Published February 11, 2021
It is very encouraging to see companies re-thinking their political spending policies in the wake of recent threats to the peaceful transition of power in America. Such reviews could create a tipping point in restoring public trust and stability — but only if companies dig into the structural as well as cultural causes of the crisis.
To start, we must ask, how did businesses end up contributing to candidates whose actions have threatened the foundations of representative democracy? Even as we have watched escalating divisiveness, disinformation and conflict over the past decade, I have found few business leaders are fully aware of the sea-change in political spending over the past 40 years — and how that shift has contributed to declining public trust, perpetuated dysfunctional gridlock and stalled bi-partisan solutions to the systemic issues confronting our country and the world. At the core of this mess, as Katherine Gehl and Michael Porter have outlined, is a politics industry that functions as a duopoly, serving its own ends by painting the other side as the enemy.
Unfortunately, business has been pressed into funding this destructive political business model. According to the Center for Responsive Politics, outside spending — a primary vehicle for attack ads and disinformation that fan the flames of polarization — rose to $2.9 billion in 2020, 56 times higher than in 2000. 2020 business-related contributions accounted for roughly 60% of total donations to candidates, parties, SuperPACs and outside spending, and corporate PACs accounted for 67% of total PAC spending this year. Corporate lobbying accounted for 88% of the total, dwarfing contributions.
Though business leaders have come to view these practices as normal — the price of a “seat at the table” — they are relatively new. According to professor David Vogel, until the 1970s, American firms did not engage in widespread political activity (at least, not since the 19th century). Most executives were reluctant to engage in the “messy” business of politics.
And, as we can now see, this new normal comes at a tremendous cost. As Leadership Now CEO, Daniella Ballou-Aares explained in the Financial Times, “Whatever one thinks about corporate investment in politics, I think few companies thought when they were writing their cheques that they were giving license for undermining democracy.” Yet both Pew Research and Public Agenda have found that a leading cause of American distrust and belief that the system is “rigged” — across the political spectrum — is the perception that politicians are “bought and sold” by corporate America. As Rebecca Henderson argues in Business Can’t Take Democracy for Granted, this is terrible for business. Executives are left unable to plan in a world with amplified uncertainty. Shareholders file resolution after resolution, wanting to know how their money is being used politically. Employees are up in arms, outraged when their firms are part of destructive tactics. Customers shift purchases or lose confidence and hold back on spending overall. And corporate capital is the fuel for this fire. According to Bill Shireman, Co-Founder of In This Together, a Fortune 500 CEO recently declared, “This has gone too far and we have to stop it. Our money is being used against us, to build constituencies who view us as the enemy.”
From a sustainability perspective, recent research shows that corporate political influence is a major barrier to climate action in the US, adds to financial instability, and has contributed to mass incarceration. Clearly, it’s time for business to say, “enough is enough.” As companies review their political spending policies, they should heed the instinct to say, “This has to stop.” No one should have to spend to be heard by their elected representatives; that is a constitutional right and IBM has shown it can be done. Companies should not have to thread the needle between spending to stay alive in Washington and being able to hold their heads up with employees, customers shareholders, or activists. And, honestly, asset owners are less concerned about the advantages of a single company’s tax exemption, than they are about the whole of their portfolio and the quality of life for their beneficiaries, which are driven by long-term investment and solutions to issues such as inequality, climate, infrastructure, healthcare and education. Those companies that do challenge the prevailing business model, will need to be clear about the principles driving them to act. Today, they are likely to withdraw funding from Republicans; but that is not the point. Instead, they should refuse to support actions that undermine civic institutions, whoever is in power.
If these arguments resonate with you individually, please consider signing the American Promise Statement of Principle in support of limits on political spending, along with Rebecca Henderson, former Delaware Chief Justice Leo E. Strine, Peter Schwartz and other business notables. This option frees business from having to answer the question, “How much have you contributed?”
Then, as a firm, consider adopting the Center for Political Accountability’s Model Code of Conduct, Leadership Now’s Five Immediate Actions to Respond to the January 6 Insurrection, or John Bogle’s proposal requiring shareholder consent for political spending. Beyond that, firms can use their communication to reinforce constructive messaging, fair procedures and legitimate outcomes, and model deep commitment to addressing the foundations of distrust.
We are facing just a short window of opportunity that could change our entire system for the better. By reflecting the values of all Americans who care about constitutional democracy — right, left and center — business voices can help create a tipping point.