Companies face many dark perils when it comes to political money

Companies face many dark perils when it comes to political money
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As corporate titans AT&T and Novartis continue to stumble in explaining their respective $600,000 and $1.2 million payments to President TrumpDonald John TrumpNFL freezes policy barring players from protesting during anthem McConnell spokesman on Putin visit: 'There is no invitation from Congress' Petition urges University of Virginia not to hire Marc Short MORE’s longtime personal lawyer, Michael Cohen, no explanation has been offered why these payments were structured to avoid public disclosure. The fact that these payments were intentionally shrouded in darkness means that they will remain a stain on the reputations of these companies.

That is the little noticed lesson that CEOs should take away from the latest “pay to play” scandal. Business leaders would be wise to heed it right away, as companies face pressure to engage in political spending directly or through shadowy third-party groups to determine control of Congress and state governments in the 2018 elections.

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The AT&T and Novartis payments first were revealed on Twitter by the attorney for Stormy Daniels, the adult film actress who received $130,000 from a company called Essential Consultants, owned by Cohen, to not disclose an alleged affair with Trump. Caught off guard, the companies have moved to control a public relations disaster. Their CEOs have acknowledged mistakes and addressed criticism. But the statements have not stanched a deluge of skeptical questions.

Why would companies retain a New York City personal injury lawyer and taxicab company owner to give them strategic advice, as they claimed, on Washington politics? What credentials did Cohen have to command such high payments for his counsel? What work product did the companies expect for their money, were they effectively paying into a slush fund, or was it a case of paying the toll for access to the ear of the president?

For shareholders and voters alike, these questions are germane. This is especially the case after White House budget director Mick MulvaneyJohn (Mick) Michael MulvaneyOn The Money: Trump rips Fed over rate hikes | Dems fume as consumer agency pick refuses to discuss border policy | Senate panel clears Trump IRS nominee Trump pick to head watchdog agency is who consumers need Dems fume as Trump's consumer bureau pick refuses to discuss role in border policy MORE recently remarked, “We had a hierarchy in my office in Congress.” He went on, “If you’re a lobbyist who never gave us money, I didn’t talk to you. If you’re a lobbyist who gave us money, I might talk to you.”

Secrecy blown up by inadvertent disclosure can aggravate the bad optics of a suspicious expenditure on politics. Any perception that an activity was intentionally hidden corrodes trust. In the case of Essential Consultants, shareholders and voters would be justified in asking whether Cohen was not reported publicly as a lobbyist because corporate executives anticipated a negative reaction.

For years, we have advocated for companies to adopt transparency and accountability for their spending on politics. Scores of companies are disclosing their direct and indirect electoral spending now, an annual independent benchmarking study of the S&P 500 shows, because they understand the perils of secret political money.

These risks include reputational damage, potential for politicians to shake down a company for money, and the chance that a company will lose control over an “outsourced” payment to a trade association or other group that ends up supporting political activity in conflict with corporate values or business objectives, or possibly in illegal activity.

Executives whose companies have adopted this transparency and accountability have told us these actions also help bring thoughtful and deliberative review to political spending. This level of review apparently was lacking when senior AT&T and Novartis officials, whose retirements have been announced, had responsibility for retaining Cohen in 2017. “We should have done more due diligence. We should have slowed down. We should have thought it through. We were moving too fast,” explained Joseph Jimenez, the Novartis CEO who stepped down earlier this year.

The global public relations firm Edelman, in its 2018 Trust Barometer, reported that trust in core U.S. institutions, including government and business, has crashed. Edelman found that building trust is the No. 1 job for CEOs, according to nearly seven in 10 respondents to its survey. In this climate, CEOs must take a lesson about the serious risks all companies face when they spend money on politics secretly. It can blow up and incur real damage at the speed of an unexpected posting to Twitter.

Bruce Freed is the president of the Center for Political Accountability.

Karl Sandstrom is a former member of the Federal Election Commission.