Politics and the Boardroom
By April Hall

Soon after the insurrection at the U.S. Capitol, the finger pointing began.

Was it the divisiveness of the political landscape, the struggle between “us” and “them”? Were moderates who thought the anger of the far edges of each party would eventually calm down complicit?

And did some of the country’s largest companies fan the flames by making contributions to political action committees (PACs) that supported actions like challenging the election results long after their certification by the states?

Given the number of companies and lobbying groups that announced a “pause” in their political contributions after Jan. 6, there’s an implicit recognition that these contributions will be perceived in a negative light, especially funds given to elected officials who contested the results of the election. The length of these pauses ranges from 30 days to indefinitely.

Charles Schwab Corporation made its move permanent by announcing it would dismantle its PAC entirely, donating the balance of the committee’s funds to the Boys & Girls Club of America and to historically Black colleges and universities.

“In light of a divided political climate and an increase in attacks on those participating in the political process, we believe a clear and apolitical position is in the best interest of our clients, employees, stockholders and the communities in which we operate,” a Schwab press release said.

The Capitol riot was a tipping point. But does it take an insurrection to prompt a reassessment of corporate political spending? Here’s a personal story.

A few months ago, my mother- and father-in-law pulled their significant investment funds from Schwab after examining the brokerage’s PAC spending. They found a stark misalignment between Schwab’s record of contributions and their personal values.

A vice president of Schwab reached out to them by email. He opened the correspondence by calling their move “an irrational decision” and insisted that how the PAC spends the money contributed by its employees and directors did not impact the company in any way.

My in-laws’ account by itself wasn’t large enough to sway a company that handles trillions of dollars to re-examine its political spending, obviously. But they were formerly among those clients Schwab named in its recent statement.

The story of my in-laws illustrates in a small way, just as the attack on the U.S. Capitol illustrates in a large way, that corporate political spending can pose potential reputational risk and therefore should be an issue for the boardroom.

Bruce Freed, president of the Center for Political Accountability, has examined political spending for years and often advises companies to be transparent in their giving. Freed appeared in the pages of this magazine late last year, sharing his organization’s new “Model Code of Conduct.” The document serves as a guide for corporations in making political decisions that will avoid consumer blowback.

Freed says that in his experience, corporate PACs rarely follow the money they donate to larger organizations to the end recipient and could inadvertently contribute to a cause the company publicly disavows.

“Directors should demand that management research this and the board should receive a report in order to make decisions and adopt policies for political spending,” Freed says.

But there’s a problem. Many directors believe politics should be kept out of the boardroom. Is it possible to do that and to decide where political contributions should go? Is it possible to banish politics from the boardroom if board members are themselves contributing to PACs? Can boards effectively manage risk without taking into account political spending?

These are issues that will be on the political agenda in the near future. Freed says a Democratic legislature could push for SEC disclosure of political spending and a rolling back of Citizens United. In February 2019, U.S. Rep. Salud Carbajal (D-Calif) introduced a bill to that effect. That proposal remains in committee.

But even without government action, boards are going to have to consider their corporate political spending as a reputational risk factor going forward. 

April Hall is managing editor of Directors & Boards. She welcomes feedback at april.hall@directorsandboards.com.

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