Sticking to Business in the Boardroom
By April Hall

While politics are always on the radar, taking sides in an election could present business risks.

Jon Hanson says his first board appointment was likely connected to his politics. Not necessarily because he was a Republican or a Democrat, but because of his relationships.

Hanson, the founder and chairman of Hampshire Real Estate Companies, was appointed to the New Jersey Bell (now Verizon) board after serving as finance chairman for Tom Kean’s successful campaign for governor in the early 1980s.

“I was there because it was perceived that I was close to the new governor,” he says. He was, but he says no board ever took advantage of that relationship during his tenure as a director.

By and large, directors say political discussions aren’t appropriate in the boardroom. If anything, there should be a calculation of risks associated with election results, but no one should advocate for one candidate or another.

“I do not remember in the 40 years I’ve served on corporate boards ever having been part of a boardroom discussion that was, ‘We’re starting our board meeting. Let’s talk. Who’s going to be the next president or the next governor?’” says Hanson. “Do you have sidebar conversations? Sure — at lunchtime. It wasn’t part of the board agenda.”

“I am not seeing discussions in the boardroom around domestic politics except to comment that it is pretty dysfunctional these days and the election is a toss-up,” says Maggie Wilderotter, who sits on the boards of several public companies, including Costco, Lyft, Chobani, Hewlett-Packard Enterprise and DocuSign.

However, corporations do take positions on politics by contributing to candidates or parties they see as supporting their businesses. Many will hedge their bets and contribute to both sides of the aisle, though not usually in equal amounts.

Wilderotter says some companies use political action committees (PACs) as their vehicle for political donations, and while board members are welcome to also contribute, there is no mandate to do so. She says directors should be able to support candidates individually, even if their favorite is different from the corporation’s.

“I do think candidate support and contributions are a personal decision, but I would expect them to be made without fanfare,” she says.

Separating key stakeholders’ political positions from the company is a fraught issue, says Bruce Freed. He is the founder and president of the Center for Political Accountability (CPA) in Washington, D.C.

Between the 2008 and 2018 election cycles, business PACs accounted for between 68.6% ($310 million in 2009-10) and 72.8% ($379 million in 2013-14) of all PAC spending in federal elections, according to a CPA report, “Collision Course: The Risks Companies Face When Their Political Spending and Core Values Conflict, and How to Address Them.”

CPA does not take a position on whether corporations should make donations. It does recommend, however, that boards know why the company is donating to a PAC and whether that PAC is involved in any controversial issues that could damage the business or the business’ reputation.

“Senior management and the board should know where the company is spending and where the money is ending up,” Freed says. For instance, if a corporation donates to a state political party and then that money backs a candidate who sponsors a bill like the transgender bathroom law in North Carolina, that could be problematic.

Freed has followed campaign financing for 17 years and says he’s noticed a change in how the public finds out about and reacts to corporate donations. And once again, it’s due in large part to social-media-hungry millennials, who are reported to be hyperconscious of where social issues meet political ones.

“Criticism of a company could go viral and spread widely and far,” he says. “We heard from a corporate secretary at a major company — a consumer-facing company — who said, ‘We’re concerned that a controversial contribution could lead consumers to shift to a competing product.’”

The story of high-end gym Soulcycle is an example of this. After reports that majority owner Stephen Ross would host a high-priced fundraiser for President Donald Trump, the business sagged. A report cited in The Atlantic showed a more-than 12% decline in sign-ups for spin classes after news of the fundraiser became public. It was more than twice the dip the gym experienced during the same period the previous year. Ross also stepped down from the board of The Shed, a New York contemporary arts board, and the NFL’s committee for social justice (he is the owner of the Miami Dolphins).

Hanson has never experienced such backlash and remains active both personally and financially. He doesn’t, however, see the value of outside politics in the context of fiduciary duties.

“I like to have discussions, but when you’re finished, you should come to a conclusion,” he says. “I find it very difficult to have a discussion that you’d want when some [directors] are Republican, some are Democrats, some are independents. You might come to a conclusion, but it isn’t going to be meaningful.”

2020 Third Quarter

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