PACs - A Constructive Way To Involve Employees In The Political Process

Thursday, July 1, 2004 - 01:00

Editor: Joel, fill us in on your background?

Prior to joining Akin Gump, from 1972 to 1977, I was legislative assistant to the Honorable Carl Albert, the Speaker of the U.S. House of Representatives. I also served as a captain in the U.S. Army Judge Advocate General Corps from 1968 to 1972. I represent numerous clients on a variety of public policy matters, with an emphasis on entertainment and telecommunications.

Editor: Is it too late to create a PAC for the November election? What role will PACs play in supporting the campaigns of the presidential candidates?

No, it is not too late. A PAC can be established fairly quickly and can be used to make contributions to the presidential campaigns. However, it is too late to take advantage of the higher contribution of $5,000 per candidate that can be made by a multi-candidate PAC. To become a multi-candidate PAC, the PAC must be in existence for at least six months, accept contributions from at least 51 employees, and make contributions to at least 5 federal candidates. New PACs or nonmulti-candidate PACs can be established before the election, but are limited to contributing only $2,000 per election, the same as individuals. Thus, a nonmulti-candidate PAC offers no advantage over an individual contribution.
PACs, particularly existing multi-candidate PACs, will play a particularly significant role in the presidential campaign as well as other federal campaigns because of the restrictions on "soft money" imposed by the McCain-Feingold campaign finance reform law. As a result of the soft-money ban, corporations are prohibited from making donations of corporate funds to the national party committees for use in so-called "party building" efforts like get-out-the-vote, voter registration and identification programs and issue ads. These restrictions limit the opportunities for corporations to participate in the political process and put a premium on giving through PACs.

However, corporations are permitted to contribute to certain organizations such as the Governor Associations (RGA and DGA), The Rippon Society and the Democratic Leadership Council. In addition, corporations can also contribute to a category of political organizations known as "527"s. These 527 groups are the non-affiliated, independent activity organizations which have cropped up. However, the law is not perfectly clear with regard to these organizations, and many people are appropriately hesitant to participate. If you plan to participate, you should receive additional legal guidance.

Because of these changes and the restrictions on corporate political activity, PACs are a corporation's major vehicle for corporate-related giving at the federal level.

Editor: What are the advantages and disadvantages of a multi-candidate PAC?

The main advantage is the increased contribution limit of $5,000 per candidate, per election, e.g., $5,000 for the primary and $5,000 for the general election. However, as I mentioned, the PAC has to be in existence for at least six months, receive contributions from at least 51 different contributors, and the PAC must make contributions to at least 5 candidates.

Editor: From the standpoint of a smaller company, what has been the success record with PACs? A smaller company may have a smaller management staff.

That is a good point. There is a kind of tipping point for smaller corporations with regard to the benefit of establishing PACs. A PAC is only permitted to regularly solicit its "restricted class." This only includes the corporation's executive and administrative personnel, stockholders, managers, directors and individuals with policy-making or decision-making authority. As such, smaller corporations are much more limited in the amount that can be raised for a PAC.

Larger organizations benefit more, as a PAC is an effective way to administer political giving. The administrative burden of complying with the reporting, record keeping and other requirements may be more significant and burdensome for a smaller company. It is always advisable to receive professional legal help in order to be sure that all legal requirements are being met.

Editor: What is the function of a PAC's board?

You do not need a PAC board. Technically, you only need a treasurer and an assistant treasurer. A PAC has a twofold mission: namely, to donate funds and solicit funds. A board can facilitate the accomplishment of this mission if its membership is carefully selected.

The board can assure that the contributions accomplish the goals of the organization. The board should be composed of those individuals who play a role in shaping legislative and regulatory objectives, and executives from activities within the organization whose business goals are particularly dependent on achievement of such objectives. For example, the board could be composed of government relations employees, corporate counsel and other executives.

The composition of the board can also enhance the ability of the PAC to solicit contributions. Because of the regulatory burdens associated with solicitations of all employees, corporate PACs are limited to soliciting contributions from a "restricted class." As explained previously, the "restricted class" is composed of executive and administrative personnel, managers, directors and their families. Thus, consideration should be given to including on the board those who would be most effective in soliciting donations from members of this group.

Editor: What kinds of things are most likely to get PACs into trouble?

The most frequent problems involve reporting inaccuracies and having corporations that administer PACs pay for things that they shouldn't pay for. There are a myriad of complex regulations governing the reporting requirements of PACs and the activities in which they may legally engage. Thus, companies should ensure that an ongoing effort is made to assure compliance with the federal election regulations.

Editor: What can be done to assure compliance?

It is no different than any other government-regulated arena. Those individuals responsible for administering the PAC should be well educated on the rules governing a PAC's activities, and should obtain expert advice when necessary. For example, all contributions must be voluntary and there should be no quid pro quo. You should avoid creating an impression that contributions to the PAC are tied to bonuses, reimbursement of any kind, promotion or other employment benefits.

In addition, the corporation should not pay expenses that should properly be borne by the PAC and not otherwise intermingle its activities with those of the PAC. For example, corporations may not "bundle" contributions for federal candidates, and corporate resources such as computers, meeting rooms and staff may not be used by the corporation to support a federal candidate. These costs must be incurred by the PAC and in some instances must be paid in advance. Corporate PACs should receive detailed legal advice when planning events for federal candidates and committees.

Importantly, however, the corporation is permitted to pay some expenses for the PAC. For example, the corporation can pay a PAC's administrative expenses, such as overhead and legal fees as well as all solicitation costs associated with raising money for the corporation's PAC.

In addition, many companies periodically bring employees to Washington to meet with their representatives. These events include meetings regarding policy and legislative issues as well as political fundraising events. In this type of situation, it is important to keep the political activity separate from the company event. For example, a legislative briefing that is paid for by the corporation must not include a political solicitation for a candidate. Political fundraising events must be held at a separate time and all costs associated with the event, such as catering, must be paid for by the PAC.

As you can see from this example, it is sometimes difficult to keep activities of the PAC separate from purely company events. As such, you may want to get expert advice on compliance issues. You can hire outside counsel, such as our firm or other firms who can provide this kind of expertise. You may also wish to develop expertise in-house by dedicating someone to learn the rules and then advising not only the PAC but also the corporation generally.

Editor: Tell us about the role of the Internet and e-mail?

The Internet can be a very effective communications tool. It is a great way to communicate with eligible employees on the need to understand why the PAC is a critical part of the corporation's broader legislative political objectives. Once an employee becomes a donor, the motivation to remain involved primarily depends on ongoing interaction with the PAC's activities, such as receiving regular information about candidates who receive PAC contributions, learning where those candidates stand on issues important to the corporation and being alerted to invitations to special events with elected officials. E-mail or an intranet website can be effectively used for communicating this information.

Importantly, if a corporation plans to post information on its website or Intranet, it should develop a password-protected "PAC page" that only restricted class members may access. However, general information about the PAC, such as contact names, contribution limits and fundraising goals, may be included on those parts of a corporation's regular website that are accessible by all employees. However, it cannot carry an endorsement of a candidate or an "express advocacy" message that calls for the election or defeat of a specific candidate. Likewise, the corporation's general website may not be used to solicit contributions since solicitations can be directed only to members of the "restricted class."

Another approach is to develop an internal e-mail group list of members of the restricted class that can be used to communicate PAC information. Importantly, the costs involved in setting up and maintaining these electronic channels of communication are administrative expenses that can be paid by the company.

Editor: Tell us about soliciting and collecting contributions from employees?

One of the most effective fundraising tools is a personal phone call or letter from the company's president or CEO. As explained above, using e-mail or the Internet can broaden PAC outreach and ultimately build a broader employee donor base.

Payroll deductions are an excellent tool for collecting contributions and are extensively used by corporations. Where appropriate safeguards are in effect, electronic signatures can be obtained over the Internet or by e-mail to authorize payroll deductions.

Editor: Looking at the experience of successful PACs, what would you say if you were asked to list best practices?

Best practices fit into a couple of categories. One is that you ought to make sure the PAC's decisions reflect the political interests of the organization. Above all, PACs should stay away from issues that have nothing to do with the corporation's goals. Employees will contribute to a PAC if they see it as a way of furthering the corporation's goals. Therefore, it is essential that those goals be clearly stated so that they are understood by the contributors. This means that the company's government relations professionals must not treat the process as some kind of mystery which only they can fully understand.
To reinforce the fact that the policies of the PAC implement company goals, it is essential that members of top management actively participate in the PAC. Their involvement demonstrates, in the most effective way possible, that support of the PAC is important to the company.

Another best practice is to keep actual and potential contributors interested and involved on a continuing basis, not just when an election is imminent.

Editor: Do you have any final comments?

PACs are great tools for corporations if they want to participate in the political process, which is a healthy thing. A PAC is an excellent way for a corporation not only to further its policy goals but also to bring home to key employees the important role that government plays not only through its impact on the corporation, but also on their personal lives. By sensitizing a sophisticated class of voters and potential contributors to the significance of being involved in the political process, PACs contribute to enhancing that process.

Please email the author at with questions about this article.