Handbook, Roundtable, Webcasts Focus on Political Spending

The campaigns leading up to the federal midterm and state general elections may have a big impact on public companies as they try to make heads or tails over the Citizens United v. Federal Elections Commission [See my Feb. 24 post.] Supreme Court decision and how it affects their corporate political contributions policies.

The 5-4 decision in January gives companies more latitude in the amount of money their political action committees can donate to candidates and referenda as it treats corporations as individuals. Meanwhile, some senators are trying to undo the decision by limiting the amount companies can contribute and making companies disclose more about those contributions.

The focus on corporate political spending has many organizations holding Webcasts and roundtables on the subject. In fact, The Conference Board in collaboration with the Center for Political Accountability is writing a handbook.

During an investor summit in Washington, D.C., April 13, The Conference Board, CPA, investors and directors spent four hours discussing the importance of political spending as well as the legal implications of the Citizens United case. Paul DeNicola, director of The Conference Board Governance Center and Directors’ Institute, stressed the importance of public companies considering the risks involving political contributions and what should be disclosed to investors.

“Companies have to differentiate the role of the board from the role of management,” DeNicola said. “A public policy at companies on political contributions by individuals and PACs is necessary, but if it is not managed well it can be a risk.”

One of those risks involves Pay to Play laws in several states. “If a company makes political contributions to state and local candidates, that company may be barred from doing business with those governments,” Robert Kelner, a partner with Covington & Burling, said during a recent Boardmember.com Webcast.

DeNicola mentioned that the handbook will also include a section on the risks involved with Pay to Play laws in different states. “For companies that are operating in different jurisdictions, there are varying laws in different states they must be aware of,” he said. “There is definitely a compliance risk issue for them.”

In addition to the risks involved, disclosure has become a big issue as investor groups and the CPA have lobbied for companies in the S&P 100 to voluntary disclose their corporate political contribution policies and the amount they donate. Bruce Freed, CPA president and co-founder, has reported that more than 70 of those companies have signed on to disclose.

Conceived as part of a roundtable by The Conference Board in January 2009, the handbook’s publication was not a reaction to the Supreme Court case. It is being written by Freed and  Karl Sandstrom, of counsel in the political law practice at Perkins Coie and CPA counsel.

“Management will use it. General counsel will use it,” Freed told me when referring to the handbook. “Anybody involved with political spending will use it. Directors will use it because there is a section on oversight of that spending. It will include steps on creating and overseeing a political spending policy as well as how to complete an independent risk assessment.”

The book has three chapters on assessing political accountability, establishing an effective program to manage and oversee corporate political spending and creating an ethical corporate culture. It also includes examples of codes of conduct on political spending from such companies as Hewlett-Packard, Aetna, Merck and proxy voting guidelines from institutional investors such as Calpers, the Florida State Board of Administration, TIAA-CREF and the Council of Institutional Investors.

Two of the overlying themes in the handbook and recent discussions have been disclosure of political spending by public companies and the risks involved with that spending. “Companies are coming under greater pressure for their political expenditures,” Freed said. “A lot of the spending will be coming through trade associations. Those companies have to be concerned with how these associations are spending that money.”

Meanwhile, The Conference Board and CPA will continue to get out the message about the role of the board, disclosure and the risks involved in corporate political spending. They are seeking feedback on the handbook draft by getting input from this week’s investor summit participants.

Freed will join Pat Doherty, director of corporate governance for the New York state comptroller; and Charles Grezlak, vice president for state government affairs and policy of Merck, in an April 20 Webcast hosted by RiskMetrics. The Webcast will focus on the significance of political spending for directors, executives and institutional investors.

- Gary Larkin