Corporate Political Activities

Transcription

1 Corporate Political Activities What Corporations Need to Know in a Very Political Year September 2012 mckennalong.com

2 Understanding the Sea Change Citizens United Represents Prior to Citizens United Corporations permitted to engage in issue advocacy but not electioneering communications directly advocating the election or defeat of federal candidates We have all seen those issue ads Issue advocacy, Wisconsin Right to Life, and puppies The holding in Citizens United Corporations and Unions recognized to have a first amendment Right to make expenditures for direct advocacy for and against federal candidates any medium, any time Any state law prohibiting such speech is also unconstitutional Expenditures must be independent not coordinated with any candidate or party

3 Understanding the Sea Change Citizens United Represents ALL Corporations and Unions recognized to have a First Amendment Right to make expenditures for direct advocacy for and against federal candidates Direct public communications expressly advocating the election or defeat of a candidate ( Vote for Senator X ) Any form of issue advocacy ( Card Check, Cap and Trade, healthcare, etc) Any format TV, radio, mail, internet, internal intranet, billboards, etc.

4 Understanding the Sea Change Citizens United Represents Disclosure requirements of campaign finance laws upheld FEC forms require disclosure of independent expenditures advocating election or defeat of a candidate Electioneering Communications also must be disclosed TV, radio communications $10,000 expenditures and all $1,000 contributors State disclosures also may apply Disclaimer Requirements Upheld Paid for by Corporation X. Not authorized by and candidate or candidate committee some states call for disclosure of addresses and party responsible for communication The jury is absolutely still out as to whether third party tax exempt groups can be used to shield donors from scrutiny

5 The World After Citizens United Corporate contributions to federal candidates and party committees are still prohibited Expenditures coordinated with candidates or parties are no longer independent and are treated as a contribution to the campaign Foreign Nationals are STILL barred from participating in corporate political expenditures and PAC contributions

6 Understanding the Role of Trade Associations and Nonprofits Super PACs After Citizens United, several groups (including Stephen Colbert) obtained permission from the FEC to form fully federal PACs taking unlimited corporate, union and individual funds for the purpose of running independent expenditures. Other tax exempt organizations 527 political organizations, 501(c)(4) s (social welfare organizations), 501(c)(5) s (unions), 501(c)(6) s (trade associations) Generally may use corporate dues to advocate and lobby Other than 527 s, generally do not need to disclose donors if: funds not used for lobbying communications fund not contributed specifically for independent expenditure

7 Understanding Super PAC Disclosure Super PACs must follow the same reporting requirements as traditional PACs. This includes filing statements of organization and regular financial reports detailing most contributions and expenditures. In the Commonsense Ten AO, the FEC advised Super PACs to meet the same reporting obligations as PACs known as non-connected committees (e.g., independent organizations that are not affiliated with corporations or labor unions). These reports are filed with the FEC and made available for public inspection in person and/or on the Commission s website. Super PACs and other political committees must therefore regularly file reports with the FEC summarizing, among other things: total receipts and disbursements; the name, address, occupation, and employer of those who contribute more than $200 in unique or aggregate contributions per year; the name and address of the recipient of disbursements exceeding $200; and the purpose of the disbursement.

8 Understanding Super PAC Disclosure Reporting timetables for traditional PACs, which also appear to apply to Super PACs, depend on whether the PAC of Super PAC s activities occur during an election year or non-election year. During federal election years, PACs and Super PACs may choose between filing monthly or quarterly reports, but are nevertheless required to file pre- and post-general election reports and year-end reports. Those entities choosing to file quarterly must also submit pre-primary reports if they make previously undisclosed contributions or expenditures in connection with any primary and/or runoff election. During federal non-election years, PACs and Super PACs may opt to file FEC reports monthly or semi-annually to cover the two six-month periods from January to June and July to December. In addition to reporting receipts and disbursements like traditional PACs, Super PACs have supplemental reporting requirements associated with the independent expenditures (IEs) they make. Such reporting is governed by the following disclosure standards: Independent expenditures aggregating at least $10,000 must be reported to the FEC within 48 hours of being made; Independent expenditures of at least $1,000 made during periods immediately preceding elections must be reported to the FEC within 24 hours of being made; IE reports must include donor information for those who contributed at least $200 to the Super PAC (the nature of this disclosure requirement is the subject of much dispute, however, particularly as applied to un-earmarked donations and donations made by non-profit entities); IE reports must include the name of the candidate targeted by the particular expenditure and notice of whether the expenditure supported or opposed the candidate.

9 Congress: Tracking the Legislative and Regulatory Response to Citizens Unitedin Real Time H.R. 5175: DISCLOSE Act 2010 would have amended the Federal Election Campaign Act of 1971 to prohibit foreign influence in Federal elections, to prohibit government contractors from making expenditures with respect to such elections, and to establish additional disclosure requirements with respect to spending in such elections, and for other purposes. H.R. 2517: Shareholder Protection Act of 2011 amend the Securities and Exchange Act of 1934 to require shareholder authorization before a public company could make certain political purposes. H.R. 2728: Corporate Politics Transparency Act of 2011 amend the Securities and Exchange Act of 1934 to include a disclosure to shareholders of public companies of any expenditure made by the company in support or opposition to any candidate for Federal, State, or local public office.

10 Tracking the Legislative and Regulatory Response to Citizens Unitedin Real Time FEC: On January 26, 2010, the James Madison Center for Free Speech submitted to the Commission a Petition for Rulemaking to expand disclosure requirements under 11 CFR 114 to include disclosures for all money (direct and indirect) used for political activity by corporations and labor unions. To date, FEC has promulgated NO regulations re: Citizens IRS: Several groups have called on the IRS to investigate where organizations recognized as tax exempt under different sections of the IRS code are in violation of their status and to amend existing rules regarding campaign activities by section 501(c)(4) organizations FCC: On March 22, 2011, the Media Access Project filed a petition seeking to have the FCC re-interpret it's regulations to require that groups running political ads disclose the true identity of the sponsors of their broadcast messages as well as their top donors SEC: On August 3, 2011, a committee of 10 academics petition the SEC to develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities.

11 Options for What to Disclose Company contributions to candidates and political parties; individual or aggregate Company contributions to PACs and political committees Contributions to 527 organizations Independent expenditures Expenses to influence ballot measures Issue advertising and voter education

12 Options for Disclosure (continued) Large contributions to trade associations and the portion used for political activity; limits on association s use of dues paid Lobbying expenses Voter education and advocacy Contributions to 501(c)(3) organizations Contributions by company-affiliated PACs Contributions by corporate executives

13 Other Possible Disclosures The link of corporate strategy to political activities and spending Who makes decisions about political activity and how those decisions are made What permitted activities the company does not engage in and why Relationships with trade associations and restrictions on use of dues paid

14 Setting Company Policy Define the role of the board of directors What person or group is responsible for governance and oversight Who is responsible for risk assessments What political activity is permitted and what is prohibited as a matter of policy Who is authorized to make spending and other decisions for permitted activities Who is responsible for required reporting How and where will spending and other activities be disclosed

15 Define the Role of the Board Understand risks and approve policy and process Provide oversight through periodic reports Don t micro-manage spending decisions Diverse board will normally have multiple points of view that can t easily be reconciled Spending decisions often must be made quickly Trust that the policy and established processes will link spending decisions to business strategy, not personal interests of decision-makers Use a board committee or lead director as the decision-maker for the board on decisions beyond executives delegated authority

16 Assign Governance and Oversight Cross-functional steering committee of senior executives works well Composition depends on nature and extent of activities Broader representation will reduce risks and help assure that spending decisions are linked to corporate strategy Set policy objectives and initiatives Specify the approval process Monitor compliance Interact with the board of directors

17 Set Limits of Authority Who has authority and how much Explicit delegations of authority are an important internal control Limit the number of executives who can authorize spending Limit the amount of money they can spend Set different limits for different categories based on practical needs and risk assessment Balance control and flexibility; make sure the rules are workable

18 Other General Principles No pressure for employees to participate No direct or indirect reimbursement for employees contributions No penalty for employees who don t participate No contribution or expenditure to motivate or reward public official Spending must be linked to company strategy, not personal views or motives of employee

19 Questions? Stefan Passantino McKenna Long & Aldridge LLP