Tuesday, March 19, 2019

Bruce Freed’s Quest for Corporate Political Disclosure

This is a follow-up to last week’s blog that examined the 4th Roundtable on Corporate Political Accountability.

The year is 2003. Lance Armstrong has just won his 5th Tour de France while the rest of us are snatching up the newest in the Harry Potter series Harry Potter and the Order of the Phoenix, singing along to Beyoncé’s Crazy in Love, and watching the capture of Saddam Hussein in Iraq on cable news. In Washington, DC, Bruce Freed is starting the latest chapter in his career with the creation of the Center for Political Accountability (CPA).  

His goal, along with co-founder Karl Sandstrom, was to bring transparency and accountability to corporate political spending. Today, CPA remains the only group to directly engage companies to improve disclosure and oversight of their election-related spending. In addition to direct contributions to candidates, this includes soft money contributions and payments to trade associations and other tax-exempt organizations that are used for political purposes.
In the 16 years and three Presidential administrations since its founding, the CPA has made disclosure and accountability the norm. It publishes the annual CPA-Zicklin Index, which benchmarks S&P 500 companies on their disclosure and accountability practices, and created and maintains the TrackYourCompany.org database, which covers the full range of company political spending. This includes “dark money” -- company payments to trade associations used for election-related purposes and contributions to “social welfare” organizations, also known as 501(c)(4) organizations. Today, nearly 300 companies in the S&P 500 disclose some or all their election spending. 
Bruce took a break from his work educating companies on how voluntary disclosure and spending oversight can help them manage risk to talk with me about where CPA has been and where it is going.

MK: Back in 2003, could you have imagined that the Center would have made as much progress as it has? 

BF: Honestly, I didn’t know where we would be when Karl and I started the Center, but we recognized that a different approach to addressing campaign spending was needed. We needed to move outside the political system given the obstacles presented by the opposition to action in Congress and the regulatory agencies. We created the Center when  the K Street Project, an effort to impose a sharp partisanship on the Washington lobbying and business community, was in full swing. 
MK: How did you approach companies in the beginning and when did you sense it was working? 
BF: We started using shareholder resolutions to engage companies. This fit into the risk management approach that companies were required to engage in. We did not approach companies in a hostile way. We always approached companies with a reasonable request and wanted them to see political spending as a risk issue. We were fortunate that companies began to respond. The first to adopt political disclosure was Morgan Stanley in 2004. Then came a key development in the 2006 proxy season when ISS (Institutional Shareholder Services) started to recommend the CPA model resolution on a case-by-case basis. Previously, it had a policy of opposing social resolutions. When its policy changed, the average “yes” vote went from 9% to 20%. This got the serious attention of companies. Each proxy season, the number of companies we were reaching agreements with kept increasing. We knew we were really making an impact when we began to see companies adopt disclosure and accountability policies on their own without CPA and our shareholder partners engaging them. This happened, for example, with Met Life when we undertook the first CPA-Zicklin Index in 2011. 
MK: What did you learn in the early days through your engagement with companies?  
BF: We learned a lot from companies. For example, how they make decisions, how they keep records on their political spending with corporate funds. When in 2006 we expanded our resolution to include disclosure of dues paid to trade associations used for election-related spending and contributions to other tax-exempt associations, we worked with companies to narrow disclosure to those associations that were involved in election-related spending. Those were the ones that posed risks to companies. That is why we developed the threshold to trigger company disclosure of the non-deductible portion of their trade association payments that were used for lobbying and election-related spending so it would not be burdensome and would focus only on those payments that really do pose a risk and that needed to be managed. We also learned what information companies were providing to their boards and whether it was being reviewed by the full board or by a committee. And we learned a lot about how political spending decisions were being made in the company. All of this helped us develop our strategy and refine what we should be asking of companies. 
MK: Were there any surprises from your conversations?  
BF: Yes, the steadily growing number of companies that recognized the need to disclose and adopt board oversight of their political spending with corporate funds. Companies saw disclosure and accountability policies giving them greater control over their spending and protecting them from legal risks, the threat of shakedown or embarrassment. 
MK: What are you most proud of in your work with CPA? 
BF: Today, political disclosure and accountability is the norm, and we are seeing companies adopt it on their own. Companies get in touch with us all the time wanting to know what they need to do to become Trendsetters (on the CPA-Zicklin Index). It’s great to see the credibility that the Index has achieved and recognition by companies that political spending is a risk they need to manage. 
MK: Now that you have made political spending disclosure the norm, what’s next? 
BF: The next step is for companies to take a broader view of the consequences of their political spending and look at it in terms of how the consequences align with their core values and positions. This is what our latest report, Collision Course: The Risks Companies Face When Their Spending and Core Values Conflict and How to Address Them, examined.  It laid out how vulnerable companies are to serious reputational and business risk if political contributions or their outcomes, or both, are perceived to be at odds with company core values and positions. This can affect a company’s relationship with customers, employees and communities. This is especially the case when companies outsource their spending by giving to third party groups such as trade associations, 527 political committees, many of which are active at the state level, or “social welfare” organizations, also known as 501c4s. Companies lose control over how their money is used but they are still associated with the recipients and results and bare the risk. Fortunately, CPA is finding this proxy season that companies are becoming more sensitive to this and are using the policies they have put in place to become more cautious and careful [about spending decisions]. 
MK: Other than greater disclosure, what else has changed since 2003 that continues to make this a critical issue for companies? 
BF: The rise of social media as a force to be reckoned with. Social media has changed the dynamic. Companies have much to fear if they make a misstep or if a contribution is perceived as controversial. Within seconds, it can explode on social media into a corporate crisis.  
MK: What got you interested in political disclosure and develop such a passion for your work? 
BF: I came into Washington during the Watergate scandal. I covered the impeachment debate in the House Judiciary Committee and enactment of the 1974 Federal Election Campaign Act [which forms the basis of current federal campaign finance law] for Congressional Quarterly. I kept an eye on money in politics as a journalist and as chief investigator for the Senate Banking Committee and a senior aide to several House members. In the House, I was fortunate to be involved with leadership politics which gave me insights into how Congress really worked. I also developed a close friendship in the early ‘80s with Karl Sandstrom, then the election counsel in the House, who co-founded the Center with me. Karl was later named a member of the Federal Election Commission.
MK: Any final words?
BF: In the first 16 years of the Center, we have laid a very strong foundation that has made corporate political disclosure and accountability the norm. That is a significant accomplishment. Now we are building on that foundation to get companies to pay much greater attention to the broader risks posed by political spending, their responsibility to address those risks, and the need to adopt policies to carry this out. This is in line with the emphasis many companies are placing today on being responsible corporate citizens.
To learn more about Bruce and the Center for Political Accountability, go to https://politicalaccountability.net/ or follow them on FaceBook.

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