Shareholder Activism: Corporate Political Spending

( ChatGPT is not used to write this essay. I prefer to summarize my thoughts by myself. I used
ChatGPT to gather qualitative data about different topics but the storytelling and essay is 100% my
text).

Shareholder
s
Company Politician Public
s Policy
Customers

Fig. 1 The correlation between different stakeholders of the corporate political funding.

Corporate political funding refers to the financial contribution made by a corporation towards a
political candidate, party or institution. This may include various kinds of donations made in a
spectrum of ways. One may directly make donations to political campaigns, funding of political
action committees or support for lobbying efforts. This topic has gained the spotlight in terms of
issues regarding social and political sustainability of such donations and it potential to influence the
political process and undermine democratic principles. The above figure (Fig.1) depicts the
stakeholders of corporate political funding process and it’s impacts on society.
ICCR is an organization that has developed a growing network of NGOs and civil society groups
which serves as an early warning system in identifying and understanding the impacts of corporate
practices on the ground. It helps increase investor engagement in public policy debates which is
critical in advancing social justice and environmental sustainability.
To begin with the cons of the corporate political fundings is the issue of shareholder rights and
grievances. Since, political donations are managed by managers of the corporation, it is stakeholders
including shareholders or customer base value being traded without the consent, will or
representation of the same stakeholders. In ideal conditions respective stakeholders do not base their
relationship with a corporation based on their entrusted capital for political purposes. This can also
supress stakeholder values by not focusing of value creation through innovation and execution.
For instance, the Supreme Court of India recently invalidated the existence of electoral bonds. The
Indian government passed a bill in 2017 that permits individuals and corporate entities to make
anonymous contributions to any political party indefinitely using financial instruments known as
"Electoral Bonds." The government-run State Bank of India offered those Election Bonds for
purchase in predetermined denominations, but they were gifts rather than loans, despite the name
suggesting otherwise. The donors might then give them to any political party so they could be cashed
out at that bank. The court noted that "by holding the government accountable, such a right not only

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fulfils the freedom of speech and expression but plays a key role in furthering participatory
democracy."
According to the study of Stanford business School, the self-destructive down side of corporate
political funding, spendings like these by a corporation can make it vulnerable to the wrath of
politically conscious customers who are more and more ready to criticize companies and brands on
social media. Ultimately, it boils down to a risk management issue. Every corporate board is charged
with the fiduciary duty of managing risks, establishing policies that control the companies' political
behaviour, and guaranteeing the safety of the company. In the contemporary world, there is a
growing need for a civic minded leadership in the corporate spheres too.
To find a potential solution the issue, we need to consider that the financial risks that corporations
face are exponentially higher when their political spending links their brand, either directly or
indirectly, to contentious political issues, outcomes, and allegations of corruption. In addition to
having the potential to negatively impact the environment in which businesses must compete and
operate over the long term, this new political landscape may also expose a company to legal liability
if due diligence is not done. Companies usually lose control or knowledge over how their money is
ultimately used when they donate to outside organizations. Crucially, business executives frequently
don't know what their money actually allows through the recipients of their donations or the
problems and scandals the company might be involved in.
Risk mitigation: business executives have the right and the obligation to request a detailed
accounting of all recipients' use of corporate treasury funds. Businesses ought to follow the same
guidelines that are currently in place to oversee and control their donations to philanthropic and
charitable causes. By implementing rigorous due diligence standards for their political contributions,
corporations can reveal more information, take necessary control over their corporate funds, and
fulfil their fiduciary obligations.

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Bibliography:
1. ICCR: https://www.iccr.org/
2. Why did the Supreme Court strike down the electoral bonds scheme? | Explained:
https://www.thehindu.com/news/national/why-did-the-supreme-court-strike-down-the-
electoral-bonds-scheme-explained/article67848657.ece
3. Corporate due diligence of political spending essential to protect companies from growing
risks, Harvard Law School forum on corporate governance:
https://corpgov.law.harvard.edu/2023/04/23/looking-behind-the-curtain-corporate-due-
diligence-of-political-spending-essential-to-protect-companies-from-growing-risks/
4. Corporate Political spending is bad, Harvard business school :
https://hbr.org/2022/01/corporate-political-spending-is-bad-business
5. Corporate Governance and Corporate Political Activity: What Effect will Citizens United
have on Shareholder Wealth?:
https://dash.harvard.edu/bitstream/handle/1/30064396/Coates_684.pdf?sequence=1&isAllow
ed=y
6. The self-destructive down side to corporate political funding, Stanford business school:
https://www.gsb.stanford.edu/insights/self-destructive-downside-corporate-political-spending
7. Corporate due diligence necessary for the political funding process:
https://corpgov.law.harvard.edu/2023/04/23/looking-behind-the-curtain-corporate-due-
diligence-of-political-spending-essential-to-protect-companies-from-growing-risks/