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Writing an Effective Corporate Political Activity Policy

June 11, 2009, Political Activity Law Bulletin
Click here for the full PDF version of the Political Activity Law Bulletin.

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, nonprofit 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.

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