Amid social shifts, policy uncertainty, and growing partisan divides, companies face increasingly complex decisions related to stakeholder relationships and business strategy. This changing environment reinforces the importance of responsible governance around political spending as companies navigate a path forward.
A recent mini-workshop from the Corporate Political Responsibility Taskforce at the Erb Institute presented tools and information from The Center for Political Accountability that companies can use as a framework for political spending to help them manage firm-level and systems-level risk. Elizabeth Doty, Director of the CPR Taskforce, was joined by:
- Bruce Freed, President and Co-Founder, The Center for Political Accountability
- Jeanne Hanna, Vice President for Research, The Center for Political Accountability
- Rex Wackerle, former Vice President and Director of Federal Affairs for Prudential Financial
Freed and Hanna spotlighted the CPA-Zicklin Guide to Corporate Political Spending and Model Code of Conduct for Political Spending — along with several recent research studies — and showed how the CPR Decision Tool & Executive Conversation Guide helps in applying the Model Code. Wackerle shared an insider perspective on establishing corporate governance processes and frameworks to help companies navigate risk in an increasingly politicized environment.
Using the CPA-Zicklin Guide to Political Spending
The Guide to Corporate Political Spending Provides a Risk Management Checklist: Many corporate leaders are realizing the need to proactively manage risks related to their political spending. CPA-Zicklin Guide to Corporate Political Spending provides a checklist to help companies prepare for a new level of risk management and the complexity of overseeing third-party spending. Freed said. “Companies really need to know where their money ends up and what consequences it enables,” he said. “The Guide helps them do this, and lays the foundation for the [Model Code] framework.”
A New Kind of Risk Management: While companies have traditionally viewed political contributions transactionally — as a way to gain access to and build a relationship with a member of Congress — the days of that type of “business-as-usual” political spending are over, Freed said. “The risks that we have seen over the past decade or more really demand that companies look much more broadly at how they approach their political spending and at the consequences of it internally and externally,” he said. “They [need] a framework for approaching their spending and applying the Erb Principle of responsibility as they engage in … the political process.”
The swirling issues and potential impact of political distrust, cynicism, and polarization are combining to create a “tipping point” for business leaders, Doty said. “Addressing the systemic impacts is now unfortunately aligned with near-term risk management — especially showing that you’re not part of the problem and you’re part of the solution,” she said.
Third-Party Spending Adds Complexity to Oversight: Decisions about political donations can be especially fraught when they involve third-party groups, such as trade associations and political action committees, or PACs. Through third parties, “the company’s money can be spent to support any number of candidates, often without the company’s direct knowledge,” Hanna said.
That’s why the CPA Guide to Corporate Political Spending spotlights risks related to third-party spending in a contentious political climate, Hanna said. She noted that since 2010, corporate treasuries have donated $1 billion to six partisan groups known as “527 organizations,” major funders of state races across the country. “When companies give to these groups, their brands and reputations are associated with the actions not just of the groups but the politicians these groups help to elect,” Hanna said.
The Model Code of Conduct as a Framework to Manage Risk and Meet Shareholder Expectations
Shareholders Expect Companies to Have a Code of Conduct for Their Spending: Recent data shows that shareholders are also concerned about the risks associated with political spending, and the vast majority expect companies to have a code of conduct, Freed said. A survey of retail shareholders that CPA commissioned in July 2024 found that:
- 87% of the respondents said they believe companies should have a code of conduct for political spending.
- 79% said that they would have more confidence investing in a company that had a code of conduct to govern its political spending.
- 77% said that companies need to consider the impact of their political spending on the broader society.
Introducing the CPA-Zicklin Model Code of Conduct: Fortunately, the Center for Political Accountability created the CPA-Zicklin Model Code of Conduct for Corporate Political Spending to help assure shareholders and other stakeholders that they are actively overseeing their spending to avoid the risks outlined in the Spending Guide, and that they are considering their broader interests and impacts.“The Model Code provides a framework for approaching political spending,” Freed said. “The key thing there is corporate political responsibility governance. This really is a governance tool.”
How the Erb Institute’s CPR Decision Tool Firms Apply the Model Code: The Model Code has 12 provisions to help companies manage firm and systemic risks by aligning with the elements of the CPA-Zicklin Index and reviewing their third-party spending. However, as Freed highlighted, the Model Code prompts management to consider broader risks through its Provision 12, which says: “The board of directors shall, independent of this review, consider the broader societal and economic risks posed by the company’s political spending.” This is where the Erb Principle for Corporate Political CPR of Responsibility can help, as managers consider broader questions and judgment calls.
In particular, Hanna showed how managers can use the CPR Decision Tool & Executive Conversation Guide to review Provision 12 of the Model Code. “This tool highlights the specific norms and systems that companies desire to support – or avoid harming – through their political spending.”
Hanna showed how the CPR Decision Tool guides companies step-by-step through the application of the Erb Principles in their decision-making process. “Step Three really helps companies articulate their options when it comes to managing their political spending as well as weigh the impact of that spending on their commitments to accountability and responsibility and other issues as corporate citizens,” Hanna said. “A conversation that engages with these steps and other elements of the CPR Decision Tool will help Model Code companies consider the broader harms and really lends weight to the conversations that we hope they are having as part of their alignment with Provision 12 of the Model Code.”
Discussion with a CPA-Zicklin Trendsetter: To understand how executives who recognize the need for risk management around political spending help their companies implement this kind of improved governance, Rex Wackerle shared his experience as Vice President and Director of Federal Affairs for Prudential Financial, a long-term CPA-Zicklin Trendsetter.
Moving Political Risk to the Top of the List: Through more than 30 years of federal affairs work at Prudential and Bank of America, Wackerle witnessed a sharp increase in political risk as a critical factor, alongside regulatory and legislative issues. Over the last two decades, societal and political issues have contributed to growing external and internal pressures and rising uncertainty related to instability risk on a company — what Wackerle calls a “Wild West environment.” This includes the rise of social media, harsher partisan divides, growing economic and social inequality, activist shareholder groups, and changing rules for political giving. “The rules and the goalposts keep moving and changing, and the risk keeps increasing,” he said. “The one thing that business likes is certainty, and we don’t have that now.”
Formalizing the Process Over Time: As a CPA-Zicklin Trendsetter, Prudential was consulted during the development of the CPA Guide to Political Spending, which Wackerle said can be especially helpful for corporations that similarly face numerous requests for political spending and contributions. He noted that it’s especially important to know where the money ultimately will be spent. “You really have to dig down and ask some very difficult questions,” he said. “One of the greatest frustrations was trying to find out where this money would ultimately end up. Many times, we just said no.”
The rise in political risk raised new considerations for Wackerle’s work. “I found myself reaching out to more aspects of the company — corporate communications, compliance — and including them in the decision-making process,” he said. “There was no real formal process at first, just lots of meetings and discussions.”
They took steps to formalize a more robust process when numerous requests for 2016 election donations provided the impetus to establish a process and framework for these types of decisions, he said. “We didn’t want to pick between candidates … that quandary gave me my opening to begin developing a more formalized process,” Wackerle said. They formed a committee that included representatives from legal, compliance, government affairs, inclusive solutions, senior management, corporate communications, and the corporate secretary.
Considering Long-Term Business Resilience: What’s most important is making decisions with a long-term view of business resilience and systemic stability, Wackerle said. “We were concerned as all businesses should be about the strong rule of law. If you don’t have a strong rule of law — and that stems from a democratic system that is fair and people understand — you’re in trouble because then political favoritism creeps in,” Wackerle said.
Get Tools and Resources to Help Reduce Corporate Risk
This Follow-Up Action Guide from the mini-workshop features links to a recording of the event, plus resources and tools mentioned during the discussion, including:
- CPA-Zicklin Guide to Corporate Political Spending
- CPA-Zicklin Model Code of Conduct for Corporate Political Spending
- The Erb Institute’s CPR Decision Tool & Executive Conversation Guide
- The Erb Institute’s Principles for Corporate Political Responsibility
- CPA’s new Barbara & Morris Pearl 527 Interactive Database (designed to help companies and other stakeholders navigate the complexity of 527 donations and spending)