Most CEOs would rather focus on growing their businesses than dealing with government policies and political candidates running for office. But they also recognize an increase in government regulation, which has a direct impact on their business. The question eventually emerges: Should my company form a PAC?
The answer depends on several factors, including your company's size, goals, and the industry that you're in. Some industries have much more government oversight than others.
Plus, it's almost uniquely a middle market question. Small companies usually have neither the resources nor the staff to even consider forming a political action committee, and most large companies will have already set up lobbying shops in one or more states and Washington D.C.
Three primary factors will determine whether it's time for your middle market company to consider forming a political action committee:
1. How involved or interested is the government in your company or industry? Some companies get a lot more scrutiny that others, such as those that can have a significant environmental impact.
2. How much time do you have? Just as families with rising incomes often have more discretionary time and money to get involved outside of the job, CEOs tend to be very hands-on until the company reaches a size that allows the CEO to step back and take on a leadership and planning role.
3. Are the trade associations that represent you at the state and federal levels adequately addressing your concerns with elected officials? If not, you may want to play a greater role.
I explored the option when I ran a small Washington-based trade association comprised of several middle market companies. The board ultimately decided against starting a political action committee, but we learned several things in the process.
The primary reason for a business to form a "connected" PAC is to donate money that represents the company's interest to one or more political candidates. Under federal law, corporations cannot contribute directly to candidates in federal elections. If you want to make company-oriented contributions, it has to be through a political action committee.
Federal PAC rules can vary from state rules, so you will have to decide if a state or federal committee (or both) best suits your company's needs and interests.
When a company forms a committee, officers have to be appointed. While company management and the board are considered the primary funders of a company-oriented committee, employees and other "connected" people can contribute. Those contributions are not tax deductible.
Just as there are limits on individual contributions, there are also limits to how much a federal PAC can contribute to candidates: up to $5,000 per candidate per election. They can also give up to $15,000 annually to a national political party and up to $5,000 to another committee. No individual can contribute more than $5,000 annually.
PACs are free to determine when, to whom, and how much they give (subject to legal limits), but contributions are public information that is monitored by candidates and other groups. Deciding on which candidate(s) to give money to can create some agonizing and heated internal discussions — along with problems if the non-supported person wins the election. Giving to candidates in only one party can raise similar problems when the other party is in power, which is why many PACs give to candidates in both parties, even if one party doesn't completely represent its interests.
PAC contributions may help to open the door for a business to get in touch with elected officials and explain concerns about legislation or regulations. But don't expect political contributions to buy an elected official's vote, as critics of the system sometimes imply. Keep in mind that there is often someone on the opposite side of an issue who is also donating, essentially counterbalancing your contributions.
In addition to donating to candidates who will be representing your district, PACs may give money to candidates who are philosophically aligned with them on one or more issues. Ensuring that people who know your business are in office can be important to your company, particularly if the government is trying to regulate or pass new legislation that would significantly affect the relevant industry.
But while there are upsides to creating a political action committee, there are also downsides. Federal PACs are heavily regulated, and it takes staff time to comply. Compliance requirements for state-based PACs depend on the state's laws.
Plus, funds have to be raised. A company that is highly motivated about its issues, with several well-paid managers and officers on board, may be able to raise funds easily. But if people don't contribute to the political action committee, there's nothing to give away. You may want to gauge general interest before establishing one. You don't want to go through the time and effort to set up a committee only to find that no one is giving to it. Company officers cannot demand that employees give, nor can they provide a raise with the condition that an employee uses it to donate.
Perhaps the biggest downside is that once you form a committee and start giving, the company can be lumped into just another group trying to buy influence.
Do companies have options? Yes.
For example, in Citizens United v. Federal Election Commission, the Supreme Court ruled that the government cannot prohibit companies, organizations, and labor unions from making independent political expenditures, which means that those expenditures are not coordinated with a candidate's campaign. Thus, there are other ways for your company to express its opinion about the virtues or vices of candidates, policies, or legislation.
It's worth noting that individuals, including CEOs, can still contribute to candidates' campaigns without a committee. You can still help any candidate you want. And if your company is a member of one or more trade associations, those organizations may already have formed a political action committee that you and your management team can contribute to. You might even want to take an active role in it.
Forming a PAC is a major step that may benefit your company - but you also may find that it costs more time, money, and trouble than it's worth. The best advice is to see an attorney who specializes in PACs and election law.
Merrill Matthews is an NCMM contributor and a resident scholar at the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter.