From the January 6th attack on the U.S. Capitol to the protection of voter rights to supporting Ukraine by pulling out of Russia, business is increasingly being looked to not only to support social issues such as transgender rights and anti-racism but also to engage directly in defending the institutions of democracy. In the wake of the Capitol attack, for example, Twitter banned Donald Trump and PayPal suspended payments through his website and many companies blocked funding for Republican politicians who spoke in support of the attack.
This engagement is welcomed by many but also criticized, with Senate minority leader Mitch McConnell at one point accusing business of becoming a “woke parallel government.” What then should be the role of business when it comes to defending democratic institutions and norms? What do companies and corporate leaders need to do to prepare to be proactive on democracy? What role should industry and trade associations play?
Last week, working with the Financial Times Moral Money Forum, HMI convened a roundtable of business and civil society leaders to discuss these questions. As a start, there was agreement by all that business had an important role to play in defending the institutions of democracy. A few argued that companies need to recognize that supporting democracy is not just a “social responsibility,” it is a systemic issue material to business and its ability to operate successfully, just as climate change is. As one participant noted, “Who wants to run a business in an unstable society or the arbitrary economic policy of an autocracy?” It was also noted that democracy is not just about voter rights and fair elections, it’s about ensuring the norms of equitable participation and consideration of the rights of all citizens in our institutions in society, including large firms.
Managing political engagement
When it comes to how business can most effectively support democracy and challenges that need to be addressed, there were a number of issues discussed. These included:
- Alignment between rhetoric and action – In particular, it was noted that ESG and support of democracy proclamations needed to be backed by actions taken by government relations/public affairs and too often this is not the case. In particular, companies need to more proactively engage with their industry associations to ensure the associations’ positions on issues is aligned with the company’s stated positions.
- Transparency – More transparency about political engagement and financing was seen as key. It was argued that companies should produce political engagement reports that explain what the company’s political engagement strategy is and why and how the dollars are allocated. Companies need to explain how their lobbying is helpful to the public policy process and how it is helpful to all stakeholders, not just investors. Ford’s 2020 political engagement report was given as an example. It was also noted that institutional investors had a key role to play in calling for this kind of transparency and need to ensure that responsible political engagement is a bigger focus in the context of ESG.
- Private ordering – In terms of transparency and the lack of integrated government-mandated standards, the growing importance of private ordering initiatives such as the CPA-Zicklin Index of Corporate Political Disclosure and Accountability, which is the only measure of electoral spending transparency and accountability among the country’s largest public corporations, was noted. It was also noted that the CPA-Wharton Zicklin Model Code of Conduct for Corporate Political Spending is now becoming a standard by which companies can gain greater control over their political spending and more effectively manage the broader risks they face today. It was noted that this can also help with the “extortion” effect when businesses are under direct pressure to donate to stop negative effects on their business.
- Collaboration – It was noted that greater collaboration between businesses is key when speaking out on democracy issues like voters’ rights and that firms needed to do more to engage their industry associations in facilitating and supporting initiatives protecting democratic rights and institutions. It is very hard for companies to act alone on issues, as we see in the current controversy over Disney’s public opposition to Florida’s “Don’t Say Gay” bill, which would restrict speech on sexual orientation and gender identity in public school classrooms.
- Undue influence – The issue with corporate lobbyists educating legislators, at least in the U.S. context, is that the access that corporations and corporate trade associations have is many multiples more than any access that groups might have that would present an alternative view. Corporate lobbying and provision of expertise outweighs all other voices by a factor of about 30 to 1, according to research on lobbying spend by Lee Drutman of the New America Foundation. This makes it all the more important that corporate lobbying considers the impact of their advocacy on all stakeholders not just the company. Allianz, for example, has created a lobbying framework that requires consideration of all the firm’s stakeholders not just shareholders when crafting and advocating policy positions.
Further resources from experts participating in the roundtable can be found below.