Issues regarding political donations have been thrown into sharp relief recently in light of the stands taken by a number of companies to pause or discontinue some or all political donations in response to the shocking events of January 6.  A number of companies announced that their corporate PACs had suspended—temporarily or permanently—their contributions to one or both political parties or to lawmakers who objected to certification of the presidential election.  But how widely adopted was this approach?  To find out, The Conference Board conducted a survey.  It turns out that those announcements reflected only a slice of the actions taken by corporate PACs.  What’s more, the survey indicated that corporate boards typically had little role in these decisions. Nevertheless, for some companies, boards may find that political spending associated with their companies is front and center this proxy season.

Interestingly, a “corporate PAC” is not really funded by the corporation; according to The Conference Board, although “corporate PACs are sponsored and administered by companies, they are funded by employees and their decisions about contributions are generally made by a separate PAC board drawn from employee contributors.” 

In the survey, conducted between January 25 and February 2, The Conference Board received responses from 84 large companies. Survey respondents were primarily senior members of management.  Of the 84 companies responding, 95% had annual revenues over $1 billion, including 45% with revenues of $25 billion and over, 22% with revenues between $11 billion and $24 billion, and 29% with revenues between $1 billion and $10 billion. Of the respondents, 69% were public companies, 24% were private companies and 7% were non-profit entities. 

The survey found that, among respondents:

  • About 55% suspended their PAC contributions, split almost evenly between those that stopped contributions to all members of Congress (28%) and those that stopped contributions only to lawmakers who voted against election certification (27%)—and only 3% of those were permanent decisions; and 45% took no action, including some that do not have a PAC, some that were still undecided about what action to take and some (19%) that had decided against any response.
  • Only 28% announced the actions they were taking regarding PAC contributions both internally and externally, while 25% announced actions only internally; almost half (46%) made no announcement.
  • Almost half (46%) of companies took no action beyond restricting PAC contributions, while 32% issued a public statement condemning the violence at the Capitol; only 9% issued a public statement against the effort to block certification.
  • Only a de minimis percentage stopped doing business with trade associations or stopped doing business with companies associated with the actions at the Capitol.
  • About 87% reported that they had not taken similar action regarding PAC contributions in the past five years.
  • Why did these PACs say they took these actions? Almost 52% said the actions were driven by senior management’s views, compared to 44% by the CEO’s views and only 32% by PAC contributors’ views; 46% indicated as a reason that a “stable democracy is necessary for a stable business environment,” compared to 25% indicating democracy alone as a reason; and almost 45% cited concerns about company reputation, followed by concerns about company constituencies, such as employees (34%), customers (21%) and investors (17%).
  • With respect to those intending to resume contributions in the future, over 50% were unsure or did not indicate what steps they were planning to take prior to resuming contributions (indicating “other”); 37% said that they needed to gather more information on potential recipients; 21% planned to revise the criteria for contributions “to address supporting democratic processes;” 16% intended to change the approval process; and 8% planned to revise the criteria to address supporting violence.
  • Surprisingly, most corporate boards seem to have played little role in these decisions:  only 4% of respondents indicated that the company’s board of directors made the decision and only 2% of boards initiated the discussion; 27% of PACs just “informed” their boards of the decision; only 11% consulted with their boards and 7% informed their boards beforehand; and 30% responded “other,” with many noting that the board was not involved or that its involvement was not applicable.

With regard to company-sponsored PACs, a representative of The Conference Board added that boards often have some oversight role to ensure that PACs “have appropriate controls in place to ensure legal compliance, to align with the company’s interests, and to protect the company’s reputation. But high-profile situations that have a major impact on a company’s reputation can nonetheless put the board in the hot seat.”  Reputational risk, which could arise out of political spending, has the potential to fracture a company’s relationship with its employees, customers and shareholders. It’s also important to keep in mind that, beyond company-sponsored PACs, corporations also make political contributions directly and indirectly with donations of corporate funds to trade associations, 501c4s, Super PACs and 527 committees. (See this PubCo post.) Whether the company or the PAC it sponsors suspended or declined to suspend political contributions, the current contentious political climate has made political contributions more fraught than ever and heightened sensitivity to any dissonance or conflict between a company’s public statements or announced core values and its political contributions.  The nonpartisan Center for Political Accountability reported in its June newsletter that support for shareholder proposals in favor of political spending disclosure hit record highs this past proxy season. (See this PubCo post.) And mandatory political spending disclosure shows up high on many lists of expected actions from the new Administration in Washington. (See this PubCo post.) With annual meeting season fast approaching, managements and boards may want to prepare for the possibility that corporate PACs and corporate political spending could emerge as investor concerns at the meeting.

Posted by Cydney Posner