An Election Year Means Boards Face Increased Risks From Political Issues

In an election year, political views may hold greater importance to shareholders and therefore present greater risk to a company’s bottom line. Will shareholders only invest where their political views are being served? Corporate boards may need to determine whether public disclosure of certain political and social views is in the long-term best interests of the company. The company’s brand and reputation, its relationship with workers and its ability to generate future revenue are all at stake.

According to Proxy Preview, which tracks shareholder votes, shareholder interest in greater disclosure of corporate campaign contributions and lobbying is on the rise. This year, 14 resolutions on political activity received majority support when voted on—the most of any ESG category. Proposals from Netflix, Norfolk Southern Corp. and GEO Group received greater than two-thirds support at their annual meetings this year.

With issues such as voting rights, gun control, abortion, LGBTQ rights, climate change and racial justice contributing to a hyper-charged political atmosphere in the United States, corporate boards may find themselves under greater pressure from shareholders to disclose where company leadership stands on these controversial subjects. We’ve already seen companies such as Bank of America, Cigna and Hewlett Packard publicly announce that they will cover the cost of travel for employees who work in anti-abortion states who want to seek abortions in the wake of last month’s Supreme Court decision overturning Roe v. Wade. Such announcements send a message about where the company stands on that issue and answers an obvious question employees working for the company want to know about medical coverage. Other political situations cannot be dealt with so simply.

When shareholders inquire about political contributions and lobbying, they generally want to know that a company is supporting candidates and causes that align with their core beliefs. It’s difficult to make everyone happy in this circumstance, but companies shouldn’t ignore investors. They should provide a response that is as transparent as possible and shows a level of integrity. Corporate boards can accomplish by doing the following:

• Support candidates and causes that align with the company’s core values. If corporate leadership supports candidates and causes that align with the company’s traditional values, those decisions should be overwhelmingly supported by shareholders who have bought into what the company represents. For example, shareholders would likely expect a “green energy” company to contribute to candidates and causes associated with climate change legislation. There would be little reason to hide those decisions from shareholders because they are in line with the company’s business goals and values. Shareholders can’t complain too much if you hold true to what the company has been from the start.

• Assign board members or create an advisory committee to monitor political issues that might have material impact on the company. Sometimes it is difficult to foresee how a social issue might explode into a political firestorm. However, now that ESG issues have become a major consideration for boards, directors must find ways of being better prepared for the unexpected. Someone at the company must be able to create positive relationships with employee groups, local and international communities, and industry leaders so that the company has some idea of the social issues that are most important to constituencies connected to the company’s business. The wrong reaction to a social issue could create backlash among consumers or cause distrust with current and potential employees—both of which can have an impact on company profits. Having a team of individuals to get out in front of or find solutions to political issues can avoid a major embarrassment. This group should suggest strategies to help the company manage any challenges connected with political contributions and lobbying.

• Craft a sensible political disclosure policy that is in line with what other firms have done. There are several political disclosure resolutions that have passed in recent years. Use those proposals as a guide to construct a political disclosure policy that your board can live with.