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Even a small donation to the sedition caucus can cause blowback for corporate donors. But shareholders may not know which companies are supporters of which politician since there are so many ways for corporations to spend their money in secret through dark money.
While corporate political spending can be small relative to other expenditures made by a multinational publicly traded corporation, this is not the same as saying that the money that goes into politics is not material to investors. Materiality is about more than size. Materiality goes to the significance of corporate behavior to investors.
Corporate political spending is material to current and future investors in part because it carries inherent reputational risk. Supporting the wrong politician with corporate dollars can boomerang on the corporation in dramatic fashion. Target still gets grief for political contributions it made a decade ago. And in the boycott-happy culture of social media, corporations are often facing boycotts and other shunning for their actions.
The most recent lesson in the materiality of corporate political spending is the behavior of publicly traded companies after the January 6th insurrection.
For those fighting dark money in American elections, the Biden administration presents an opportunity to turn the lights on corporate spending. This change is a long time coming. Back in 2011, a bipartisan group of corporate law professors petitioned the Securities and Exchange Commission (SEC) for a new rule that would require transparency from publicly traded companies’ spending in American elections. Over a million public comments have been received at the SEC in support of such a rulemaking. And yet, even during the Obama administration, the SEC apparently did not see the urgency for protecting investors from this risky type of spending.
Needless to say, during the Trump administration, dark money had a friend in the Oval Office as well at the tops of many agencies, and once again the SEC did not move to bring sunlight to corporate political spending. Instead, during the Trump administration the SEC cut back on shareholder protections by revising Rule 14a-8 to make shareholder proposals more difficult to make on corporate proxies. One of the top topics in shareholder proposals that had been offered by investors between 2010 and 2020 were ones about corporate political spending in elections as well as corporate lobbying expenditures.
The Biden administration could bring the dawn of a new day at the SEC. Gary Gensler, who has been nominated to be the new Chair of the Securities and Exchange Commission, said during his confirmation hearing in the Senate that the SEC might make corporations disclose their political spending. This comes eleven years after Citizens United which allowed corporations to spend unlimited amounts of money in American elections.
As Politico reported, “Sen. Bob Menendez (D-NJ) asked the nominee for the SEC’s chair role whether political contributions by publicly traded companies represented ‘material’ information to investors and should be disclosed. In response, Gensler said there was growing investor appetite for the information.”
The complaint that corporate political spending is not “material” to investors is an argument that the U.S. Chamber of Commerce made against the 2011 request for a new SEC rule in a letter to the Commission. As the Chamber argued, “The Commission lacks the statutory authority to require these disclosures. Contrary to the petition’s assertion, the Commission’s focus has been on disclosure of material information—and there is no basis whatever (sic) for finding this information material, either on quantitative or qualitative grounds.” (The Chamber is one of the biggest dark money spenders in U.S. elections and the Chamber recently stated that it would continue to fund sedition caucus members).
In the aftermath of the Jan. 6 insurrection, many publicly traded companies stopped their corporate PAC donations to the sedition caucus of Republican Senators and Republican House members who objected to the lawful electoral college votes of swing states for Joe Biden.
For instance, Amazon said it would stop supporting the sedition caucus specifically. A few examples include: Amazon.com’s PAC spent $2 million in the 2020 election nearly evenly split between Democrats and Republicans. Best Buy similarly said it would stop supporting the sedition caucus. Best Buy’s PAC spent $434,000 in 2020 evenly split between Democrats and Republicans. Mastercard took a similar position. Mastercard Inc’s PAC spent $329,000 skewed heavily towards Republicans over Democrats.
In the 2020 election the Charles Schwab PAC had spent roughly $555,000 nearly evenly split between Democratic and Republican candidates. Schwab’s PAC gave to 75 House members including $10,000 to Congressman Blaine Luetkemeyer (R-MO); $10,000 to Congressman Lee Zeldin (R-NY); $7,500 to Minority Leader Kevin McCarthy (R-CA); $5,500 to Congressman Warren Davidson (R-OH); $5,000 to Congressman Ted Budd (R-NC); $5,000 to Congressman Roger Williams (R-TX); $4,000 to Congressman Steve Scalise (R-LA); $3,500 to Congressman Barry Loudermilk (R-GA); $2,500 to Congressman Lance Gooden (R-TX); $2,500 to Congressman John Rose (R-TN); $2,000 to Congressman William Timmons (R-SC); $1,500 to Congressman John Carter (R-TX); $1,500 to Congressman Devin Nunes (R-CA); $1,500 to Congressman Bill Posey (R-FL); $1,500 to Congressman Jason Smith (R-MO); and $1,000 to Congressman Frank D Lucas (R-OK).
All 16 were members of the sedition caucus. After this experience, Charles Schwab with a market cap over $100 billion decided to close its PAC entirely.
Meanwhile AirBNB said it would pull its funding from the sedition caucus. AirBNB’s PAC which has never spent in a federal election before 2020 only spent $32,000 in the 2020 election and donated to 14 House Members but it included $1000 for Congressman Steve Scalise (R-LA), $1,000 for Congressman Ron Estes (R-KS) and $1000 for Congressman Michael Burgess (R-TX) who all objected to the Biden electors. They also gave $2,200 to Senator Rick Scott (R-FL), another sedition caucus member. In the grand scheme of AirBNB’s value of $100 billion, this $5,200 in political spending wouldn’t matter if it was just about the size of the spending. But the taint of the sedition caucus was enough for AirBNB to take a pause on political spending. It was clearly material to whomever is running the government relations shop in the corporation.
Even though the money involved was small relative to the size of these corporations, corporate managers should see the clear downside of being publicly associated with the sedition caucus. Every political expenditure may not be so stark. But at the very least investors should be told how a corporation is spending in politics so that the investor can determine for themselves whether that investment is worth the risk.
Ciara Torres-Spelliscy is a law professor at Stetson Law, a fellow at the Brennan Center and the author of the book, Political Brands.