VideoIt took the Watergate scandal to convince Congress to put an end to direct contributions from companies to federal politicians. It took 30 years and another scandal — Enron — to stop the resulting flow of so-called soft money from corporate coffers to political parties.
That doesn't mean the corporate connection has been severed. So far, the Bipartisan Campaign Reform Act of 2002, or BCRA (the eventual fruit of the long-embattled McCain-Feingold bill), has succeeded in its twin goals of halting corporate contributions and increasing individual donations. But politicians still expect companies to deliver campaign cash. In other words, the BCRA didn't relieve companies of the pressure to pony up; it simply said the funds couldn't come from their coffers. Where once they simply cut a few big checks, companies must now collect thousands of smaller ones — from executives, employees, and business contacts. This new political reality is evident in the resurgence of corporate political action committees (PACs) and the emergence of "bundlers" seeking contributions in the workplace. Both come with potential legal, regulatory, and administrative headaches.
Return of the PAC
Since the early 1970s, the PAC has been the most common vehicle for corporate political involvement. Corporate PACs collect money from executives and employees, and usually contribute to incumbent members of Congress. Because they are limited to giving $5,000 per federal candidate per election cycle, the influence of corporate PACs waned in the years before the BCRA, says Larry Noble, executive director of the Center for Responsive Politics, in Washington, D.C. "Why give $5,000 when you could give $100,000 [in soft money]?" he asks.
Today, the PAC is back. "There is now a void in campaign finance, and that void has to be filled somehow," notes Wesley Bizzell, an attorney at the Washington, D.C., office of Winston & Strawn LLP. "Our corporate clients are receiving more requests for political contributions and are responding by starting or revitalizing their PACs."
Although the total number of PACs declined slightly last year, to 3,868, the number of corporate PACs — by far the largest category — continues to grow: there were 1,605 registered as of late May. Indeed, 67 new corporate PACs were registered in just the first five months of 2004. That's almost as many as were registered the entire year before the BCRA was passed.
Companies should pay close attention to this trend. Although prohibited from contributing to their own PACs, companies may provide their PAC with unlimited administrative and executive support. That's a potentially expensive activity, particularly for the finance department. In a CFO magazine survey of 285 finance executives, 56 percent reported that they or someone in their department served as treasurer or provided financial or administrative management for their company's PAC.
During a period of otherwise heightened financial controls, PACs also represent a tempting pool of loosely counted cash. The largest corporate PAC, United Parcel Service Inc.'s, took in $2.8 million this year. With such relatively small sums at stake, says Bizzell, "audits are at the whim of the corporations, which don't always bother to invest the time or money." Among PACs run by politicians, such poor controls have resulted in several recent cases of embezzlement. In May, for example, Earl Allen Haywood, the former assistant treasurer of The (Sen. Elizabeth) Dole North Carolina Victory Committee and the North Carolina's Salute to George W. Bush Committee, was sentenced to 18 months on mail-fraud charges, after admitting to stealing more than $170,000 from the two groups.
This has been rare in the corporate world. But in January, Lockheed Martin Corp. discovered that its assistant PAC treasurer, Kenneth D. Phelps III, had stolen almost the same amount — $170,000 — by writing checks to himself.
I Gave at the Office
More may be tempted. A CFO analysis found that 58 percent of companies in the S&P 500 have PACs. And of the executives surveyed by CFO whose companies already have PACs, 40 percent reported that they give more now.
"I'm not at all surprised to see greater emphasis on PACs," says Charles E.M. Kolb, president of the Committee for Economic Development, in Washington, D.C. "That's a good thing, because the money comes from individuals, and it's the individual who votes."
But that comment suggests PACs are genuinely conduits for individual giving. The reality is much fuzzier. Corporate PACs promote company interests, not employees' political ideologies. Of the finance executives surveyed by CFO, 28 percent said they didn't even know where their PAC contributions went, 61 percent said they had no influence (but were kept informed), and only 12 percent said they helped decide how to allocate the money.
In theory, employees give because they consider their career interests to be closely aligned with their employer's interests. But is that the real reason? "There is pressure in corporations to be a team player," declares Bill Allison, managing editor of the Center for Public Integrity, in Washington, D.C. "If you're an ambitious employee in lower levels of management, you may feel that donating is in your interest."
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