The vindictive response to Walt Disney Co.’s opposition to a Florida bill involving LGBTQ discussion is an extreme example of the risk to corporations from engaging in political activity. A survey by the Conference Board earlier this year found two-thirds of companies surveyed said the environment for corporate political activity was “challenging” to “extremely challenging.”
A new report by The Conference Board ESG Center provides several key recommendations to help companies navigate this environment:
“The case that companies make for their political activity needs to go beyond the legal argument that corporate lobbying and contributions are constitutionally protected activities,” said Paul Washington, co-author of the report and Executive Director of The Conference Board ESG Center. “If companies engage in political activity, they need to stop playing defense, and instead emphasize how their political actions not only advance the firm’s business interests, but also serve a social and/or environmental purpose that is tied to the core business.”
The report finds today’s landscape for corporate political activity is fraught with risk. Not only is this a midterm election year, but the Federal Elections Commission is considering multiple complaints about corporate in-kind contributions to campaigns. In addition, the US Department of Justice has stepped up enforcement of the Foreign Agents Registrations Act, and several states are restricting lobbying or political activity.
If that isn’t enough, companies face growing scrutiny from multiple stakeholders, especially employees.
Donations to super-PACs and 501(c)(4) are particular sources of risk because these groups may unexpectedly take controversial stands. For that reason, companies need to maintain a full inventory of political activity and to receive routine updates from third-party organizations.
Most large companies, those in regulated industries, or whose business could be significantly affected by government action will likely want to lobby. But they have a choice as to how much advocacy they want to conduct directly versus through third parties.
Corporate PAC and direct corporate contributions come with tradeoffs: They can give the company and employees greater access to political leaders. They also, however, increase reputational risk when—not if—recipients take positions at odds with corporate values.
The report recommends a broad-based campaign to educate stakeholders. About 72% of companies say they plan to increase efforts to educate internal constituencies — employees, senior management and the board — about the political activities. But less than a third plan to focus on investors, policymakers and the media, and that’s a mistake, the Conference Board says.
Companies need to be candid with stakeholders—especially PAC donors and other employees—that the company and PAC may support candidates whose values do not comprehensively and consistently match those of the company, the report says, especially since it is challenging enough to ensure that a company’s own actions align with its stated values. It is virtually impossible to be confident that the actions by a candidate or third-party organization will always be consistent with a company’s values.
