Since the Capitol riot, companies have re-evaluated their political donations. Will this be a turning point or a momentary blip?
It’s been one month since a mob stormed the Capitol, which led to soul-searching about the influence of money in politics (among other things). The DealBook newsletter delves into a single topic or theme every weekend, and today we look at how corporate cash became such a feature of the system, what’s changed since the riot and what it means for the future.
One month ago, the riot at the U.S. Capitol delayed but did not derail the process of certifying the presidential election. The shocking scenes did, however, prompt a reckoning about money in politics that persists, and could significantly alter the way companies and candidates interact.
Or not. It will take more than a month to see whether Jan. 6, 2021, signified a meaningful turning point or a momentary swerve from the status quo.
The most immediate change since the riot is that hundreds of big companies halted their donations to the lawmakers who objected to the vote certification, the motivating event for the mob in Washington. Many companies paused political giving altogether.
The thing is, these corporate political action committees account for a sliver of the cash that flows into politics. “If you are a corporate political spender, there are so many avenues,” said Ciara Torres-Spelliscy, a law professor at Stetson University and the author of books on campaign finance law. Because the money trail goes dark along many of these avenues, with groups disguising or not disclosing their donors, even something as seemingly momentous as the Capitol riot may not have a lasting impact.
Unless, that is, companies are rethinking donation policies beyond the limited measures discussed to date, pressure from stakeholders forces bigger changes, or lawmakers decide to dismantle the system that has proved so lucrative to their campaigns and causes over the years. — Ephrat Livni
History lesson: How companies found their voice
1819: The Supreme Court wrote that a corporation was an “immortal being” that existed “only in contemplation of the law” but still required certain legal protections.
1907: The Tillman Act prohibited direct contributions from corporations to candidates. It’s still intact.
1971: The Federal Election Campaign Act (FECA), amended in 1974 after Watergate, mandated donor disclosures and created campaign contribution and spending limits. The reporting requirements remain intact. The spending limits do not.
1976: FECA’s limits were challenged as violating free speech. The Supreme Court decided that restricting contributions preserved the “integrity of our system of representative democracy,” but that the act’s spending limits were too severe. This laid the groundwork for interpretations that money is speech.
2010: In the Citizens United case, the Supreme Court gave corporations a First Amendment right to speak politically, using money. As a result, companies could raise and spend unlimited funds on “independent expenditures” as long as they didn’t coordinate with candidates or give directly to campaigns. In response, so-called super PACs and nonprofits sprang up to collect corporate cash for political purposes. In the 2020 election cycle, more than 2,000 super PACs spent $2.1 billion.
Corporate PACs: Press pause
The Capitol riot has forced companies to explain the reasons for their political spending, and deal with the consequences of their candor. This is especially true for the companies that announced a pause in donations from their political action committees.
Corporate PACs don’t spend company money, but collect donations from employees and direct how they are spent, with a limit of $10,000 per candidate in an election year. That’s a drop in the bucket, relatively speaking, but because this activity must be conducted out in the open, it attracts public scrutiny.
Executives are comparing notes to decide what to do next about their corporate PACs. How to support candidates on issues of importance to the company without endorsing their other positions that may go against corporate values? Are direct donations really worth it?
Within days of the riot, Morgan Stanley singled out the 147 members of Congress, all Republicans, who challenged the election count for its pause in corporate PAC donations. It took this targeted approach after consulting its government relations, legal and compliance teams, as well as senior managers including the chief executive, James Gorman, a person familiar with the matter said. In recent weeks, the bank’s large wealth management arm has seen some pushback from clients threatening to take their business elsewhere, the person said.
Microsoft, which initially halted all donations and held a series of meetings with employees, announced Friday that it would suspend donations to those who voted against certifying the election, as well as state officials and organizations who “supported such objections.” The tech giant also said it would “promote and join a conversation with other businesses” about “strengthening democracy.”
The companies whose donations are all still on an indefinite pause, like BlackRock, Coca-Cola and Hilton, are unlikely to avoid having to take further action. Democrats have hinted that they won’t look favorably on companies that cut them off after the riot. At the same time, it’s a big step to shun top Republicans like Kevin McCarthy, the party’s leader in the House, who voted against the election certification.
Shareholders, sensing a new source of risk to their investments, are also planning resolutions for upcoming annual meetings calling for greater disclosure of political spending.
“We’ve got to find a way to participate in the right way,” said Doug McMillon, Walmart’s chief, at a recent meeting of the Business Roundtable, which he chairs. (Walmart has suspended donations to the Republicans who voted against certification.) “I think there’s still a role for business to play,” he said.
All of these announcements represent “a huge acknowledgment that corporations have invested in politics because they think this money makes a difference,” said Jacob Hacker, a political science professor at Yale. “And they think they’re part of the problem.” — Lauren Hirsch
Dark money: ‘Daisy chain’ dilemma
Citizens United removed some spending limits but didn’t dismiss the need for transparency. Disclosures would keep the public informed about corporate influence in politics, the Supreme Court assumed. But workarounds quickly emerged and money found a way to flow undetected.
Super PACs disclose their finances to regulators but can take contributions from nonprofits that don’t have the same reporting requirements or need to publicly disclose their donors. Some of these “social welfare” nonprofits are highly political and allied to both Republican and Democratic causes. Trade groups can also take corporate donations and pass them on to nonprofits or super PACs, obscuring the source of the funds.
Anna Massoglia, an investigative researcher at the Center for Responsive Politics, found that two dozen of the companies that re-evaluated donations after the Capitol riot, including AT&T, CVS and Intel, had given $100 million to these so-called dark money groups since 2015. Over all, dark money groups poured more than $750 million into the 2020 election cycle, with liberal groups accounting for more than conservative ones.
There’s “a daisy chain of laundering,” said Robert Maguire, research director of Citizens for Responsibility and Ethics in Washington. This makes it easy for companies to take competing public and private stands: Halting corporate PAC donations while routing money anonymously via other means. “As long as we have this system, there is no way to check,” he said.
The I.R.S. is supposed to scrutinize nonprofits’ designations, ensuring they are what they claim to be. But the feds have been bullied off the beat, the Democratic senators Elizabeth Warren and Sheldon Whitehouse said in a letter to Treasury Secretary Janet Yellen this week.
The I.R.S. was “cowed from regulating” after administrators faced the wrath of powerful groups resisting scrutiny and claiming ideological bias, the senators wrote. Among other things, they want the Treasury to step up scrutiny of politically minded nonprofits and to step in on a case the Supreme Court accepted for review just days after the Capitol riot.
The case pits a Koch-affiliated charity promoting “free market values” against California over access to private tax documents that reveal the charity’s “major donors.” More than 20 briefs supporting anonymity were filed, including from trade associations like the United States Chamber of Commerce.
Other efforts to address anonymous spending include the For the People Act, reintroduced in the House last month, which includes a financial disclosure component by Mr. Whitehouse intended to give citizens “the information they need to do the work of democracy in the daylight,” he told DealBook. And on Jan. 21, the 11th anniversary of the Citizens United decision, a bipartisan group in the House reintroduced a constitutional amendment to “get big money out of politics.”
Will these moves have any effect? Since Democrats control both chambers and the White House, “if they are going to do something, now is the time,” Ms. Torres-Spelliscy of Stetson University said.
“I would like Americans to understand that the system itself can be corrupt,” Mr. Maguire of CREW said, blaming nobody in particular. “Good people cannot be effective in a bad system.” — Ephrat Livni
Big idea: Breaking up the duopoly
The Harvard Business School professor Michael Porter argues in “The Politics Industry,” with his co-author Katherine Gehl, that America’s political parties are “a textbook duopoly.” Their business, so to speak, is thriving financially while failing to satisfy consumers. There are no start-ups presenting a serious competitive threat. From an antitrust perspective, new rules are needed.
“The events of the last weeks and months have been a wake-up call,” Mr. Porter told DealBook. Businesses realize that “whatever they’ve been doing in government is no good,” he said, and they can evolve into “a special interest for the public interest.” By supporting specific causes — like ranked-choice voting to loosen the party grip on primaries — companies could help foster political competition and spur innovation, making government better.
That still leaves the issue of funding. Corporate funds buy influence, and relying on business to embrace a shared civic cause may not suffice. Mr. Porter countered that for the companies that don’t recognize the value in creating a more functional society, the price of getting called out for hypocrisy now is too severe. But exposing hypocrisy also requires being able to follow the money. — Ephrat Livni
Coda: Has anything really changed?
As much as the Capitol riot may have appeared to be a transformational moment, in truth it is more likely to be transitory.
In the wake of the insurrection, companies went into C.Y.A. mode. Yes, many C.E.O.s privately were furious with President Trump and his supporters, but remember that few companies came out publicly and said they would end PAC donations on their own. That happened only after journalists highlighted the donations and started asking questions. Once several companies publicly announced pauses in spending, it became a flood because nobody wanted to be last, as employees started to ask questions.
In my conversations with business leaders involved in these decisions, almost all of them appear to suggest that this is a temporary phenomenon — a reaction to the extraordinary attack we witnessed. Consider how companies distanced themselves from Saudi Arabia in the weeks and months after the journalist Jamal Khashoggi’s murder. Virtually all of them have returned to doing business with the country, both publicly and privately. Memories are short. — Andrew Ross Sorkin
What do you think? Have companies permanently changed their views on political donations? Should they be in the business of political giving at all? Let us know: firstname.lastname@example.org.
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Zlatan Ibrahimovic has hit out at LeBron James for getting involved in politics, telling him to stick to what he is good at.
Four-time NBA champion James, who Ibrahimovic described as a phenomenal basketball player, has been one of the NBA’s leading voices against racial injustice and police brutality in the US.
A frequent critic of former US President Donald Trump, the LA Lakers forward also helped form a group aimed at battling voter disenfranchisement in predominantly black communities last year.
“I like him [James] a lot. He’s phenomenal, but I don’t like when people with a status speak about politics. Do what you’re good at doing,” Ibrahimovic told UEFA and Discovery+ in Sweden.
“I play football because I’m the best playing football. I’m no politician. If I’d been a politician, I would be doing politics.
“This is the first mistake famous people do when they become famous. For me it is better to avoid certain topics and do what you’re good doing, otherwise you risk doing something wrongly.”
Okay @Ibra_official based on your position @KingJames is great at basketball and shouldn’t voice his opinion about politics. You’re really good at football so you shouldn’t voice your opinion about Lebron using his platform for good. Or your opinion on anything outside football! https://t.co/xNbDo5vc9g
— Michael Johnson (@MJGold) February 26, 2021
Ibrahimovic’s comments were criticised by American sprint great Michael Johnson.
“Okay Ibra, based on your position @KingJames is great at basketball and shouldn’t voice his opinion about politics,” Johnson tweeted.
“You’re really good at football so you shouldn’t voice your opinion about LeBron using his platform for good. Or your opinion on anything outside football!”
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