US politics and business have a long history together. But boards are now under pressure to revise their policies for donating to politicians. Leading investor adviser Nell Minow, vice chair of ValueEdge Advisors, writes that the relationship between companies and politics has reached a turning point, following the Black Lives Matter and #MeToo movements, that requires a significant change.
Writing for the Harvard Law School governance blog, Minow says: “It is time for every board of directors to develop new policies on how corporate money and messaging decisions are made on political issues. Like almost every other answer on corporate strategy, these decisions rest on corporate identity or branding.
“As customers and consumers evaluate their choices, what will matter to them? Corporate reputation is of increasing importance, particularly to millennials and the generation that follows, a priority not just as consumers but as employees and investors.”
Political donations
Minow’s comments follow the increasing involvement of corporates in politics, the rise of so-called “activist CEOs” and evidence that public trust in business leaders is higher than it is in politicians and non-governmental organisations. Edelman’s Trust Barometer this year revealed the reliance members of the public are willing to place on decisions made by corporates.
But there is also concern that many boards appear to pledge support for causes by ending their donations to political players only to return to allocating funds to both parties, or “hedging” their donations, as Minow puts it.
Congress is currently considering a Shareholder Protection Act aimed at mandating shareholder authorisation for political donations and more disclosure of political spending.
Minow argues a revamp of political donations policies is important because ESG (environmental, social and governance) has become the fastest growing segment for investment managers. And they are are watching who corporates send their money to and, presumably, monitoring public pronouncements for consistency.
“Corporate executives,” Minow writes, “no longer have the luxury of pretending to be politically agnostic on issues like diversity, immigration and voting rights. They will offend some employees or customers either way but are likely to offend even more by staying silent.
“Whatever they decide, they need to be more transparent about the way they decide it, with board committees setting the policy and transparency and consistency in their political contributions.”
Trump, Biden and Black Lives Matter
Discussion about the involvement of corporate leaders in political and social issues has been under way for some time.
Shortly after Donald Trump won the White House, key corporates spoke out about his immigration policies and his decision to take the US out of the Paris climate agreement (since reversed by Joe Biden).
Social media platforms also banned Trump over his claims the 2020 US election result was fraudulent (Facebook advisers voted to continue with the ban today).
Interplay between politics, business and social responsibility hit headlines around the world in 2018 when chief executives withdrew en masse from Saudi Arabia’s “Davos in the Desert” investment conference following the murder of Jamal Khashoggi.
But more significant perhaps was last year’s Black Lives Matter protests, which saw many corporates publicly acknowledge the need to address racial inequalities in both the US and UK.
Minow observes that recent reports reveal that some corporates that issued supportive statements during the protests have continued to contribute to politicians criticised by racial equality campaign groups. She adds the same has happened on women’s rights issues and climate change. She notes some companies that declared they would review donations for politicians who refused to ratify Joe Biden’s presidential election victory have returned to funding them.
This is a tricky issue for US companies given how intertwined big business has become with US politics. In fact the relationship has long beeen the subject of intense debate especially over corporate lobbying. And if the issue is an ESG consideration corporates may want to reflect on signals the current administration’s intent to introduce a scheme for mandatory ESG disclosures.That alone could eventally make political donations the cause of some public discomfort.
Many observers will consider Minow’s comments well placed and agree that a solution can only be found in a return to fundamentals: defining a process for decision making and being absolutely open about how it works and the outcomes. She will have her detractors, especially among those who feel current practices suit their needs. But the attack on the Capitol exposed the inherent risk for companies involved in “hedging” to back both sides. US board leaders will be considering their options carefully.