity, the permissibility of hosting and paying for these events may depend on: (1) whether the event is open to the public, all employees, or even just a “restricted class” of senior staff; and (2) whether the event will be paid for with general treasury funds or a properly established and managed corporate PAC. Corporate counsel should be prepared to advise on these events from the earliest days of the planning process to ensure that their structures are compliant with applicable campaign finance and ethics rules.
Voter Registration Drives and Get-Out-the-Vote Activities. Long considered the safest method by which a company may engage its employees in the political process, even voter engagement efforts pose inherent risks. If a company wishes to register voters, corporate counsel must be aware that in many states, mishandling or failing to timely submit voter registration applications can be a criminal matter. Depending on the applicable state law, a company may wish to outsource voter registration efforts in a way that allows for a branded program managed by a third party. Counsel should also be cautious about any actual or perceived effort to target voter registration drives to a particular geography or constituency of the company that may effectively favor one political party over another. With respect to Election Day or early vote activities directed at an entire employee base, the company should make clear, through written disclaimers on accompanying materials, that the company is not endorsing a particular candidate or party, and the effort is merely intended to increase voter participation.
Modern political discourse has pushed businesses off of the sidelines, strongly incentivizing them to speak out and get involved. Such involvement, however, is not without risks—risks that must be carefully considered by corporate counsel. Attention to the implications of any decision to engage—or even to stay silent—is key for corporate counsel looking to provide strategic, actionable guidance to their C-suite colleagues, In such a critical election year, the stakes are high. How will your business make its impact?
Reprinted with permission from the June 22, 2022 edition of Corporate Counsel Magazine © 2022 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or firstname.lastname@example.org.