Boards Must Avoid Dysfunction Over Political Spending

Corporate directors should expect to be pressured over the next weeks and months to disclose who their companies have donated to in the past and what their plans for future political giving are.

As many corporations decide to suspend political contributions to the Republican and Democratic parties in the wake of the siege on the U.S. Capitol building by Trump supporters on January 6, corporate directors should prepare themselves for a new, potentially supercharged debate over corporate campaign contributions. As the events at the Capitol illustrate, political campaign contributions have consequences, and corporate board members may need to give much greater thought to the current processes they use to determine how they provide financial support to political candidates and political action committees.

Outraged over the ransacking of the Capitol building by an angry mob that led to the destructions of property, theft of government documents, multiple injuries to law enforcement officers and the deaths of five people, corporations across industries announced decisions to review and suspend their political giving. Google, Facebook, Microsoft, AT&T, JP Morgan Chase, Citigroup, Goldman Sachs and other have paused all political spending for differing periods of time. Other companies, including Nike, Walt Disney, Walmart, Verizon, Marriott International and Amazon announced that they would not contribute to any elected officials who challenged the certification of Electoral College votes.

These actions send the message that corporations want stability in government. Withholding campaign financing is one way companies are trying to get lawmakers’ attention and influence their behavior.

Corporate directors should expect to be pressured over the next weeks and months to disclose who their companies have donated to in the past and what their plans for future political giving are. Last year, the Center for Political Accountability said that more large publicly held companies have adopted oversight practices for their political spending since Donald Trump was elected president in 2016, a trend that is likely to continue. Those companies that do not disclose political campaign contributions may want to consider disclosing that information this year before key constituents begin clamoring for it. Corporate boards may also consider the following:

• Review company procedures and oversight measures for making campaign contributions. There is nothing wrong with making sure that the way the company has made decisions concerning political campaign contributions in the past is robust, appropriate and fair. The scrutiny on this area of governance in 2021 is likely to increase, so boards want to be prepared to defend their process if shareholders or stakeholders complain. Boards can take this time to implement a more robust and thorough examination of candidates and the effects of their policies to make sure that they are making the best decisions regarding political contributions.

• Monitor shareholders and stakeholder concerns about political contributions. Boards should pay careful attention to how their shareholders and stakeholders react to the political landscape in 2021. Avoiding negative publicity over political campaign contributions would be wise. Shareholder proposals regarding political campaign contributions are filed each year, but shareholders may be more inclined to vote in favor of such proposals this year in the wake of the deadly attack on the Capital. Boards may want to consider if there are compromises on political contributions that can be made that would prevent a shareholder proposal being filed; or directors must be sure the defense of their current system will stand up under scrutiny. Any changes that are made can be celebrated as “strengthening governance” which can shine a positive light on board members.

Additionally, boards must be aware that company support for certain political positions or specific candidates may inspire blowback from customers, advertisers or suppliers. While boards need not bend to such pressure, directors should consider the reputational damage that might ensue if certain decisions regarding political campaign contributions are made.

• Deal with boardroom politics with civility.  Since the entire country is politically divided, it’s reasonable to assume that many boardrooms will be politically divided as well. Directors will have to resist allowing their political biases to influence boardroom decisions. With emotions running hot over politics, personal conflicts about politics could destroy boardroom chemistry, which could hurt the board’s effectiveness over the long haul. Once all directors agree on the process to determine political decisions, some of the issues around individual board members’ political affiliations may be avoided.