Originally published in Political Activity Law Bulletin, June 11 2009
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Politics is more important to business than ever. Government
entities are now reasserting themselves as active market
regulators. Public-sector clients offer rare new growth
opportunities as federal, state, and local governments open their
coffers to offset the recent dip in private-sector spending. And as
the New York Times observed just last year: "In the wake of
the Jack Abramoff scandal, greater political activism by trade
groups and demands by candidates and causes for corporate money,
boards are now seeing that their corporate image could be tarnished
if these contributions or political activities go awry." The
consequences of inappropriate or illegal political activity can
materially impact a corporation's bottom line.
At the same time, federal, state, and local laws that govern
political activity and commercial interaction with public-sector
clients are increasingly numerous and complex. For example,
Colorado, Illinois, New Jersey, and Pennsylvania are just a few of
the states that have recently enacted major "pay-to-play"
regulations—rules that impose prohibitions and disclosure
requirements on government vendors and lobbyists. More states are
expected to follow suit in the wake of high-profile scandals
surrounding New York's state pension fund and former Illinois
Governor Rod Blagojevich.
To protect your businesses in this environment, it is important to
have policies that clearly announce goals and procedures related to
political contributions and lobbying. At least forty corporations
in the S&P 100 have already done so. The best of these policies
share some common goals and provisions:
1. Affirmatively State a Corporation's Motives for Political Involvement
A corporate political-activity policy should not simply restate
the restrictions imposed on the corporation and its affiliated
entities. Corporations have legitimate motives for engaging in
political activities to the extent permitted by law. A policy
should declare these motives so that shareholders and members of
the public are properly informed. For instance, FedEx's policy
states that the company "promote[s] legislative and regulatory
actions that further the business objectives of FedEx and
attempt[s] to protect FedEx from unreasonable, unnecessary or
burdensome ... actions at all levels of government." Merck
& Co., Inc. says that it involves itself in politics because
"[g]overnment proposals to regulate the health care system may
directly affect the Company's business and the incentives for
pharmaceutical innovation."
2. Highlight a Compliance Program and a Specific Decision-making Process
In addition to providing reasons for a corporation's
political involvement, a policy should outline the decision-making
process and compliance controls behind the corporation's
lobbying activities and political contributions. Most corporate
policies identify both the decision-maker and the criteria used to
make choices. To reassure shareholders that corporate officers and
directors are fulfilling their oversight duties, many policies also
require that qualified counsel independently review and/or audit
all lobbying and contributions.
3. Establish Boundaries for Individual Employees'
Political Activities
Even beyond the activities conducted by the corporation as such,
the political activities of individual employees can also subject a
corporation to liability. For example, different federal and state
rules can restrict employees' usage of corporate computers,
email accounts, meeting facilities, telephones, logos, titles,
support staff, and other resources while volunteering or otherwise
working on behalf of a candidate or committee. Moreover, for
businesses with public-sector clients, state and local pay-to-play
laws may void a government contract and/or prohibit the pursuit of
future contracts if certain officers, directors, employees, or
family members of officers, directors, and employees make campaign
contributions to political candidates. Because employees'
political activities affect a corporation's business
opportunities, a policy should carefully list permissible and
impermissible activities.
4. Differentiate Between Types of Activities and
Entities
Separate rules apply to different types of activities. Accordingly,
a policy may need to distinguish between U.S. and non-U.S.
dealings, between federal and state political activities in the
U.S., and between actions that a corporation undertakes directly
and those that the corporation performs through a
corporate-sponsored political action committee.
5. Determine the Breadth and Frequency of Public
Disclosure
Shareholder activist groups, most notably the Center for Political
Accountability, have constantly pressured corporations to fully and
frequently disclose their political activities. Some groups have
chosen to disclose on their corporate websites on a quarterly,
semiannual, or yearly basis. Others have committed to disclose all
direct and indirect political spending that supports candidates,
political parties, political action committees, non-profit
organizations (e.g., "527 groups"), independent
expenditures, electioneering communications, and trade
associations. If a corporation chooses to disclose its activities,
its political-activity policy should clearly describe the breadth
and frequency of the corporation's public disclosure
practices.
This article is designed to give general information on the developments covered, not to serve as legal advice related to specific situations or as a legal opinion. Counsel should be consulted for legal advice.