Center for Political Accountability introduces Guide to Model Code

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In 2020, the Center for Political Accountability introduced the CPA-Zicklin Model Code of Conduct for Corporate Political Spending, designed to provide a “thorough and ethical framework” for corporate political spending. The preamble states that the Code is a “public commitment to employees, shareholders and the public to transparency and accountability. It not only mitigates risk but also demonstrates the company’s understanding that its participation in politics must reflect its core values, its respect for the law and its responsibilities as a member of the body politic.” The goal is to help companies adopting this code to avoid the reputational and financial harm that might result from a failure to align corporate values and political spending. Ultimately, the CPA observes, “directors and officers are responsible and accountable for the political choices and broader impact that may result from their company’s election-related spending, no matter how financially immaterial it may seem.” Now, the CPA has developed a Guide to Becoming a Model Code Company, designed to help companies and their boards understand the Model Code and how it can help them manage election-related political spending in high-risk environments—think the 2024 election cycle now upon us.  According to the President of the CPA, the Guide was developed based in part on questions raised by companies at a recent roundtable on corporate political spending at NYU’s Stern School. 

As described in the Guide, while the Model Code is based in part on the CPA-Zicklin Index, it “goes beyond the disclosure and accountability policies in the Index to require companies to know and publicly disclose where their contributions ultimately end up and consider broader factors of societal interests and democracy in company political spending decisions.” The emphasis is on proactively managing the “risks posed by election-related spending from corporate treasury funds (as opposed to a corporate PAC).”

In addition, the CPA contends that commitment to the Model Code “publicly demonstrates to stakeholders a company’s dedication to being a leading corporate citizen.”  Companies can be recognized as Model Code companies either through statements that the board has approved the company’s adoption of  the Model Code or statements that the company’s policies are consistent with the provisions of the Model Code.

What Model Code disclosures go beyond the CPA-Zicklin Index? While insights on some Model Code disclosures can be found in the Index, this new Guide identifies other disclosures that are not in the Index, but are “unique to the Model Code,” including:

  • “Disclosure of all direct political contributions to candidates, parties, or political committees made with corporate treasury funds.
  • Disclosure of all indirect contributions to 501(c)(4) groups, also known as ‘social welfare’ organizations, trade associations, 527 committees, super PACs, and other third-party groups that engage in election-related spending. [Emphasis added.] 
  • Disclosure that the company receives a report from third-party groups to which it contributes, if that group engages in election-related spending, detailing how corporate contributions are spent and which candidates’ campaigns are promoted using those contributions….
  • Disclosure that the company annually reviews the candidates and political organizations that its contributions directly or indirectly support to ensure that the positions held by those candidates do not conflict with the company’s core values and policies.”

The Guide observes that some companies implement the Model Code’s third-party disclosure requirement by posting on their websites the 990 tax return of their trade associations that engage in election-related spending. The return “provides information on where the company’s political money ends up and what it enables.” The Guide also notes that “[o]nly a handful of trade associations engage in election-related spending,” identifying a number of them.

What disclosures are not required by the Model Code? Importantly, the Guide also makes clear that certain types of disclosure are not required by the Model Code, specifically:

  • “Disclosure of corporate PAC spending.
  • Disclosure of dues and other payments made to trade associations that do not engage in election-related spending.
  • Reports from other third-party groups that do not engage in election-related spending. This includes 501(c)(4) groups.”

What should boards do? Under the Model Code, to help companies shape their strategies for political spending in light of the risks presented, boards of directors are required to “consider the broader societal and economic harm and risks posed by the company’s political spending.” To that end, the Guide advises that boards need to consider the “broader policy, political and societal environment” necessary for the company’s success and assess the near- and long-term impact of the company’s political spending on that environment—not just “access, regulation and taxation,” but also the more expansive social impact, such as “gerrymandering, controversial lawsuits, and legislation that creates conflicts with company policies and positions.”  The Guide advises that this board review “is intended to be an independent and more comprehensive review of the impacts of company electoral spending beyond the immediate moment.”

[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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