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Ethics in Practice Case

Dark Money and Corporate Political Spending on Campaigns

Recent election cycles have brought new challenges for corporations and their boards of directors. For example, in the 2020 presidential election campaign, candidate Joe Biden unveiled a plan to lower drug prices by letting Medicare negotiate payment for certain high-cost drugs. Yet ironically, the pharmaceutical industry was one of the most generous industry donors to the Biden campaign, as well as those of the other candidates. In fact, the health industry overall (including health professionals, hospitals, HMOs, and pharmaceutical companies) donated more than $80 million to the presidential candidates in 2020, with the pharmaceutical industry donating more to Democrats than Republicans in the lead up to the final election. In essence, the pharmaceutical companies and health-care professionals spent money to promote policies that went against their own financial interests.

This happened in congressional elections as well. In 2020, the pharmaceutical industry’s trade group, PhRMA, donated funds to nonprofit groups that used those funds to hit back on House Democrats’ plan to approve the drug pricing plan to lower prescription drug costs. Some of those funds came from firms including Pfizer, Bayer, and Merck, all manufacturers of contraceptives.

Ethics in Practice Case

Political spending is also an issue with individual companies. Target Corporation, a company that had positioned itself as an LGBT-friendly corporation, found itself the target of angry employees and customers when they learned about Target’s political spending. Target, a sponsor of the annual Twin Cities Gay Pride Festival, donated money to a business group that supported an anti–gay rights candidate for Minnesota governor. Angry employees and consumers conducted protests outside Target stores and threatened a boycott.

These examples show how political spending can have dramatic consequences for corporations. Politicians take positions on a range of policies, and so the same politician may hold some positions that support and other positions that damage a corporation’s best interests. This problem was exacerbated when the U.S. Supreme Court’s Citizen United decision changed the political spending landscape for corporations. Before that decision, political spending was constrained to political action committees (PACs), and PAC political activity had to be disclosed to the FEC (Federal Election Commission). Now firms can make unlimited contributions directly to candidates or indirectly to 501c4 nonprofits and trade associations, who can then hide both the donors who provided the money and the way the money was spent. These are called “Dark Money” donations, where companies and trade groups can spend millions to shape elections without revealing where their money comes from. Firms are now freer to become politically involved but, as Target and the pharmaceutical companies found out, that freedom comes with risk. Shareholders and other stakeholders are asking firms to be transparent in their political spending. They want to judge those expenditures for themselves to avoid agency problems and other conflicts of interest.

Ethics in Practice Case

The Center for Political Accountability, located in Washington, D.C., in conjunction with the Zicklin Center for Business Ethics Research at The Wharton School (University of Pennsylvania), annually rates leading U.S. public companies on their political disclosure and accountability policies and practices for election-related spending. Interestingly, they found that recent elections have seen much better and stronger policies of disclosure and accountability by businesses regarding their election-related spending. They commented, “Especially striking are the increases in company adoption of board oversight and more detailed committee review of political spending.” It seems that there is some upside for society, in that while the Dark Money continues to pour into campaigns, at least there is a movement toward more transparency and accountability.

Ira M. Millstein, founder of the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School, proposed that boards of directors need to step up and institute more measures for accountability regarding corporate political spending. He suggests the following:

(1) Companies should require trade associations of which they are members to report to them on their political spending.

(2) Companies should require trade associations of which they are members to disclose the donors who provide the money for their political spending.

(3) Companies should then disclose the information they receive from their trade associations when they disclose their other spending to shareholders and other stakeholders.

Millstein’s message is clear. If businesses do not implement such measures to deal with “Dark Money,” then they must face the reputational repercussions… just like Target and other companies who may be unaware of the flow of political spending through trade groups.

Ethics in Practice Case

Questions for Discussion

1. What is your reaction to the issue of political spending? What would you do if you were the CEO of a pharmaceutical company? Would you still belong to PhRMA? Would your membership in PhRMA have any conditions attached?
2. What is your reaction to the Target situation? How would you handle it if you were the CEO?
3. It seems like corporate political campaign spending is becoming more transparent. Do you agree?
4. Should Dark Money spending be more regulated? If so, how?
5. Do you agree with Ira Millstein? Should companies require trade associations to disclose this information before they join? Should companies then disclose the information they receive? If a trade association refuses to provide that information, should the company refuse to join?

Requirements:

• There is no minimum or maximum required number of pages. Your analysis will be considered complete, if it addresses each of the 5 components outlined above.
• Use of proper APA formatting and citations. If supporting evidence from outside resources is used those must be properly cited. A minimum of 3-5 sources (excluding the course textbook) from scholarly articles or business periodicals is required.
• Include your best critical thinking and analysis to arrive at your justification.
• Approach the assignment from the perspective of the senior executive leadership of the company.

Submission: Upload/attach your completed paper to this assignment by the due date. Please see the Course Syllabus for the actual due date.

Ethics in Practice Case

Guidelines for Analyzing Cases

Problem and Issue Identification

1. What are the central facts of the case? What assumptions are you making about these facts?
2. What is the major overriding issue in the case? What major question or issues does this case address that merits study at this point in the course?
3. What sub-issues or related issues are present in the case that merit consideration now?

Analysis and Evaluation

1. Who are the stakeholders in the case, and what are their stakes? What challenges, threats, or opportunities are posed by these stakeholders?
2. What economic, legal, ethical, and philanthropic responsibilities does the company have, and what is the nature and extent of these responsibilities?
3. If the case involves company actions, evaluate what the company did or did not do in handling the issue affecting it.