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GPSolo Magazine

GPSolo September/October 2024: Election Law

Corporate Political Strategies: Navigating the Intersection of Business and Public Policy

Christopher Kyle Gober and Eric Wang

Summary

  • This article provides an overview of common political activities conducted by corporations, including a summary of accompanying compliance issues that arise from each effort.
  • By employing strategies ranging from direct financial contributions to more subtle forms of advocacy and lobbying, corporations can create a favorable environment for their business interests.
  • Because many states and local jurisdictions take a very broad view of what constitutes lobbying, many corporations unknowingly implicate lobbying regulations.
Corporate Political Strategies: Navigating the Intersection of Business and Public Policy
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Recognizing the impact that legislation and government regulations have on their bottom line, many corporations have long recognized the need to influence public policy through politically related activities. Historically, these activities have taken a variety of forms, including joining and supporting trade associations, lobbying, the hiring of former public officials, and direct campaign contributions by executives and corporate political action committees (PACs).

In addition to these traditional activities, corporations are increasingly using more innovative avenues to shape public opinion and influence public policy, such as non-electoral issue advocacy, grassroots and “grasstops” lobbying, and the utilization of Super PACs following the U.S. Supreme Court’s decision in Citizens United v. Comm’n, 558 U.S. 310 (2010). That decision, which effectively struck down a 1947 federal law and other state laws aimed at limiting the clout of corporations in elections, has permitted corporations to engage in the political process in a more robust manner.

Even when a company’s survival does not hinge on the passage of a single piece of legislation or the outcome of any one election, the reality is that new challenges emerge in the corporate sphere every day, whether they involve public policy, customer relations, labor issues, or a variety of other exigencies that can impact a business’s success. Thus, any corporation that is not employing or at least contemplating a robust political activities program as part of its overall corporate strategy may be missing opportunities to increase its bottom line or, at the very least, protect it. With that said, there is no denying the reality that at all levels of government, and increasingly within the boardroom itself, corporations must acknowledge the myriad rules and restrictions that govern such activities.

Below is a non-exhaustive list of common political activities conducted by corporations, including a summary of accompanying compliance issues that arise from each effort.

Making Campaign Contributions and Bundling

In some state and local jurisdictions, corporations can make political contributions directly to candidates and officeholders using the corporation’s general treasury funds. However, corporations are prohibited from doing so at the federal level and in many other state and local jurisdictions. Rather, corporations must first form a political action committee (PAC), raise voluntary personal (i.e., after-tax) contributions from executives and employees, and then make the political contributions from the PAC’s proceeds.

Although corporations cannot use corporate resources to engage in fundraising activities under federal law, company executives often engage in “bundling,” where an individual affiliated with the company collects contributions from multiple donors and presents them as a package to a candidate or political committee. This can amplify the influence of the company, as the bundled contributions can significantly increase the total amount given to a candidate, thereby gaining more access and influence.

Personal Political Activities of Executives

Many corporate executives are tuned in to the need to influence public policy through politically related activities, and they often agree to host fundraising events at their homes, call friends and business associates to drum up support and contributions for particular candidates, and make contributions from their personal funds. These types of activities do not occur in a vacuum and frequently involve the use of corporate resources, such as the company telephone, customer lists, and staff.

The scope of permissible and prohibited activities will vary depending on the applicable federal, state, or local laws, but corporations need to understand that such activities can violate a ban on corporate contributions or directly impact their business contracts. For example, violating a gift law could cause a corporation to be disqualified from obtaining government contracts. Making a political contribution (even using an executive’s personal funds) to certain state or local officials could cause a corporation to be “timed out” from managing a public pension fund or barred from doing business with state and local agencies.

Hosting Elected Officials and Candidates

An effective way of garnering and generating support for public officials and candidates, as well as increasing their awareness of the corporation, is to invite them for a site visit or to speak at a company meeting or event. Of course, such appearances should be structured carefully and vetted to ensure they do not violate any gifts laws, conflicts of interest laws, ethics rules, or campaign finance regulations. These restrictions could apply regardless of whether the person is an elected member of or a candidate for federal, state, or local office.

The rules for such events vary at a threshold level depending on whether someone is invited in an official or campaign capacity. Events featuring elected officials in their official capacity are treated as constituent events and are generally less regulated, although ethics rules still apply. By contrast, fundraising and other campaign events are generally more regulated.

At the federal level, corporations are broadly permitted to sponsor campaign events for federal candidates and officials with the corporation’s so-called “restricted class”—generally, executives, other higher-level personnel, and stockholders. Corporate-sponsored events with employees beyond the “restricted class” are subject to more regulation, such as a requirement that opposing candidates be given a similar opportunity to appear. Lastly, corporate-sponsored events open to those who are neither employees nor part of the “restricted class” are subject to the most regulation and generally must be paid for either by the candidate’s campaign or another permissible source (e.g., the corporation’s PAC or individual donors). The Federal Election Commission (FEC) also has quirky rules for the time frame in which different types of items (e.g., food versus personnel and meeting spaces) must be reimbursed.

Direct Lobbying

The word “lobbyist” can be taboo in many circles, with a connotation of smoke-filled back rooms and shady deals, but the dictionary definition from Merriam-Webster paints a much milder picture. “To lobby: to conduct activities aimed at influencing public officials and especially members of a legislative body on legislation.”

Even if a corporation does not hire a lobbyist or have a government affairs division, the fact remains that many different types of employees and company representatives interact with government officials, including local officials. And because many states and local jurisdictions take a very broad view of what constitutes lobbying and regulate activity that you would not ordinarily think of as lobbying, many corporations unknowingly implicate lobbying regulations.

For instance, some states regulate any attempt to gain the “goodwill” of a legislator, a subjective standard that can encapsulate innocuous interactions. Some states consider a company’s salespeople to be “lobbyists” if the company sells products to the government, and others will deem an individual who testifies at a legislative hearing on behalf of their company or industry to be a lobbyist.

The registration thresholds are more lenient under the federal Lobbying Disclosure Act. However, in-house employees may be required to register even under federal law if they make more than one lobbying contact and spend more than 20 percent of their work time and more than $14,000 in compensated time during a calendar quarter on lobbying activities.

In other words, it is extremely important for corporations to recognize that the definition of “lobbying” is what the applicable statute says, not what it means colloquially. By focusing on the specific legal definition, corporations will better understand how their various activities (as well as the activities of their employees and representatives) could be considered lobbying and avoid inadvertently tripping applicable laws.

Grassroots and Grasstops Lobbying

Corporations are increasingly engaging in grassroots and grasstops lobbying to influence public policy and shape public opinion.

Rather than conveying a message to legislators directly through traditional lobbying, grassroots lobbying entails identifying and mobilizing constituents to contact their elected officials concerning an issue. A successful grassroots lobbying effort can result in tens of thousands of telephone calls being placed to elected officials and thousands of individualized contacts with legislative offices to advocate regarding an issue.

Grasstops lobbying, on the other hand, entails identifying and mobilizing prominent community leaders to be an effective constituent-based advocacy group concerning an issue. For example, a common grasstops lobbying tactic is to ask such individuals to write an op-ed advocating the issue in their local newspaper. A goal of grasstops lobbying is to identify and mobilize the individuals to whom a public official cannot say “no.”

While these forms of indirect lobbying are not regulated under federal law, grassroots lobbying may trigger registration and/or reporting requirements in certain states and municipalities for sponsors of such campaigns. The regulation of grasstops lobbying is far rarer, but there are also certain jurisdictions whose lobbying laws may cover this practice.

Providing Gifts, Travel, and Entertainment

Corporations often consider giving valuable items to public officials when meeting with them. These items can range from something de minimis, such as a cup of coffee or company swag, to something more substantial, such as paying for a public official’s travel expenses to visit a corporate facility.

Bribery of public officials (i.e., giving something of value as a quid pro quo for official action) is universally and strictly prohibited at all levels in the United States. By contrast, providing unsolicited gifts, travel, and entertainment to public officials unconnected to any official action is generally permitted but subject to extensive regulation.

Federal, state, and local laws generally set different limits on the dollar value of items that may be given to government officials and employees. These laws also provide for different exceptions, such as for meals, refreshments, entertainment, travel, and lodging. Each jurisdiction can prescribe different circumstances under which such exceptions apply and even the specific types of food items and refreshments that can be given. Different restrictions also may apply depending on whether the person or entity giving the gift is a lobbyist, lobbyist employer or client, or government contractor.

Beyond restrictions on what may be given, reporting requirements may also be triggered. Public officials are commonly required to file personal financial disclosure reports, and companies that provide gifts should weigh the optics of showing up on officials’ personal financial disclosures if those gifts must be reported. Some jurisdictions also require the person or entity providing gifts to public officials to file their own reports separately. Companies with registered lobbyists are also frequently required to disclose gifts they provide to public officials on lobbying reports.

Making Independent Expenditures and Super PAC Contributions

In 2010, the U.S. Supreme Court issued the landmark Citizens United decision that fundamentally altered the political landscape by providing new opportunities for corporations to participate in campaigns. In the case, the Court held that the First Amendment guarantees all corporations the right to spend unlimited amounts of money from their general treasuries on independently produced advertisements and communications that expressly advocate the election or defeat of candidates. The case has often been credited for the creation of so-called Super PACs.

According to the Center for Responsive Politics, as of August 15, 2024, Super PACs and other outside groups have poured about $1.1 billion into the 2024 election cycle—nearly twice what similar groups spent over the same period in the 2020 presidential election cycle, when independent expenditures hit an all-time record.

While such Super PACs have provided corporations an additional avenue to influence public policy through politically related activities, corporations that are considering contributing to a Super PAC should first understand the legal constraints placed on the entity, the disclosure laws that apply to the contribution, and the potential adverse impact such a contribution could have on customer and shareholder relations.

Utilizing 501(c) Nonprofit Organizations

Corporations donate to 501(c) nonprofit organizations to influence public policy and elections indirectly. These nonprofits include:

  • 501(c)(3) charitable/educational organizations. These organizations are prohibited from engaging in any political campaigning but can educate the public and policymakers on issues relevant to the corporation. So-called think tanks are a common 501(c)(3) vehicle through which corporations seek to influence policy.
  • 501(c)(4) social welfare organizations. These organizations can engage in political activities, provided they are not the organizations’ primary activity. They can also accept unlimited contributions without disclosing donors, making them attractive for corporate influence.
  • 501(c)(6) trade associations. These associations represent industries and can engage in lobbying and political advocacy on behalf of their members, including corporations.

Creating a Favorable Environment

Through these diverse strategies, corporations can play a significant role in shaping public policy and the political process. Their influence extends from direct financial contributions to more subtle forms of advocacy and lobbying, all aimed at creating a favorable environment for their business interests.

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