The January 6 riot at the Capital building may have become the tipping point for business and their involvement in politics. Many CEOs have been very critical about Government’s response during the past 4 years to such societal issues like BLM, climate change and the Covid-19 pandemic, but their public reactions have been limited. Their attitude was to not take any action unless their corporate business model or values were directly affected. However the refusal by Republican leaders to accept the Presidential election results and the insurrection on 1/6 have caused many CEOs to finally do something tangible that reflects their brand values and decisions on political donations.
Trust In Business Growing
People increasingly perceive business as the most trusted institution and best equipped to address societal challenges. The most recent 2021 Edelman Trust Barometer shows:
- Business is the only institution perceived as both ethical and competent (versus NGOs, Government and Media), with the highest trust level of 61%
- 86% of people expect CEOs to publicly speak out on social issues
- 68% felt CEOs should step in when Government doesn’t fix these social problems
The reaction to the assault on the Capital was overwhelmingly negative by large companies. The results of a poll after this riot by Jeffrey Sonnenfeld from the Yale School of Management of 40 top corporate executives, albeit a small sample, is indicative of the potential fall-out by business and possibly the future role of business in politics:
- Did President Trump help incite last week’s violent attack on Congress?
- Yes: 100 %
- No: 0 %
- Should President Trump be impeached and removed from office?
- Yes: 96%
- No: 4%
- Should business PACs and trade associations cut off donations to legislators who aided sedition?
- Yes: 100%
- No: 0%
- Should business halt all political donations?
- Yes: 42%
- No: 58%
The Future Of PAC Donations
Some political journalists believe business has become the 4th branch of Government in light of their political donations and increasing influence on public opinion. Hundreds of companies announced a pause of any contributions to the 147 Congress representatives who rejected the Electoral College results, including leading companies like Wal-Mart, Disney, Coca Cola, JP Morgan and Microsoft. These donations can be significant; in the 2020 election, more than 2,000 super PACs spent $2.1 billion.
This emerging role of business in politics and their financial clout via super PACs has been a contentious issue ever since the Supreme Court passed the Citizens United case in 2010, giving corporations a First Amendment right to speak politically, – i.e. using money. While this act set theoretical limits on spending, super PACs have created ways to anonymously raise money undetected (e.g. via social welfare nonprofits), referred today as “dark money”.
With the evolving transition from shareholder to stakeholder influence, people want more transparency on the sources of these super PAC donations.. A key question for companies is how to support candidates on issues important to the company without endorsing other themes that go against its corporate brand values. Even shareholder customers are beginning to recognize the risks in their investments and are calling for greater disclosure of political spending. For example, Morgan Stanley has seen pushback from some of its top wealth management clients, threatening to take their business elsewhere. The brand reputation and trust for such financial institutions is essential for success.
The big question is whether this pause in donations and the growing engagement of business in addressing societal problems is just a temporary reaction to this insurrection, or a permanent transition to satisfy increasing demands of all stakeholders. At stake is not only a company brand reputation, but also their role for safeguarding key elements of our democracy (e.g. integrity of our elections).
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