By: GlobalGovAffairs Editorial Team
Public policy decisions can have a profound effect on a corporation- from the board room to the bottom line. Legislative proposals, laws, government regulations, taxes, trade agreements and a host of other policy measures can affect how corporations operate at home and abroad, and may have a significant impact on their business performance. Those policies, in turn, affect the company’s shareholders, employees and customers as well as nearby communities and other stakeholders. As a result, many corporations consider participation in the political process, and the opportunity to help shape public policy, a necessary part of their responsibilities to shareholders: to strengthen and grow their business.
The industry and countries in which a company operates can greatly affect whether it chooses to actively engage in the political process, and if so, in what capacity. But one thing is clear: a growing number of corporations, many for the first time, now see engaging with policymakers at all levels of government as an increasingly important part of their business responsibility and strategy.
Active political involvement is a laudable goal for corporations, and success in the public policy and political arenas can help create an environment that contributes to success.
Disclosure of government affairs activities can be a powerful tool to help a corporation win and retain the trust of customers, shareholders, policymakers and the general public. Corporations that disclose information about their government affairs activities are perceived as more open and forthcoming, which often leads people to view them as more trustworthy than companies that share only the information they are required by law to disclose.
Yet the decision corporations face is not always as simple as choosing the benefits of disclosure versus the risks of non-disclosure. Although many corporations have found that public disclosure of government affairs activities can serve as a valuable and visible demonstration of corporate responsibility, other companies believe that disclosure also carries certain risks and disadvantages. Such companies are concerned that disclosure will invite greater scrutiny and potential criticism, not less. Others maintain that disclosing information about their government affairs activities is of no real interest or benefit to shareholders, and would do nothing to increase investors’ understanding of company strategy or its philosophy about the conduct of government affairs.
Although companies certainly need to weigh questions of disclosure against other priorities such as long-term business strategies and economic self-interest, choosing to disclose only the information the law requires can raise questions of trust and accountability- issues that are at the heart of every corporation’s reputation.
Although the desire for full disclosure of government affairs activities (including political spending) may not represent the majority of view among investors, shareholder interest (at least in the United States) in government affairs activities and corporate political spending, greater disclosure and accountability is clearly a growing trend. According to a report by the Harvard Law School Forum on Corporate Governance and Financial Regulation, shareholder proposals on political spending in 2011 grew by 50 percent over 2010. Shareholders filed 93 political spending proposals in 2011 in the U.S. More than half of those proposals were voted on, one passed, and eight others received votes of more than 40 percent.
At the end of the day, investors by and large still defer to management to ensure that strong policies and decision-making processes are in place. But as some shareholders seek to understand more clearly how and why corporations are making political contributions, corporate boards, and those charged with corporate compliance, need to ensure that the information revealed provides accurate context and serves shareholder interests.
In the United States, the disclosure options corporations can adopt range from full disclosure of every political expenditure and activity to absolute non-disclosure except for public documents that federal and state agencies require them to file. Most corporations choose a disclosure policy that puts them somewhere in the middle, but what they choose to disclose can vary widely. And even those choices are not always simple and clear cut. Some corporations choose to voluntarily disclose PAC (Public Action Committee) expenditures and contributions made with corporate treasury funds, while others disclose one but not the other. Some companies feel trade associations dues- at least the portion used to support candidates or to fund other political activities- should be included. Others believe those are business expenses, and that disclosing them as political expenditures would not only be inappropriate but would also paint an inaccurate picture of what the company spends on politics.
A company that is politically active and plans to disclose its political spending, however narrowly or broadly they choose to define it, will need an efficient and cost-efficient process for recording and reporting those expenditures. Global corporations may make contributions or finance political activities in several different countries and a variety of jurisdictions within the United States, which can complicate the process of managing its spending records. From both a logistical and cost perspective, it makes sense to have someone inside the company manage the process of tracking political expenditures and compiling them in a report that can be shared with the board of directors, senior management and, as appropriate, published on the company website as well as on GlobalGovAffairs.com
Using GlobalGovAffairs.com to disclose corporate government affairs activities and political spending, and to show how decisions are made in the context of a broader corporate strategy, provides shareholders and other interested parties the world over ready access to those details and makes it easy to update or modify information as needed. In addition, disclosure of corporate government affairs activities and political spending in the context of business strategies, principles and policies that guided those decisions may make a company less vulnerable to the risk of unwarranted allegations.
When it comes to government affairs activities and political spending by corporations, and the related questions of how to demonstrate accountability, and how much information to disclose, there is no single right answer. Each company must weigh the benefits and risks of engaging in political activity and make its own decision.
Companies that choose to take part in the political process and the ongoing public policy debate must then decide how much information they want to disclose. Again, there is no answer that applies equally to all corporations. In the United States, federal and state agencies require corporations to report a wide range of details about their political spending. Those records are public, and companies are under no legal obligation to disclose anything more, to make the information easier to find and understand, or to explain their political activity in the context of their corporate values or their broader business strategy. But legal requirements are not the only consideration.
Business is fundamentally about relationships. Corporations succeed by establishing and maintaining strong relationships with their customers, partners, investors and employees. At a time when public trust in corporations the world over is at near-record lows, and both companies and consumers are struggling in a difficult global economy, demonstrating greater disclosure and accountability can help corporations build public trust and investor confidence- and strengthen their relationships with the people they count on to support their business and contribute to their success.
Below is a list of 10 steps a corporation can take to become more transparent:
- Set your own social and environmental performance targets. Define what transparency means to you and build a case for your approach.
- Proactively engage your stakeholders in dialogue.
- Monitor your external environment so that you can understand expectations and prioritize your responses.
- Publish your corporate governance policies on your web site and GlobalGovAffairs.com
- Form an internal committee to ensure that your board is getting a complete picture of your company’s performance. Establish a Disclosure Committee to evaluate internal controls, review disclosure policies and practices, determine the materiality of information that might need to be disclosed, and review public communications and SEC filings.
- Require employees to take ethics training and sign letters upholding your business principles. This rule will not only encourage ethical behavior, it will show your willingness to invest company funds to maintain integrity.
- When addressing issues of public concern, localize the message by utilizing company employees in affected communities and enlisting the help of third-parties (e.g., community organizations and local government officials).
- Be willing to disclose all of your business, social and political activities (as long as doing so does not raise legal issues or jeopardize your competitive position in the marketplace).
- Address the tough questions (e.g., CEO compensation) directly and talk candidly with employees about why you do business the way you do.
- Conduct a “culture audit” to ensure that employees believe they are being rewarded for positive behavior.