When Corporate Strategy Meets Election Spending

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If you've been reading about political contributions this election cycle, you may think it's a free-for-all. Since federal law now permits corporations, special-interest groups, and private citizens to give unlimited amounts of money and remain anonymous, the public may never know whom politicians are beholden to. Advocacy groups working on behalf of the candidates pocket the checks.

But the system is not perfect for the influence-peddling crowd. Anonymity is not guaranteed. Donations are often discovered eventually in shareholder reports or by talkative staffers. Earlier this summer local beat reporters found that both 3M and Best Buy had given at least $100,000 each to support conservative candidates. And Target was revealed to have given as much to Republican causes. As a result, members of the gay community, who were angry that the corporation gave the money to Republican Tom Emmer, an outspoken critic of same-sex marriage, boycotted the retail chain.

The bad PR that comes with being found out is enough to give some businesspeople pause before reaching for their checkbooks. A number of them are even choosing to sit on the political sidelines rather than risk alienating customers.

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This year's Citizens United Supreme Court decision made unlimited campaign contributions to advocacy groups (not candidates) by anonymous donors perfectly legal. But the green light to operate covertly has lent an air of suspicion to the process, giving the appearance of impropriety, even where there isn't any. "It's easier to defend your actions when you're public about them," says Marina Ein, who handles crisis public relations with her D.C. firm, Ein Communications. "When you're not controlling your message, it's easier for it to get away from you."

To companies, the value of appearing ethical could actually outweigh what's gained from supporting candidates or advocacy groups, say PR experts. When it comes to getting something in return, such as favorable regulations or tax policies, donating to candidates can lead to more serious internal disagreements. A 2009 study from the University of Minnesota found that an increase in political donations of $10,000 is associated with a 10th of a percent drop in annual excess returns. Corporate donations, the researchers found, often diminish trust among shareholders.

When given the opportunity to make large, untraceable, and, at times, strategic political donations, companies including Dell, Colgate-Palmolive, and Microsoft have chosen to operate in daylight, maintaining strict policies against corporate donations of any kind. "Microsoft recognizes the increasing interest of U.S. public-company shareholders in establishing greater transparency of corporate political contributions," according to Peter Wootton, a spokesman for Microsoft.

Bill de Blasio, the public advocate of New York City, is hoping the idea will catch on with more companies. Earlier this year he launched a campaign on his official Web site and in a series of meetings to try to persuade large corporations to promise to stay out of the political money game. And he encouraged those who were determined to give to be public about their activities. Last month he scored a coup by getting three financial powerhouses—Goldman Sachs, Morgan Stanley, and JPMorgan Chase—to amend past policies to keep their money out of the 2010 elections. With billions in their general funds, any of them would have been able to substantially tip the scales of virtually any congressional or Senate race with the equivalent of pocket change. De Blasio says he argued that donating wasn't in their interest.

The blowback from the public can get ugly. Last week the U.S. Chamber of Commerce was struck with attacks from President Obama, who alleged that even though the pro-business group said it was following the law, its undisclosed donors—potentially from overseas, he said—could be interfering with America's democracy. The chamber hit back hard in a statement, saying foreign donations are corralled separately from domestic funds, which are used for election materials. Crossroads GPS, a conservative-leaning group also in the news for biting ads against Rep. Joe Sestak, Sen. Michael Bennet, and Senate candidate Jack Conway with donations from undisclosed donors, told NEWSWEEK that the group was "following the law," and declined to respond to questions about whether donations might dry up if full donor lists were made public. For its part, a Target spokesperson told NEWSWEEK that the company "believes that engaging in civic activities is an important and necessary element in operating a national retailing business."

Overwhelmingly, the beneficiaries of the new federal law have been Republicans. Precise numbers, of course, are elusive, but according to the Center for Responsive Politics—which tracks spending by candidates, campaigns, and advocacy groups—95 percent of spending from the top 20 advocacy groups have come from the top six, all groups with banal names that tend to lean right, such as the 60 Plus Association ($4,707,629 in expenditures), the American Future Fund ($3,619,044), and Revere America ($1,071,463). Traditionally left-leaning groups are on the list too, but with significantly lower expenditures this cycle, including the League of Conservation Voters ($160,714), NARAL Pro-Choice America ($57,170), and the National Wildlife Federation Action Fund ($49,265).

De Blasio, the public advocate, and his staff of number crunchers estimate that $80 million has already been spent by groups with undisclosed donors this election cycle—nearly five times more than in 2006—and with three weeks still remaining, when the spending is typically the most concentrated. This week, de Blasio will send out letters to the top-spending advocacy groups demanding they disclose donations to prove they're acting honorably. "If they're not [willing to disclose], they clearly have something to hide," he says. "No one is going to go along with what they're doing lightly. We're going to make disclosure a constant drumbeat."

If this cycle is a challenge, think of the next one, when the presidency will be at stake. "I think 2010 is a prelude to what will come in 2012," says David Magleby, a political scientist who specializes in campaign-finance law at Brigham Young University. "The groups are using this year to see what will be acceptable two years from now." Fortunately, for those who like knowing where the money comes from, some groups have already decided what's not acceptable to them.