Report: Companies Face a New Era of Scrutiny on Political Activity

Companies are facing ever-greater scrutiny of their political activities, with some of America’s biggest businesses still grappling with a response to January’s Capitol riot.

As companies reevaluate their role in the political sphere, a new report by The Conference Board highlights considerations and best practices regarding corporate political activity.

While companies have long engaged in politics, a new era of stakeholder scrutiny, social media, and political polarization has propelled corporate political activity — and the risks that come with it — into the spotlight.

Political activity can pose increasingly significant risks for companies, including the perception that political contributions—and other forms of activity—are at odds with core company values. In this new era, careful preparation, close coordination, and effective communication both internally and externally are key.

The report’s insights stem primarily from a roundtable discussion featuring executives from more than 30 major U.S. companies, hosted by The Conference Board ESG Center in the wake of the 2020 US election.

Insights are also from the Center’s recent survey of 84 large public and private firms on how companies and their employee-funded PACs responded to the Capitol riot and objections to the election certification.

Recommendations and insights for what’s ahead on corporate political activity include: 

Prepare for backlash.

• When it comes to taking a stand on political and social issues, a small number of companies are opting out entirely. That is not realistic, however, for many companies.
• Have a clear set of standards and guidelines that you can use in making and defending any positions you take.

Align political activity with corporate values.

• Companies should consider how lobbying and political activities align with their stated values.
• Simplify political activity. The more complex it is, the more difficult it can be to manage reputational and other risks.
• Thoroughly vet third-party organizations to which you donate money.
• Consider involving the corporate social responsibility function in reviewing political activity, to ensure that public policy positions align with broader corporate citizenship positions.

Engage and educate stakeholders.

• Educate employees and the public about your company’s activity, as well as the distinction between this activity and that of an affiliated Political Action Committee (PAC), which is separately governed and funded by employee contributions, not corporate funds.
• Consider engaging employees in meetings with policymakers, which can improve the effectiveness of those discussions and help educate employees about the process.

Increase coordination internally and with third parties.

• Ensure the ways your company engages in political activity are coordinated—and consistent—throughout all levels of the organization.
• Coordination with respect to lobbying is particularly important as new state and local regulations are forcing more and faster disclosures about lobbying activities.

“The events of Jan. 6 are prompting companies to reexamine their political activity, with many still addressing the fallout from that day,” said Paul Washington, report co-author and executive director of The Conference Board ESG Center.

“As our new report explains, it’s critical for boards to ensure that they have a full picture of their company’s political activity and that their efforts are broadly consistent, not only with each other, but also with the firm’s key business objectives and values,” he said.

Enhance governance and reassess the company’s role in the political arena.

• Provide your board with a comprehensive overview of the firm’s and PAC’s political activity and consider the role the board should play, including expanding oversight from financial contributions to include lobbying.
• Update the criteria and processes for PAC giving, including addressing the issues arising from the 2020 election and the January 6^th attack on the US Capitol.

Washington said the environment for corporate political activity is becoming exponentially more complex, adding, “companies are being asked to engage on more issues, through more mechanisms, and at more levels of government than ever before.
Every action is being scrutinized in a polarized environment. This may be a time for companies to streamline their political activity as much as possible, focusing on what truly matters and reducing their risk profile,” he said.