Leader Of The PAC: Corporate Guidelines For Political Contributions

Monday, March 1, 2004 - 01:00

As the election activity for Presidential and Congressional candidates intensifies, many corporate executives may encourage their corporations to become politically active on the federal level. Because corporate forays into the realm of federal elections are strictly regulated, a corporate counsel must be aware of the many restrictions placed on corporate federal election activities, especially in light of the sea change brought about by the Bipartisan Campaign Reform Act of 2002 ("BCRA"), which was recently upheld by the U.S. Supreme Court. However, despite the passage of campaign finance reform, corporations that wish to be politically active can engage in a myriad of election-related activities, including the creation of a political action committee ("PAC") or the funding of political communications directed to their employees or even the general public.

Campaign Finance Reform And Supreme Court Review

The primary goal of the BCRA was to eliminate corporate and union contributions (commonly known as "soft money") to the political party committees, such as the Democratic National Committee and the Republican National Committee. Additionally, Congress wrote the legislation to limit the use of corporate and union funds to air issue advertisements, which are termed "electioneering communications" by the statute. The BCRA also raised the limits on "hard money" contributions from individuals to federal candidates as well as to national and state party committees and indexes these limits for inflation. Individuals now may contribute $2,000 in both the primary and general election to candidates for the U.S. Senate, U.S. House, and the Presidency.

Immediately after the BCRA was signed into law, a number of parties filed challenges to the constitutionality of almost every provision of the BCRA. In December 2003, after an expedited review by the federal courts, the Supreme Court turned back the constitutional challenge, upholding the two principle features of the legislation: the ban on soft money and the regulation of electioneering communications. This ruling, which opened a new era in federal campaign finance law, creates an array of opportunities for corporations wishing to take an active approach in the form and content of legislation.

Importance Of Corporate Political Action Committees

While the BCRA and its implementing regulations generally have little direct effect on the activities of most PACs, the statute will cause corporate PACs to become increasingly significant as vehicles for raising and spending money for federal political campaigns. Because of the statute's ban on soft money, many corporations are seeking innovative approaches to ensure they have a continued presence in Washington. Some corporations are creating PACs, and those with existing PACs are searching for tools to increase their PAC's receipts in order to exploit the full potential of their PACs and become more active in federal elections.

A PAC allows a corporation to participate in the political process without running afoul of the prohibition on corporate contributions in federal elections. A PAC can provide a highly effective means for employees and stockholders to join together to pool their contributions to further common political and legislative interests. Corporate PACs are becoming more popular as executives now realize that the heightened challenges facing corporate America generally have significant political components and are directly affected by decisions made by elected officials in Washington and at the state and local levels. Corporations see the formation of a PAC as one important tool that provides their executives with the opportunity and ability to educate elected officials on important corporate issues. Consequently, it is unsurprising that over 1,500 corporations, including many Fortune 500 companies as well as numerous small to mid-sized companies, operate federal PACs.

Corporate PAC Participation In Elections

A PAC is attractive to many corporations because it may engage in both federal and nonfederal activities, thereby supporting candidates for federal, state, or even local office. If the PAC wishes to engage in nonfederal activities, it may set up one federal account that supports both federal and nonfederal candidates while reporting all activities to the FEC. Alternatively, the PAC could set up two accountsÑone for federal elections and one for state and local elections. Any PAC contribution or expenditure made in connection with a nonfederal election is subject to applicable state laws, which vary widely by state but generally require registration with the Secretary of State or other state official and impose reporting requirements.

A corporate PAC can contribute up to $5,000 to a federal candidate's primary election and another $5,000 to the same candidate's general election. In addition to contributing to a candidate's campaign committee, a corporate PAC may contribute up to $5,000 per year to a federal officeholder's "Leadership PAC." Leadership PACs are political committees created by Members of Congress to help fund their colleagues' campaigns. With approximately 200 active Leadership PACs, these fundraising entities provide a corporate PAC with an additional opportunity to show its support for elected officials who share the corporation's beliefs and values.

Fundraising For A PAC

In terms of funding a PAC, federal election law prohibits a corporation from contributing to a PAC, and it limits the employees a corporation may solicit for contributions. A corporate PAC can solicit voluntary contributions at any time from the sponsoring-corporation's restricted class and their families as well as the restricted class of its corporate parents or subsidiaries. A corporation's restricted class includes its executive and administrative personnel, which may be corporate officers, executives, division and section managers, as well as lawyers, scientists, and engineers. Federal election law strictly regulates who may be solicited and the content of such solicitations. An impermissible solicitation may result in an enforcement action by the FEC. Because some seemingly innocent activities may lead to FEC investigations or penalties, a corporation is well-advised to seek the advice of an attorney knowledgeable in election law before creating a PAC or seeking contributions to its PAC.

In addition to contributions from its executive and administrative personnel, a corporation also may seek contributions from corporate stockholders and their families. The solicitation of stockholders is an often untapped reservoir of PAC contributors. FEC regulations allow corporations to seek PAC contributions from individuals who participate in an employee stock ownership plan ("ESOP") or a 401(k)-type plan if those individuals meet the FEC's strict regulatory requirements. Consequently, a corporation may be able to solicit contributions from rank and file employees, who could not otherwise be part of the corporation's restricted class. Moreover, recent changes to corporate tax law have made ESOPs and retirement plans more attractive to corporations, causing more and more employee stockholders to qualify as members of the corporation's restricted class.

Corporate Communications

In addition to banning soft money, the BCRA attempted to reign in the use of electioneering communications, most commonly known as "issue ads," by limiting when corporations, unions, and trade associations can air such advertisements. Issue ads, which came to prominence in the 1996 elections, were advertisements that laud or attack a federal candidate or officeholder for a position on an issue. Because these advertisements did not expressly advocate the election or defeat of a candidate, they were not regulated by federal election law until the passage of the BCRA. The new law imposes a blackout period, during which unions and corporations cannot fund or air any broadcast, cable, or satellite communications that identifies a federal candidate and reaches a specified audience.

While the BCRA does limit a corporation's ability to air issue ads, corporations may continue to engage in a limited form of issue advertisements. A corporate PAC can fund the production and airing of electioneering communications, as long as the PAC complies with the BCRA's detailed reporting requirements. Moreover, the restrictions attached to electioneering communications do not apply to a host of non-broadcast communications, such as those made through the mail, written publications, the internet, or telephone banks. Thus, the corporation use general treasury funds can create non-broadcast issue advertisements, as long as the communications do not expressly advocate the election or defeat of a particular candidate.

Furthermore, corporations can continue to fund other types of communications to publicize pending legislation which may benefit or harm the company. Most importantly, a corporation can distribute to its restricted class "issue guides" that tell where candidates stand on company concerns. If the guide is distributed only to the corporation's restricted class, the corporation may "score" the candidates' position on issues pertinent to the company and may be able to coordinate the publication of the guides with a particular candidate or political party. However, if the publication reaches employees outside of the restricted class, the corporation cannot express or imply a preference for any candidate.

Although the BCRA may encourage more companies to publish issue guides, some of the more politically savvy corporations began such activities before the statute went into effect. For example, during the 2002 elections, a prominent oil company widely distributed non-partisan fliers to all of its employees that encouraged them to vote and updated them on legislation of interest to the corporation. However, for its restricted class, the corporation created a website that included pointed scorecards, featuring the candidates' positions on issues such as oil and gas exploration, the patients' bill of rights, and President Bush's tax cuts. Politicians who favored the company's position received a green check mark and those who opposed its position received bold red X, which was a subtle indication of which candidates employees should support.

Conclusion

The changes brought about by campaign finance reform offer corporations the ability to become more engaged in the political process. As the FEC begins to interpret the provisions of the BCRA, executives in politically active corporations must remain informed about the emerging opportunities provided by federal election law. In the meantime, those corporations can utilize these and other existing election law tools to shape the political agenda on Capitol Hill and in the White House.

Wesley D. Bizzell is an Attorney in the Government Relations and Regulatory Affairs Practice Group in Winston & Strawn, LLP's Washington, DC office, and regularly advises Fortune 500 corporations, small businesses, coalitions, and trade associations on election law and other governmental affairs issues.

Please email the author at wbizzell@winston.com. with questions about this article.