Watchdogs call for greater transparency in corporate political spending

The House wing of the U.S. Capitol. Photo: Jim Armstrong, Flickr

Last year’s U.S. Supreme Court decision in Citizens United v. Federal Election Commission granted corporations and unions the right to directly and expressly back political candidates, and triggered an enormous new wave of political spending. Now watchdog groups are trying to find ways to make sure voters can see who is funding which candidates.

In a web seminar sponsored by the Business Ethics Network last week, groups concerned about the role of money in politics gathered to review strategies for increased disclosure.

Norm Ornstein, a scholar with the American Enterprise Institute, who once helped craft the McCain-Feingold campaign finance act, said that he was struck and “even a little bit heartened” by the fact that Sarah Palin railed against crony capitalism during her Labor Day speech in Iowa saying, in effect, “what do we suppose those fat cats want for their money?”

“It suggests to me,” Ornstein said, “that there is at least a glimmer of a possibility that we might be able to build a very unusual type of coalition against what has become an utterly appalling landscape of influence peddling by enormous monied interests and more and more overt, almost shakedown schemes by political figures to get the money they want from corporations and individuals.”

The Citizens United decision did not strike down any rules that require disclosure of political spending, but loopholes in the tax system and lax campaign finance rules allow corporations to give money in ways that are very hard to track, disclosure advocates say.

According to an analysis by the Center for Responsive Politics, in the 2010 election 67 percent of all outside (non political party) spending came from groups that had been freed to contribute by the Citizens United decision with non-profit 501(c) groups dominating spending on election ads.

IRS rules state that 501(c)(4) groups don’t have to name their contributors as long as electioneering is not their primary purpose, but this can be difficult to enforce in a meaningful way. Groups can form and carry out campaign work and then later switch to other activities so that political projects don’t appear to dominate their activities.

With Congress deadlocked over most issues, campaign finance reform advocates say it’s more prudent to focus on promoting regulatory measures that could increase disclosure.

One possibility would be to get the IRS to enforce its requirements for 501(c)(4)s. Another would be to get the Securities and Exchange Commission to require publicly traded companies to report their political spending to shareholders.

Aside from the way it could corrupt the political process, experts point out, unregulated corporate spending on politics poses risks for company shareholders.

Ten corporate law academics recently petitioned the SEC to adopt rules to require that corporations communicate with shareholders about political use of corporate funds.

The idea has support from major institutional investors including the International Corporate Governance Network, which represents $18 trillion in assets.

Any rule change at SEC will be a time consuming process. In the meantime some groups are trying to get corporations to voluntarily release information about their political spending.

Since 2003 the Center for Political Accountability has been working to get companies to establish rules for disclosure of political spending and shareholder oversight.

Valentina Judge of CPA said that such resolutions are good business practices that can protect companies from embarrassing contributions that can cause reputational damage.

The Target corporation learned the pitfalls of political donations last year, she pointed out.

The company endured bad press and boycott threats after it made a $150,000 donation to a group that supported a candidate opposed to gay rights.

CPA is preparing to release an index of corporations that have adopted policies on corporate spending.

It’s urgent that groups focus on disclosure strategies that could work fast, said Craig Holman of Public Citizen.

“We just was a 427 percent increase in outside spending in the 2010 election,” he said, “This is a phenomenal increase … and this was just a test run, a trial. Corporations and CEOs were just starting to get involved and were pretty cautious.”

In the 2012 elections, he said, “I believe we are going to see numbers that are off the charts.”

The only thing that could force more disclosure right away would be an executive order from President Obama, he said.

“We need President Obama to step up to the plate and sign an order requiring enhanced political disclosure for contractors to show that contracts are being based on merit and not contributions.”

Another short term effort could involve getting the president to appoint a Federal Elections Commissioner who would work to require funding disclosure on television ads, said Meredith McGehee of the Campaign Legal Center.

The most pressing need, however, she said, is is a public education campaign to translate the current situation around corporate funded politics into terms that meet average Americans.

“You have to build a public base before you can get into specific answers,” she said. “The pot is not yet boiling.”

“The reality is that the other side that is supporting this outcome is outgunning the reform community and those that see the problem by a million to one,” she said. “It doesn’t mean give up. It means you’ve got to start thinking about 21 century solutions and approaches.”

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