Corporate Governance: Political Accountability Policy
by Mark Williams, Alan Schwartz and Kevin Holst
While many of you are still recovering from the 2010 Congressional elections, the 2012 Presidential election is just over a year away and will likely break contribution records. Similar to past cycles, your officers, directors and employees will receive countless invitations to attend political functions and contribute to candidates, political action committees or other politically-motivated organizations.
Political Accountability Policies
If your organization previously implemented a political accountability policy, refreshing your officers' and directors' knowledge of the restrictions imposed on political contributions and participation by employees is a good place to start. For an organization that either has not reviewed its policies recently or has yet to adopt a political accountability policy, you need to be apprised that there are a number of Federal and state laws that prohibit or restrict corporate contributions, employee participation, use of company facilities, and contributions to industry-related political action committees. The consequences for violating these laws are serious and will often result in significant fines and penalties for an organization and potentially its employees, officers and directors.
Prohibition on Reimbursing Employees for Political Contributions
One law that some companies have recently failed to properly monitor is the prohibition on reimbursing employees for political contributions. For example, the Federal Election Commission (FEC) recently began investigating allegations of illegal reimbursement of political contributions by employees and directors of the Fiesta Bowl.
Under Federal law, the civil penalties for violating the prohibition of corporate reimbursement of political contributions are significant. If the FEC finds that a knowing and willful violation of the Federal Election Campaign Act (the FEC Act) occurred, the FEC may require that the person involved pay a civil penalty of at least 300% of the amount involved in the violation and not more than the greater of $50,000 or 1,000% of the amount involved in the violation. Even when reimbursement for political contributions occurred without either senior management's knowledge or consent, the FEC has applied stiff penalties to the company and the individuals involved.
While civil penalties are the typical resolution to violations of the FEC Act, a preliminary determination by the FEC that the violative behavior was knowing or willful will likely result in a referral to the United States Justice Department for further investigation. For example, in February of this year, two Virginia businessmen were indicted by a federal grand jury for illegally reimbursing over $186,600 in contributions.
As the 2012 election season draws closer, it is advisable that organizations update or draft a political accountability policy and educate their employees on the terms. Adoption of governance regarding political accountability will benefit your organization by minimizing costly mistakes that can damage not only your organization's reputation, but may also result in significant civil fines and potentially serious criminal charges.
If you have any questions regarding this article or its possible impact on your activities and operations, please contact your Sherman & Howard attorney or any member of the Political Activity Law Practice Group.
Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation.
©2011 Sherman & Howard L.L.C. October 6, 2011