04 Nov. 2012 | Comments (0)
As we approach Election Day on Tuesday, I have been reflecting on the work of The Conference Board Committee on Corporate Political Spending over the past year and the broader role of corporations in the political process. I found it useful to go back and re-read the opening remarks from the October 2011 Symposium on Corporate Political Spending made by Trevor Potter, member at Caplin & Drysdale and former Chairman of the Federal Election Commission. Below are Mr. Potter’s remarks in full. They remind us that the debate that we are having now, while no less important, is not unique to our time but part of a long ongoing dialogue about the relationship between American business, politics, and society.
I am most grateful to The Conference Board and the Committee for the invitation to speak today. I was asked to put the subject of the Committee’s report – corporate political spending – in a broader context. As it happens, that is easy for me to do because I returned yesterday from China, where I had been invited by the Carter Center to speak to officials of the Chinese Communist Party about political transparency, and to discuss practices of openness and disclosure in the U.S. system. While I was there, I attended a session at a think tank where a young professor asked me about spending by corporations in U.S. campaigns. I explained Citizens United and some of the resulting issues. And he said, “What about the shareholders? Are they consulted? What if they don’t like how their money is spent?” So, straight from the People’s Republic of China and the Communist Party, questions about democracy, and shareholder democracy, in the U.S.! This caused me to think about the broader context in which today’s discussion occurs. The Committee recommendations properly focus on questions of corporate political practices in today’s world – a world created both by the Supreme Court decision in Citizens United and by financial turmoil of the last few years, the current Occupy Wall Street movement, and polls showing both a distrust of Corporate America and a lack of confidence in our institutions of government. So, it is logical to think the particular circumstances in which we meet present unique challenges. As you know, the President of the United States has been critical of the Citizens United decision. Let me quote a Presidential statement: “All contributions by corporations to any political committee or for any political purpose should be forbidden by law; directors should not be permitted to use stockholders’ money for such purposes.” More recently he said, “Every special interest is entitled to justice, but none is entitled to a vote in Congress, to a voice on the bench . . . there can be no effective control of corporations while their political activity remains.” Now, before we get into another debate about whether President Obama is moving from the center to protect his base, and is practicing the politics of division in attacking corporations, let me clarify that those statements were by President Roosevelt – and not even Franklin Roosevelt, but the Republican Theodore Roosevelt, in 1905 and 1910, respectively. This was the same President Roosevelt whose call for the disclosure of all political contributions and expenditures and a ban on corporate political contributions was enacted by Congress in the Tillman Act in 1907. The only reform Roosevelt did not get was government funding of the presidential campaigns of the two main parties. This was in a political environment of great controversy over the power of Wall Street “Trusts” (large corporations). As often happens, this was two-sided: the Trusts sought to elect and defeat candidates, and the Republican Party sought to obtain contributions from them. President McKinley’s campaign manager, Mark Hanna, even levied an informal 25% “tax” on the capital base of major corporations to raise funds for the Presidential election. Thus, for more than 100 years, the issue we are discussing today – political participation by corporations – has been the subject of debate, both in the country at large, and in corporations. The fact that we live and work and decide political issues in the midst of a market economy, in which the government plays a substantial role with direct effects on market participants, creates enormous pressures for industries and corporations to influence government decisions: on taxation, trade policies, subsidies, and regulation. Logically, corporations look not only to influence sitting members of the executive and legislative branches, but to determine who those people are – which party has control, who sits as Chair of relevant committees, who is President. At the same time, we are a democracy, where the right to vote belongs only to individual citizens. And we have built a great free market economy through the corporate structure, where shareholders own the corporations and vote for Boards of Directors. In these circumstances, there is pressure from voters, and shareholders, for transparency of corporate political activities, and limitations on that activity in the area of candidate elections, where individual citizens are supreme. For 100 years, or longer, the tensions inherent in this system have been present, and the law on the subject has ebbed and flowed as one side – and then the other – has had the upper hand in the legislatures and the courts. The 1907 and 1910 disclosure legislation, along with the ban on corporate contributions, was succeeded, with time and changing circumstances, with subsequent legislation. In 1947, a Republican Congress responded to large Labor Union expenditures on behalf of Democrats, especially the re-elections of Franklin Roosevelt, by extending the ban on contributions from corporations to unions, and by prohibiting both from making independent political expenditures. By 1972, much of this regulatory structure had fallen into disrepair and disuse, and the Nixon administration pressured prominent corporations to make contributions to the President’s re-election committee, or to the RNC. Campaign costs between 1956 and 1968 had risen 500%, largely because of increasing media expenses, and the Nixon campaign intended to spend large sums of money. Forgotten were the laws on the books about corporate contributions, which were “honored more in the breach than in the observance” as one executive testified before the Senate after these events unfolded. Forgotten too was that these old statutes had criminal penalties. The result of this flood of money, much of it corporate, and much of it in cash, was the Watergate scandal – especially when the currency found on the Watergate burglars could be traced back to corporate contributions placed in campaign and White House safes. The result was criminal charges, a crisis of legitimacy for the Nixon Presidency, and a campaign finance scandal of enormous proportions. Corporations were found to have given money in return for specific government actions – increases in milk price supports, the dropping of anti-trust actions. It is usually forgotten now how many major corporations were found to have violated the law: ITT, American Airlines, Braniff, Ashland Oil, Goodyear Tire & Rubber, Gulf, Philips, Greyhound – those were just a few of the well-known corporations caught up in the Watergate campaign financing scandal: 31 executives ended up being charged with criminal campaign violations, and many plead guilty. The result was a high watermark for political reformers: the 1971, 1974 and 1976 federal election laws, which restated the corporate and labor bans on contributions and expenditures; regulated full disclosure by candidates, parties and independent political committees; established Federal Election Commission, and created a public funding system for Presidential Campaigns. As history shows, though, the pendulum swings in politics and regulation, and the further from the front pages a scandal recedes, the greater the power of countervailing forces becomes. By the 1990s, there was a push by political parties for more money, and an arms race developed to raise and spend money – individual, corporate and labor, outside of the federal contribution limits and reporting system. This became known as “soft money” and was spent for “non-federal” party building activities such as office buildings and then “issue ads.” Over time, the pressure of political competition gave us “sham issue ads” that featured federal candidates and said “Cong. Jones has never met a tax increase he didn’t like. Call Cong. Jones and tell him to stop raising your taxes.” And even “Bill Yellowtail took a swipe at his wife. Call him” and tell him to stop: a Montana ad where the only “issue” appears to be a candidate’s behavior. And these ads were paid for by more and more brazen fundraising actions by the leaders of the House and Senate of both parties – and the President of the United States. Don’t forget the White House coffees! Both the President and Congressional leadership understood it was difficult for corporations to say no to a request for a contribution when the office holder wielded official government power over regulated industries – and over corporations that either sought specific government action – or hoped to avoid it. The result of all of this was a new series of Reform Laws – largely the 2002 McCain-Feingold legislation. These did two things. First, and largely still intact, the law:
- prohibited corporations and unions from contributing any sums – for any purpose – to national political parties and federal candidates. “Soft money” was no more.
- federal candidates and office holders and political party officials were prohibited from soliciting impermissible political funds from corporations and unions.
- all contributions to, and expenditures by, candidates, party committees, and PACs;
- disclosure of “Independent Expenditures”, ads expressly advocating a candidate’s election or defeat or its “functional equivalent”
- disclosure of “electioneering communications” – the McCain-Feingold term for ads mentioning candidates and run before the primary or during the general election.
- the existence of a well-thought out corporate policy on political activity
- the role of the Board in establishing the policy and monitoring ongoing activity
- internal auditing to ensure the policy is adhered to
- the levels of transparency that are either legally required, or beyond legal norms but in the interest of the corporation
- what example does Corporate America want to set? Outside tax exempt organizations may or may not currently be required to disclose their donors when they run political advertising, but should corporations proactively disclose when they donate money used for these purposes? How does the disclosure or secrecy of these monies comport with corporation values?