Ideas and suggestions are always welcome. Please let us know how we can improve your newsletter! We welcome your feedback.
LexisNexis® for Corporate Counsel
LexisNexis® Webinar Center
LexisNexis® Legal Newsroom
Live CLE Webinars | OnDemand Webinars
By David Schultz, professor of political science at Hamline University and professor of law at the University of Minnesota.
The regulatory environment regarding the rules that define the role that businesses can play in campaigns and elections has dramatically changed over the last two presidential elections. These changes give businesses significant options in terms of how they can disperse money to advance their political interests. While there are increased options for businesses to get involved in political and political campaigns, and to take positions on political issues, such a decision brings both benefits and risks. This article examines the changing legal regulations for business political activity and assesses the pros and cons that this activism may provide.
Effectively, there are 51 different sets of rules that define the role that businesses can play in campaigns and elections. There are the rules for federal elections—the president and U.S. House and Senate races—and those for each of the 50 states. Many states emulate federal law, or have been forced to do so by Supreme Court decisions.
Several federal laws and U.S. Supreme Court decisions historically defined the role that incorporated businesses could have in campaigns and elections. The first was the Tillman Act, originally passed in 1907. This law banned financial contributions by corporations to federal campaigns. This law means that business corporations cannot make direct contributions to federal candidates for office. The second law was the Labor Management Act of 1947, otherwise known as the Taft-Hartley Act. It extended the ban on corporate political activity to include corporate spending of any kind to try to affect a federal election.
The third law was the Federal Election Campaign Act (FECA) of 1971. This Act allowed for corporations to use their treasury funds to create, maintain and solicit funds to establish a separate and segregated Political Action Committee (PAC). This PAC could then contribute funds to federal candidates and make expenditures on behalf of or opposed to them. The 1971 FECA, and with its 1974 amendments, established contribution limits to candidates, disclosure requirements and the creation of the Federal Election Commission to enforce these and other federal campaign finance laws. The 1976 FECA amendments placed limits on who the corporate-sponsored PAC could solicit and also on how much it could contribute to federal candidates and other PACs.
In 1976, the Supreme Court in Buckley v. Valeo, 424 U.S. 1 (1976) declared portions of FECA and its amendments unconstitutional. In particular, it declared that expenditures that did not expressly advocate for the election or defeat of a federal candidate for office constituted issue advocacy. Such issue advocacy was constitutionally protected speech. This distinction between express and issue advocacy is significant, because subsequently in First National Bank of Boston v. Bellotti, 435 U.S. 765 (1978), the Court ruled that corporations have a right to expend unlimited amounts of money for issue advocacy in terms of opposing or supporting ballot propositions, such as initiatives and referenda. However, in Austin v. Michigan Chamber of Commerce, 494 U.S. 652 (1990), the Court upheld a state law banning corporations from directly drawing from their own treasuries to make independent expenditures to support or oppose candidates for office.
Finally, the Bipartisan Campaign Reform Act of 2002, otherwise known as the McCain-Feingold Act, incorporated many of the above FECA provisions into it, while also trying to place limits on what constituted issue versus express advocacy. It did that because it found that corporations were able to circumvent Tillman and Taft-Hartley by running political advertisements that never expressly urged the public to vote for or against a particular candidate. These restrictions were upheld by the Supreme Court in McConnell v. Federal Election Commission, 540 U.S. 93 (2003).
Overall, through the 2004 and 2008 presidential election cycles, corporations under federal law were prevented from making any expenditures or contributions from their treasuries that would support or oppose federal candidates for office. Corporations could set up separately segregated PACs and in some cases solicit employees and shareholders. Many states had similar laws. Individuals, such as corporate officers, could make personal contributions to candidates, political parties or PACs, subject to federal contribution and disclosure limits. Finally, other business entities, such as partnerships and sole proprietorships, would be treated differently than corporations and instead would be viewed the same as individuals.
Several of the rules described above changed as a result of three court decisions. In Citizens United v. Federal Election Commission, 558 U.S. 310 (2010) the Supreme Court both overturned the Austin v. Michigan Chamber of Commerce decision and the Taft-Hartley ban. In Citizens United the Supreme Court declared that corporations could now use their corporate treasuries to make independent expenditures on behalf or opposed to federal (and effectively all) candidates for office. Corporations thus could make the expenditure directly from their own treasuries or they could set up a separate PAC to do that, or even contribute to another PAC to do that.
The second decision was SpeechNOW.org v FEC, 599 F.3d 686 (D.C. Cir. 2010). Here, the D.C. Court of Appeals ruled that a corporation could make unlimited contributions to a PAC if the latter was only making independent expenditures and it did not make political contributions to a candidate. This decision created what is now known as Super-PACs. Finally, in McCutcheon v. Federal Election Commission, 133 S.Ct. 1747 (2014), the Supreme Court ruled that the total aggregate limit on individual contributions to candidates, parties and PACs was unconstitutional. While individual contribution limits to all three were in place, i.e., how much money one could give to an individual candidate per election cycle, the total contribution amount could not be limited.
Thus, as of 2016, the rules on corporate and business campaign activity have changed. In summary, corporate officers and business people in their individual capacities can give aggregated unlimited amounts of money to federal candidates, political parties, and PACs, but must adhere to the specific dollar amount contributions per election cycle to each. Corporations still may not expend from their own treasuries money that will be directly given to federal candidates for office. However, corporations may, through their treasuries, or through PACs or super-PACS, expend an unlimited amount of money for the purpose of independently advocating for or against a specific candidate or candidates for federal office. They may also give unlimited amounts of money to Super PACS that make only independent expenditures, and they may also make unlimited contributions to some non-profit corporations that make independent expenditures to influence federal elections. Many of these rules are similar across the country in state and local elections, but it is best to check with applicable laws in the jurisdictions where one wishes to affect an election.
Compared to the 2008 presidential elections, businesses have more options regarding how they can expend money to influence a federal, state, or local election. But there is a more important question: Should businesses spend money and effectively take sides in elections? This is an issue each business has to assess, and the choice to act or not brings with it risks and rewards. To assess the risks, consider the story of Target Corporation in 2010.
Target is a Minneapolis, Minnesota-headquartered retail chain that had developed a hip image for some, especially younger consumers, because of its policy of supporting Gay, Lesbian, Bisexual, and Transgender (GLBT) friendly employment policies. In 2010 its CEO Gregg Steinhafel authorized a $150,000 donation to MN Forward, a PAC intending on using that money to support Tom Emmer, the Republican candidate for governor who opposed same-sex marriage. Once that donation was revealed, the company was barraged with significant and heavy criticism from the LGBT community that made mainstream news and went viral on the social media, prompting calls for a boycott. Even though the CEO said the contributions were in support of Emmer’s business-friendly policies, it did not matter, the short-term image damage was done. Steinhafel was forced to do several public apologies, meet with the GLBT community and its employees, and eventually rethink its corporate political giving policies.
Target is an example of the new political climate that businesses face in a post-Citizens United era. Businesses are freer to take political positions and expend money to support them, but they face potential consumer backlashes when they do. One result of Citizens United, especially in a social media world where stories and rumors can be posted rapidly and go viral, is that part of a business’ image is defined by its political positions on controversial political issues and that in many ways political expenditures can effectively be seen as marketing dollars. Simply put, for many liberals, Target is the good guy and Wal-Mart (because of its real or alleged stance on issues or employment policies), is the bad guy.
Moreover, there is evidence that, especially for Millennials, businesses are increasingly being evaluated, in part, based on their politics and political stand on issues. Millennials make purchasing and employment decisions in part based on whether they agree with businesses’ political positions, if they have them. This expectation that businesses should take stances on political issues perhaps goes back to the 1970s and 1980s with Baby Boomers who pressured businesses in apartheid South Africa to adopt non-discriminatory employment practices if they invested or located there. Today, especially in a social media world, it is easy for customers, employees and the general public to know a lot about businesses and in many cases pressure them to take stances on political issues. Shareholders, too, are doing this, seeking to use annual meetings and resolutions to force businesses to take political positions. Thus, in some cases, businesses are forced to take positions.
In other cases, the decision to take positions on political issues depends in part of course on how the stance on those issues affects a business’ image and perhaps its bottom line. The first point to think about is what is the political issue and how does it relate to the mission or image of a business? For example, it might make sense for a gun manufacturer to take a stand in favor of the Second Amendment right to bear arms or even support candidates who take that position. Or consider the drug store chain CVS, which declared a few years ago that it was no longer going to sell tobacco products. Such a decision appears to have helped the company image. Were it to take a higher profile position on tobacco-related issues, it too might help its image.
A second related point is to consider the type of entity a business is. A publicly traded business might be in a different political position compared to a closely held or privately held corporation. A business that serves only other businesses (B2B) might face less exposure than businesses that deal with the general public as customers. Third, businesses need to know their customers; taking positions on some issues might make sense given its customer base while in others it might potentially alienate a large percentage of its customers, as Target did in 2010.
A great example of the impact of taking a position on a political issue involves recent boycotts by some major companies of North Carolina because of legislation it adopted requiring transgender individuals to use the bathrooms of the gender designated on their birth certificate. This is the so called bathroom bill. Deutsche Bank and PayPal announced they would not do or expand business in the state and the National Basketball Association announced that it would not hold its 2017 All-Star game there. Similarly, many businesses, such as Microsoft and Coca-Cola, backed out of sponsoring the Republican National Convention. Back in 2015, several businesses took stands against the state of Indiana when it passed anti-GLBT legislation, and many businesses also spoke out in 2014 when the Arizona legislature passed a similar law, prompting the governor to veto the bill.
In all of the cases above, businesses viewed it as either risky to be associated with certain political issues, or conversely, saw it as being to their advantage to take a stand. It really does depend on the issue, the business in question, and the customers it serves. In many cases it might make sense to remain politically neutral and stay out of controversial political issues, but that, too, brings risks if neutrality is viewed as taking sides in some matter.
While the examples immediately above involved businesses taking stands on political issues, the same rules apply to actually expending money for political purposes, such as making independent expenditures, giving to PACS, endorsing candidates or even donating to candidates in those states where it is allowed. Taking political positions is not simply about advancing business interests but in contemporary politics it is directly related to its media image and marketing. Businesses contemplating taking positions on controversial political issues should think carefully before they do, and the decision to do so should not necessarily be made by the president or CEO in isolation but vetted by critical stakeholders in the organization, much like any other business marketing decision should be.
David Schultz is a professor of political science at Hamline University in St. Paul, MN and a professor of law at the University of Minnesota. He specializes in American politics and election law. Previously for 15 years he was a professor in the Hamline University School of Business, where he taught classes in business ethics. Professor Schultz is the author of 30 books and 100+ articles on American politics, including his most recent, Presidential Swing States: Why Ten Only Matter. He is extensively quoted in local, national, and international media on a variety of topics, and he also does training for private, public and non-profit organizations. He may be reached at [email protected].