Blog: How do companies address governance issues for corporate political activity?

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In the last couple of years, many CEOs have felt the need to voice their views on political, environmental and social issues, such as racial justice and voting restrictions. For example, after the murder of George Floyd and resulting national protests, many of the country’s largest corporations expressed solidarity and pledged support for racial justice. After January 6, a number of companies announced that their corporate PACs had suspended—temporarily or permanently—their contributions to one or both political parties or to lawmakers who objected to certification of the presidential election.  However, as The Conference Board has recently stated, in the current “era of intense political polarization in the United States, and with the immediacy, ubiquity, and (often) inaccuracy of social media, companies are subject to ever-greater scrutiny for their political activities.” In this article, Deloitte and the Society for Corporate Governance report on a survey they conducted in July 2021 about companies’ approaches to publicly addressing controversial social and political issues. As the authors note, “taking a stance publicly on controversial or sensitive topics poses both risks and opportunities, including alienating or appealing to key stakeholders; enhancing or damaging the corporate culture; and eroding or building trust and brand reputation,” leading some companies to consider more systematically how they approach public engagement on these types of issues. 

Survey respondents were all in-house members of the Society for Corporate Governance. Respondent companies were in following industries: 33% consumer; 29% energy, resources, and industrials; 22% financial services; 9% life sciences and health care; and 7% technology, media, and telecommunications. The number of responses to each question ranged from 74 to 115. As of December 2020, public company respondents consisted of 50% large-cap (> $10 billion); 37% mid-cap ($2 billion to $10 billion); and 13% small-cap (<$2 billion).

The survey showed that, for almost half (48%) of respondents, no officer or director spoke out on a social, environmental, political or other public policy issue (“public policy issues”) last year. However, 45% of respondents indicated that the CEO spoke out, and 14% reported that another officer or director made a statement.  Large-cap companies spoke out most often (66%) relative to mid-caps (41%), small-caps (7%), and private companies (50%). According to the survey, racial justice was addressed most often, followed by social justice and environmental issues. With regard to selection of a designated spokesperson, 66% of all public companies designated the CEO, with the head of corporate communications next (30%). However, almost 30% of small-caps did not designate anyone, and 33% selected a different spokesperson depending on the nature of the issue.

Responses were fairly mixed to the question of whether a particular policy or document guides the decision about whether to speak out on public policy issues.  Among public companies, 31% reported having a specific framework, while other public companies pointed to codes of ethics and corporate governance guidelines, among other things. For about 30%, there was no specific policy or document that addressed the question. WAs board approval of the policy obtained? Only for about 15% of large-cap and small-cap companies and 3% of mid-caps. Few of the policies or documents actually addressed board involvement.

With regard to oversight of the CEO or other spokesperson, respondents indicated that “70% of large-caps and 63% of mid-caps have a management-level committee, group, or individual(s) overseeing this area, compared with 21% of small-caps.”  For large-caps, the role of the oversight committee was assessing risks and benefits of speaking out, identifying which issues are “connected to the company’s interests and core corporate values” and which issues the company “should consider taking a position on.”  Mid-caps focused oversight on determining the issues “connected to the company’s interests and core corporate values” and assessing and preparing the company’s response to an issue. Oversight among small-caps concentrated on assessing and preparing the company’s response to an issue, determining the issues that the company “should consider taking a position on,” seeking a broad internal consensus and assessing and managing any resulting impact from the position taken.

During the past year, the survey indicated, boards or board committees of 45% of large-caps, 34% of mid-caps and 14% of small-caps discussed whether or the circumstances when the company or its representatives should speak out on public policy issues. At 45% of the public company respondents, the CEO may speak out on public policy issues without approval from the board or any board committee. Approval was required by the nominating and governance committee for 25% of public company respondents, the full board and committee for 20% and another 20% reported that oversight is issue-dependent. Among public companies, 57% memorialize board/committee oversight in committee charters and 42% in corporate governance guidelines.

According to the survey, 49% of public company respondents were contacted by major shareholders to request engagement on public policy issues, including 68% of large-caps,  28% of mid-caps and 38% of small-caps. As to other stakeholders, such as customers, employees or business partners, 18% of public companies reported having received a request for engagement on public policy issues, including 26% of large-caps, 7% of mid-caps and 15% small-caps.   The survey showed that, most often, stakeholders requested engagement on “ESG, climate change, and DE&I; some cited lobbying, legislative initiatives, and political contributions.”

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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