FirstEnergy scandal highlights risks of corporate political spending in 2024

FirstEnergy scandal highlights risks of corporate political spending in 2024

The Risks and Harms of Corporate Political Spending: Lessons from FirstEnergy and Controversial Contributions

FirstEnergy Dark Money Scandal

FirstEnergy, once a prominent utility company, became the poster child for the risks and harms that a corporation can face when it fails to oversee and monitor its political spending. The company found itself embroiled in a corruption scandal, creating a wave of negative consequences that reverberated through the halls of government and the stock market. However, such corruption charges are relatively infrequent. In today’s hyperpolarized climate, the real danger for companies arises when their political spending lands in perceived conflict with their public stances.

Shedding Light on the Dark Money Trail

Corporations are increasingly facing risks stemming from their political spending, especially when they funnel funds through “dark money” groups or third-party organizations that are not transparent about how the money will be used. By channelling their political contributions through these opaque channels, companies and their shareholders often remain unaware of how their money is actually being spent. This lack of transparency can lead to associations with controversial political figures, positions contrary to core company values, or even allegations of corruption.

Recent controversies shed light on the importance of understanding where political funds end up. The FirstEnergy scandal centered around Generation Now, a dark money organization established under section 501(c)(4) of the Internal Revenue Code. These groups can accept unlimited, undisclosed contributions, making them attractive to various political candidates. Generation Now ended up pleading guilty to racketeering charges, resulting in significant reputational and financial damage for FirstEnergy. The Department of Justice imposed a hefty fine of $230 million, and investors filed a class-action lawsuit against the company. Additionally, two former top executives are under federal investigation, while former Ohio Speaker Larry Householder was sentenced to 20 years in prison for his involvement in the racketeering conspiracy.

Similarly, controversy erupted in North Carolina when blue-chip companies faced public scrutiny over their contributions to legislators who supported an abortion ban. These companies, including Comcast, Intuit, Wells Fargo, Amazon, Google, and Bank of America, had also publicly voiced their support for abortion access. Such disconnects between a company’s stated positions and its political spending can seriously damage reputation and public trust.

Mitigating the Risks of Political Spending

To mitigate the risks associated with political spending, companies must take proactive steps. First and foremost, they need to exercise due diligence and carefully evaluate where their political donations may lead them. This evaluation involves considering potential financial, reputational, legal risks, as well as potential employee disaffection.

If companies choose to contribute to third-party groups, they must diligently map the money trail to ensure they know where their funds will ultimately go. Shareholders should also have access to reports from these third-party groups, detailing the political expenditures made and the ultimate recipients. By holding third-party organizations accountable, companies can maintain control over their corporate funds and fulfill their fiduciary responsibilities.

Some skeptics argue that companies have limited power to require transparency from third-party groups. However, this view overlooks the fact that companies hold influence over trade associations, 527s, and dark money organizations through their dues or contributions. Moreover, applying robust standards to political spending aligns with sound third-party risk management practices, such as monitoring corporate contributions to charitable or philanthropic organizations.

The Need for Transparency in Corporate Political Spending

In today’s climate of heightened scrutiny, companies cannot afford to roll the dice with political donations. The potential consequences are significant, with impacts reaching beyond the company itself to include the media, the public, shareholders, and employees. In some cases, companies may even face intimidation from government entities.

The position of leading proxy advisory firms, which contend that companies are powerless to demand transparency from third-party groups, is inconsistent with sound risk management practices. Companies must strive to apply the same level of scrutiny to political spending that they do to other areas of risk and financial decision-making.

Former Acting Chair of the U.S. Securities and Exchange Commission, Allison Herren Lee, emphasizes the importance of transparency, advocating for greater disclosure around corporate political spending. Bruce Freed, president of the Center for Political Accountability, leads an NGO committed to corporate political disclosure and accountability.

In conclusion, companies must recognize the risks associated with their political spending. By exercising due diligence, mapping the money trail, and demanding transparency from third-party groups, companies can proactively manage these risks and avoid the potential negative consequences that come with controversial contributions. In this age of intense public scrutiny, it is crucial for companies to follow their own money trail before someone else does it for them.

This article was written by Allison Herren Lee and Bruce Freed. The opinions expressed in ANBLE.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of ANBLE.

More must-read commentary published by ANBLE:

Tether’s reserves reach record $86.5 ...
BT, a telecoms giant, appoints its first fe...
Sign up for Biden’s new student loan ...
Elon Musk won’t move Twitter’s ...
Poland’s birth rate hits lowest level...
Texas prepares for more record heat, with t...
Business

Business