As the United States 2022 midterm elections approach in November, there are increased opportunities for companies to engage in the political process, and heightened risk that certain activities might inadvertently trigger political or election laws.
There are a number of ways that companies can engage in the political process—all non-mutually exclusive and each with varying levels of effort, visibility, and legal or reputational risk. With such a myriad of options, the good news is that any company can choose to be politically active in a manner that matches its culture and risk tolerance.
At the same time, companies should be mindful that there are hundreds of federal and state laws, rules, cases, and advisory opinions that govern and inform corporate political activity. Because each company is differently situated, specific advice should be sought that is tailored to the company's particular needs.
Background
In the past decade, a growing number of companies have engaged in various forms of political activity beyond what is directly related to their business activities. In fact, even inaction may be viewed as a political statement. Corporate political engagement can range from:
- Politically neutral activity, such as encouraging voting and voter registration;
- Political positioning, such as campaign contributions, voter guides, or publicly endorsing (or opposing) candidates; and
- Political advocacy, including taking potentially controversial public positions on social issues, or telegraphing an intent to move business out of certain states.
The reasons that companies choose to engage in the political process are equally as varied as the means to do so. A company may choose to engage in some political activity because it has a direct bearing on its business. Many companies face demands from their customers, shareholders, or employees to engage on political and social issues. Companies may face pressure from the public, government, or media. Corporate political engagement may be part of a larger program of corporate social responsibility (CSR) and environment, social, and corporate governance (ESG). Or specific political and social issues may implicate a company's core values.
Whatever the reasons, as the lines between corporate interests and the political arena continue to blur, more companies are grappling with how to engage in the political process, and how to do so in a way that minimizes compliance risk. Some of the most common opportunities and risks are highlighted below.
Opportunities & Risks for Corporate Political Activity
1. Solicit Contributions from Employees to a Separate
Segregated Fund (SSF)
If a company has an established SSF (a specific type of 527 Political Action Committee (PAC) that may be established by an organization), now is a great time to solicit contributions from employees. Generally speaking, an SSF may solicit voluntary contributions from members of its “restricted class” (generally, executive employees) at any time and may solicit voluntary contributions from its broader employees twice a year. These solicitations are required to contain certain notices by the Federal Election Commission (FEC) and the IRS. Contributions are subject to certain dollar limits per calendar year, and certain prohibitions.
If it has not done so already, a company may consider forming an SSF. Establishing an SSF is relatively easy, but registration with the FEC is required within ten days. While federal law generally prohibits corporations from making contributions or expenditures in connection with any election, a company may pay costs to establish and administer an SSF, and to solicit voluntary contributions. Additional restrictions apply to federal contractors, banks, federally chartered corporations, as well as foreign nationals. Once established an SSF must maintain certain records, comply with contribution and expenditure limits, and must file regular disclosure reports with the FEC. A corporation may still establish an SSF and be active in the midterm elections.
Regardless of whether a company has an SSF or is interested in establishing one, it should regularly review its processes with counsel to ensure they meet best practices for compliance.
2. Use an SSF to Make Political Expenditures
If an organization has an SSF, then the SSF can use those funds to make expenditures. These are commonly contributions to candidate committees, party committees, or other PACs. Many SSFs have guidelines to identify candidates or issues that align with the company's values, and/or an expenditure committee that is empowered to approve contributions in support of candidates or other PACs. Some companies have a process for donors to provide input into that process. Like with solicitations, contributions from an SSF are subject to certain limits, and expenditures must be disclosed to the FEC.
3. Use Corporate Funds to Contribute to Super PACs or Engage in Express Advocacy
Following the Citizens United decision in 2010, a company may use its corporate funds to donate directly to “Super PACs.” Super PACs are “independent expenditure only” political committees, meaning any expenditures are made to expressly advocate the election or defeat of a clearly identified candidate and must not be coordinated with any candidate. Because it is not coordinated, such expenditures are not contributions under the FEC rules. As a result, Super PACs are not subject to contribution limits and may accept unlimited donations from companies. Super PACs must register with the FEC and must disclose the identity and amounts of the contributions they receive.
Similarly, a company can make independent expenditures directly, provided the restrictions on coordination above are followed. The FEC provides detailed guidance on what constitutes “coordinated communications” that a company must follow to avoid making a prohibited contribution. Such express advocacy ads must include certain disclaimers and must be reported to the FEC (for federal candidates) within 24 to 48 hours of the expenditure being made.
4. Donate to 501(c) Organizations
If a company seeks to use its funds to support political activity without being subject to disclosure and reporting requirements, an alternative is to donate to a 501(c) organization, such as a (c)(4) (social welfare) or (c)(6) (trade association). These civic organizations may receive unlimited donations from corporations and may engage in political activity including making donations to Super PACs. While PACs and Super PACs must disclose the identity of their donors, 501(c)s are generally not subject to the same requirement. In any event, companies can and should seek certain protective representations when making contributions to 501(c)s and other political organizations.
5. Contribute to State Campaigns or Non-Federal Organizations
Some states permit corporations to contribute directly to state candidates (i.e., candidates not for federal office), subject to varying contribution and disclosure requirements. Other states may require corporations to register as a state PAC prior to making expenditures to state candidates. Additionally, there are a number of political organizations coordinated at a national level that target state races (i.e., Governors, Attorneys General). Generally, these non-federal 527 organizations may receive corporate contributions.
6. Engage in Electioneering Communications
An “electioneering communication” is any radio, television, or satellite communication that refers to a clearly identified federal candidate, is publicly distributed within 30 days of a primary or 60 days of a general election and is targeted to the relevant electorate. Electioneering communications must include certain disclosures and must be reported to the FEC if the cost exceeds a certain threshold. Corporations may engage in electioneering communications, provided they do not coordinate such communications with a campaign.
Whatever the type of political communication (i.e., express advocacy or electioneering communication), companies should be mindful that any corporate communications or the communications of senior executives do not inadvertently implicate these provisions because they are regulated by the FEC, require disclaimers, and require disclosures.
7. Issue Public Endorsements
A company may choose to endorse a candidate and may communicate the endorsement to the general public. Any funds spent on making such endorsements are not considered prohibited contributions or expenditures, provided the amount is de minimis (i.e., a press release) and the endorsement is not coordinated with any candidate, candidate committee, or its agents.
8. Host a Candidate
A company may choose to host a candidate appearance at a meeting, convention, or some other corporate event. The restrictions on such an appearance depend on the audience: generally, if the candidate is only appearing before the “restricted class,” then there may be express advocacy and solicitations.
Generally, if the candidate is appearing before employees outside of the restricted class, then the company may not expressly advocate for the candidate nor solicit contributions. Additionally, in that case, the company must allow other candidates for the same office to appear, if they request to do so, subject to certain guidelines.
9. Issue Voter Guides
Similarly, a company may prepare for distribution a “voter guide,” that can be distributed internally or to the public. It may contain a summary of candidates' positions as well as voting record on key issues. The cost of preparing and distributing the guides may be incurred by the corporation, provided that the literature does not expressly advocate the election or defeat of any clearly identified candidate or party; and provided that the content and distribution of the voting guide is made without coordination with any candidate.
10. Encourage Voting Efforts
Many companies encourage voting by giving their employees time off to vote, holding voter registration drives, or making public statements that support the act of voting. Voter registration drives or other get-out-the-vote efforts may be paid from corporate funds and are not reportable, provided they are non-partisan and made available without regard to the voter's political preference. Such acts are typically viewed as politically neutral, and a low barrier point of entry for companies seeking to do more political activity, without taking particular positions on candidates or issues.
But companies should be careful to never offer anything of value in exchange for someone's vote. Federal law (and many states) prohibits the act of offering something of value in exchange for someone's vote. For example, providing customers discounts or rewards for showing a “I Voted” sticker may implicate these prohibitions on vote buying.
Conclusion
Ultimately, engaging in corporate political activity carries certain legal and reputational risk, and companies must find the elements of political activity that best support their corporate values. These decisions—whether explicitly tied to a company's business or not—can have long-term implications for a company that may affect the bottom line.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.