As CEOs engage in politics, regulators keep watchful eye

As CEOs engage in politics, regulators keep watchful eye
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In recent months, American CEOs have spoken out on social and political issues like never before, placing the businesses squarely within the national debate. Much of the newfound resolve among executives to engage in the cultural disputes of the day is a result of the pressures that CEOs feel from employees and customers to communicate a message of social and moral responsibility on behalf of the company.

As CEOs speak out, federal and state regulators remain permitted to police the bounds of a wide range of corporate political activity. The pressure that the 24-hour news cycle places on companies to respond immediately to developing events puts business leaders at risk of acting without realizing that their statements approach the line of regulated, or prohibited, corporate political activity. Most activities that executives have engaged in to date, such as stepping down from advisory councils, signing public letters urging administrative action, or publicly supporting rights of employees to peaceably protest, do not cross the line into the morass of ethics laws that govern corporate political activity.

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The First Amendment ensures a certain amount of leeway for executives and others to criticize or support the statements of elected officials, speak out on social issues, and engage with employees and customers to communicate their company’s social or political values. In many cases, these protections apply whether the CEO is speaking out personally or in their role as a company leader. As some executives have recently learned, however, regulation of their social and political activities still exists.

Speaking out on policy and social issues

Corporations have long pursued political objectives as a means of helping achieve their business goals. They hire consultants to speak out on legislation, they host elected officials at company events, and they form political action committees (PACs) to make contributions to candidates. Today, the dual pressures to have a voice on social values and do so in a visible manner add complexity to these longstanding practices. When CEOs act as the voice of the company on political matters, regulation can step in.

While all jurisdictions permit companies to attempt to influence government officials, many regulators require companies to register their lobbyists and disclose information about their lobbying activity. The challenge for CEOs who may speak out in a way that meets the legal definition of “lobbying” is that these disclosure rules vary widely across jurisdictions. While traditional influence campaigns directed as swaying legislation or regulations count as lobbying, some jurisdictions regulate any attempt to obtain an official’s “goodwill” as lobbying. CEOs who speak out on social issues on behalf of the company without understanding where the state draws these regulatory lines risk both legal penalties and public relations crises.

Under the federal Lobbying Disclosure Act, for example, a CEO wouldn’t be required to register as a lobbyist unless he or she spends 20 percent of his or her time engaged in federal lobbying activities and makes two lobbying contacts. This is a threshold that executives may not meet. As recent cases demonstrate, however, executives who communicate with local officials could unwittingly put their companies at risk of fines and reputational harm starting with their very first lobbying communication. The Chicago Tribune recently uncovered alleged lobbying communications by a dozen executives who did not register as lobbyist, spurring a flurry of investigations by the Chicago Board of Ethics into possible violations of the city’s lobbying ordinance.

Looking ahead to the 2018 and 2020 elections

If corporate America’s recent willingness to speak out on social issues is any indication, we can expect to see CEOs endorsing candidates and engaging in election-related conversations as the next election cycles approach. Most companies encourage their executives and team members to participate in the political process in a personal capacity. Corporate executives, like other citizens, have the right to make political contributions, bundle contributions for a campaign, or host fundraising events.

However, there is much less leeway when CEOs act on behalf of their company rather than in their personal capacities, or when CEOs attempt to use company resources for political purposes. A corporation’s office space, computer equipment and contact lists are all corporate resources that federal (and many state) laws prohibit from being used in furtherance of personal political activity. This ban extends to directing staff to assist in political activities. Use of these resources must be paid for, often in advance, by the candidate’s campaign. President Trump has already filed his statement of candidacy for 2020, an early indication of the urgency with which the coming election season is approaching. In the flurry of the campaign, executives must be careful not to marshal corporate resources when engaging in political activities.

Savvier CEOs will know to leverage the legal exceptions that allow a corporation limited ability to speak its political mind. If certain conditions are met, the law permits corporations and their executives to support a corporate PAC, send campaign messages to a restricted class of executive and administrative employees, host fundraising events on corporate premises, engage employees in voter registration campaigns, and even publicly endorse candidates. Engaging in these election-related activities with knowledge of applicable rules, which vary across states and localities, can provide CEOs a powerful outlet to convey the social and political values of their companies within the bounds of the law.

Being smart about building goodwill

One tool available to CEOs to set the tone for social and political discussion inside the company is to issue a political activities policy as part of the company’s code of conduct. This will offer some assurance that all executives and team members are operating from the same playbook as they engage in political activities. The CEOs who will most successfully navigate our new era of corporate political engagement will be those who signal to team members that their personal political activity is supported and encouraged, but also set limits on engaging in such activities in a way that places the company at risk of being taken off message by having to respond to an ethical inquiry.

Tyler Hagenbuch is a political law attorney with Perkins Coie, where he advises businesses and organizations on ethics compliance, campaign finance, lobbying disclosure and pay-to-play rules.