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Thursday, April 30, 2009

Campaign Finance, Its Value to Corporations and Its Role in Corporate Communications


The Capacity of Corporate Entities to Influence Federal Elections:

Like any individual citizen, corporations have a stake in the outcomes of federal elections. A candidate’s economic, foreign, social and environmental policies can either threaten or provide hope for a particular organization. The stakes for corporations aren’t necessarily greater than those of the individual, but they are on a greater scale of complexity and scope. It’s no surprise, then, that corporations have long played a role in influencing the outcome of federal elections.

For as long as campaign finance has existed, corporations have been a part of it – pushing the candidates who are best for business to the top. Corporations clearly possess more funds than private citizens, and so, historically, disproportionate attention has been given to the needs and desires of the big businesses which are able to help fund the expense of getting elected. Not surprisingly, this practice has created a tenor of distrust in the country towards campaign finance and corporate issue advocacy.

In direct correlation to this populist discord, the United States Government has spent the past 40 years tweaking regulation on campaign finance and issue advocacy – seeking to put corporations and private citizens on an even playing field. But has the increased regulation succeeded in tapering the influence of corporations in federal elections? Is campaign finance still as influential as it once was? What has changed for the corporation which seeks to influence a federal election?

To answer these questions, I will first provide a concise overview of campaign financing and how it can play into a corporate communications strategy. I will then explain the role campaign financing played in the 2008 election. From there, I will outline the general value of issue advocacy for the corporate entity, and then I will conclude with a brief summary of the salient points.

Understanding Campaign Finance and Its Risks:

“Campaign finance” is the fundraising and spending a political campaign does during its election race as a means of garnering funds and support. Political campaigns have many expenditures including travel, advertising and staff expenses. The financial support candidates receive through campaign financing helps cover those costs.

Typically, contributors tend to aid the candidate of the party which they are predispositioned to support; meaning, most organizations fund the party they feel is best for their business. There is a stigma in popular culture, perhaps facilitated by such films as Mr. Smith Goes to Washington or Distinguished Gentleman, which suggests campaign finance is frequently offered in exchange for direct compensation. This plays on the idea of dirty politics and bribery, where the elections of politicians are funded by corporations and then, once elected, those politicians find themselves obligated to the special interests of the corporations which backed them.

Likely unbeknownst to many Americans is the fact that contributions from labor unions and corporations is actually prohibited. At the federal level, the largest source of campaign funding comes from private individuals.

Another source of private financing comes from political action committees (PACs), overseen by the Federal Election Commission (FEC). According to the FEC, an organization becomes a PAC by receiving contributions or making expenditures in excess of $1,000 for the purpose of influencing a federal election. Before an interest group or corporation can make political contributions, it must first create a PAC. Federal PACs can only donate $5,000 per candidate per election, where primaries, general elections and special elections are each counted separately. PACs can also only offer $15,000 per political party per year and, at most, $5,000 per PAC per year.

Technically, PACs can spend money independently of the campaign they’re supporting insofar as they do not coordinate these efforts with the campaign; organizations which make such efforts are frequently confused with “527 groups.” These groups are named after United States tax code, 26 U.S.C. § 527, which defines them and generally exempts them from taxation. However, 527 groups are issue-advocacy organizations which are not regulated by the FEC.

Money which is donated to a PAC or a 527 group, so as to indirectly benefit one’s preferred candidate, is referred to as “soft money.” Money which is donated directly to a campaign is referred to as “hard money.”

According to the FEC, Buckley v. Valeo, a U.S. Supreme Court decision in 1976, held that limitations on donations to campaigns are constitutional but limitations on the amount campaigns could spend is an unconstitutional abridgment of free speech under the First Amendment of the Constitution. However, this decision was later tapered by the McCain-Feingold Act of 2002, which banned national political party committees (namely the Democratic National Committee and Republican National Committee) from accepting or spending “soft money.” This created a scenario where campaigns could still spend unlimited amounts of money, but they couldn’t fund PACs or 527s to do their advertising for them. The intent of this act was to increase accountability and civility in campaign advocacy.

With regards to the first finding in the Buckley v. Valeo (relating to the limiting of donations to a campaign), there are still caps on the amount an individual, party or PAC may donate. According to the FEC, these caps range from the $2,400 an individual may give a single candidate per election to the $42,600 a national party can give to its senate candidate per campaign. Of course, there is no limit to the number of individuals or PACs who can donate, just the amount they can donate.

Fundraising has become so vital to a campaign’s success that one survey found 23% of candidates for statewide office spent more than half of their scheduled time raising money, and over half of all candidates surveyed spent at least a quarter of their time fundraising (Jeffrey). Of course the “private” in private financing isn’t meant to imply any level of anonymity on the part of the donors, but rather a private obligation to raise funds on the part of the candidate. In fact, full disclosure regarding the source(s) of funding is required in instances where private financing is attained.

According to the FEC, campaign finance law requires federal-level candidates, parties and PACs to file frequent reports disclosing the money they raise and spend. Federal candidates are obligated to identify their contributing PACs and party committees, and they must provide the names, occupations, employers and addresses of any individuals who donate more than $200 in a given election cycle. The FEC publishes this information on its website: http://www.fec.gov/.

As mentioned earlier, corporations may not make direct contributions to federal election campaigns. However, they can, and frequently do, create PACs. While union PACs are typically funded through membership fees, corporate PACs get their funding from the voluntary contributions of their stake holders.

PACs get around the findings of Buckley v. Valeo, which prohibited PACs from explicitly advocating the election or defeat of federal candidates or their parties, by advocating or attacking specific issues tied to the candidates. In this way, corporations and unions have played a significant yet seemingly invisible role in many federal elections.

For corporations, campaign finance can easily be a double-edged sword. We’ve discussed the business benefits of aiding one candidate in his or her bid for election, but less obvious is the PR effect financing a political campaign can have. The process of holding corporations accountable to all their advocacy efforts can be tenuous, but insofar as they have to create PACs to fund campaigns, citizens have a mechanism to “follow the money.” This can bode well or poorly for a corporation depending on the candidate and their relation to him/her.

For instance, after the housing market collapse in 2008, Mr. Obama took a brief hit in the polls when it was revealed that he was the second largest senatorial recipient of Fannie Mae and Freddie Mac funding. From the corporate communications standpoint, however, Fannie and Freddie’s investment in Obama’s campaign finance paid off because (unlike GM, Chrysler and AIG who have been eviscerated for their failure to adapt to the economy) Fannie and Freddie had essentially purchased the support of a man who became a wildly popular president. For whatever reason, Fannie and Freddie have not been held to the same standards as many other large organizations – and this can, in part, no doubt be attributed to the support they’ve received from Mr. Obama.

By contrast, the oil companies which backed President George W. Bush during his 2000 presidential campaign have likely came to regret their ties to the politician because of controversies surrounding the roll of oil in the war on Iraq. From the communications strategy standpoint of these oil companies, Bush became a PR liability but, in many opinions, a business necessity.

In the very least we can say there are strong motivators for corporations to invest in campaign finance. We can also say there are extreme risks. Because of the heightened skepticism of campaign finance, every action a president takes which relates to a corporate backer, at some point, will probably bring attention to their financial relationship. In this way, the fate of a company’s public image becomes linked to the candidates it supports.\

Campaign Finance in the 2008 Presidential Election:

In the wake of a 2008 presidential election in which one of the candidates spent more in advertising than any politician in American history, it is prudent to see what effect, if any, political advertising has had (Rutjim & Rutenber). By the end of October, 2008, Senator Barack Obama surpassed the $188 million advertising record set by George W. Bush in the 2004 campaign (International Reporter). With advertisements which ran repeatedly day and night, on local stations and on the major broadcast networks, on niche cable networks and even on video games and his own dedicated satellite channels, Mr. Obama out spent Senator John McCain in advertising nationwide by a ratio of at least four to one (Rutjim & Rutenber).

The huge gap between the two candidates’ spending was the result of Mr. Obama’s decision to opt out of the Federal Campaign Finance System 4 ½ months before the general election. Earlier in the election, both candidates had agreed to participate in the Federal Campaign Finance System, which gives presidential nominees $84.1 million in public money but prohibits them from spending any more than that amount from the day of their party convention to Election Day (Jensen & Salant).

This is, of course, a variation of public financing. In theory, such a system aims at removing the power of special interest groups (union and corporate funded PACs) and restoring candidate focus to the wants and needs of the people. In this system, candidates are still able to solicit private donations, but the money can only be used toward legal and accounting expenses (Kolawole).
“After initially vowing to take public funds if McCain did, Obama became the first presidential candidate since the campaign finance reforms of the 1970s to raise private donations during the general election” (Overby & Montagne).
When the campaign finance system was created after the Watergate scandal in 1974, it had two goals: reduce the influence of money in politics and level the playing field for candidates (Rove). When asked if he would agree to forgo private funding in the general election campaign and participate in the presidential public financing system, in a questionnaire issued by the Midwest Democracy Network in October, 2007, Mr. Obama responded:
“Yes. In February 2007, I proposed a novel way to preserve the strength of the public financing system in the 2008 election. My plan requires both major party candidates to agree on a fundraising truce, return excess money from donors, and stay within the public financing system for the general election...”
Seven months later, Bloomberg news reported a retraction on Obama’s part:
“Obama pledged in March 2007 to pursue an agreement with the Republicans to participate in the public-financing system, which is designed to limit the influence of big money. That was before he began shattering private-fundraising records.”
Mr. Obama ultimately opted out of the federal campaign finance system in mid June 2008, saying:
“It's not an easy decision, and especially because I support a robust system of public financing of elections. But the public financing of presidential elections as it exists today is broken, and we face opponents who've become masters at gaming this broken system" (BBC).
From the beginning of his campaign to the end, Mr. Obama raised nearly $750 million in private funding, exceeding the amount raised by George Bush and John Kerry combined ($653 million) in 2004 (Overby & Montagne). It’s no surprise, with such a record-breaking capacity for fund raising, that Mr. Obama opted out of his public financing promise.

Conversely, Mr. McCain stuck to his promise to use the campaign finance system. Mr. McCain’s reasoning is perhaps best highlighted by a statement made several years before the 2008 election when speaking to the University of Oklahoma in 2001 as a co-sponsor of the “McCain- Feingold” legislation, "Throughout history America has gone through cycles. We go from clean to corrupt and back to clean again. Right now (campaign finance) is corrupt and it's time to clean it up” (McNeill).

When asked about his pledge to the federal campaign finance system in April 2008, Mr. McCain reiterated, “I’m committed to it… I am the presumptive Republican nominee; I will take public financing” (Cooper). Of course, after championing the cause of the aptly named McCain-Feingold Act, it would have been difficult for Mr. McCain to justify backing out of his promise to use public financing.

After Mr. Obama made the decision to use private funding, he reported that nearly four million donors contributed to his campaign (Overby & Montagne). The nonpartisan Campaign Finance Institute found that Mr. Obama collected about 26% of his donations from people who gave less than $200 — about the same as President George W. Bush did in his 2004 campaign (Overby & Montagne). Approximately 74% of Mr. Obama’s funds came from large donors (those who donated more than $200), and nearly half from people who gave $1,000 or more (Rove).

So it went that Mr. McCain’s advertising budget was limited to an $84.1 million pool of public finance from the day of the Republican National Convention until the fourth of November, and Mr. Obama raised over $100 million in private funds in the month of September alone (Brown). Due to this inequity, Mr. McCain turned in vain to the Republican Party to help level the difference.
“McCain relied heavily on the Republican National Committee to help narrow the financial discrepancy. But even with the party resources Obama had a vast money advantage… The RNC reported raising $75 million during the latest reporting period. Overall this year, the party committee raised $322 million. It ended with $13.5 million cash on hand. The Democratic National Committee reported raising $36.5 million (for Mr. Obama) in its latest filing, for a total of $186 million for the year. The party had $8.7 million cash on hand, but it also reported owing $5 million on a line of credit” (Overby & Montagne).
From the first of January to the first of November, Mr. Obama spent an estimated $280 million on television advertising, while Mr. McCain spent less than half as much (just under $134 million) (Kolawole).

In the final week before the election, Mr. Obama spent $23.6 million to Mr. McCain's $4.8 million in television advertising, a difference of about five to one (Kolawole). Also, in television advertising, Mr. Obama outspent Mr. McCain in Indiana by a range of nearly seven to one, in Virginia by more than four to one, in Ohio by almost two to one and in North Carolina by nearly three to two (Rove). Mr. Obama won all four of these states, which had favored George Bush just four years prior. During the final weekend preceding the presidential election, Barack Obama ran 77% more TV ads than John McCain (5,947 vs. 3,358) in seven key swing states: Colorado, Florida, Georgia, Missouri, Ohio, Pennsylvania, and Virginia (Nielson Wire, Oct. 30, 2008). Mr. Obama applied a similar spending philosophy in the once “red state” of Florida and garnered similar results.
“In mid-September the Obama campaign said its budget for Florida was $39 million. The actual number was probably larger. But in any case, Mr. McCain spent a mere $13.1 million in the state. Mr. Obama won Florida by 2.81 percentage points. Mr. McCain was outspent by wide margins in every battleground state.” (Rove).
Similar to a maneuver used by Ross Perot in 1992 (and JFK before that), Barack Obama purchased 30 minutes of uninterrupted airtime with several television networks and cable stations at the rate of about $1 million per network (Burkeman). An online opinion poll done by MSNBC asked, “Will Barack Obama's 30-minute infomercial influence your vote?” Out of 76,085 votes, 56.4% said “No.” Even still, the infomercial reached 33.5 million viewers (Nielson Wire, Nov. 3, 2008). The broadcast aired on CBS, NBC, FOX, UNIVISION, MSNBC, and NY1 between 8pm and 8:30pm EST and, in the top 56 local television markets where Nielsen maintains electronic TV meters, 21.7% of all households watched Obama’s telecast (Nielson Wire, Oct. 30, 2008).

Mr. Obama even went so far as to purchase advertising space within 18 different video games (FOX News). The ads targeted 10 states that allowed early voting (Ohio, Iowa, Indiana, Montana, Wisconsin, North Carolina, Nevada, New Mexico, Florida, and Colorado) and were designed to appeal to males from ages 18-34 (a notoriously difficult demographic for advertisers to reach) (FOX News).

Barack Obama’s decision to opt out of his promise to use the Federal Campaign Finance System, offered him a distinct and insurmountable financial advantage over John McCain which affected every aspect of their campaigns, from staff salaries to broadcast media investments. Significant to the discussion of PACs, however, is that Mr. Obama did not accept funding from any PACs during his presidential bid and, abiding by the rules of the Federal Campaign Finance System, neither did Mr. McCain. This suggests PAC donations are not necessary to fund a winning election campaign. Certainly, one might make that argument that, had Mr. McCain not been obligated to use public finance, he might have been able to curb Mr. Obama’s funding advantage by tapping the donations of individuals and PACs – thus forcing Mr. Obama to also take donations from PACs. But, clearly, neither candidate felt direct PAC funding was necessary during the General Election. So, we are left to conclude that corporations which seek to influence future federal elections will likely have to do so through issue advocacy, rather than direct funding. The 2008 presidential election may have signaled the death of PAC (and by extension corporate and union) direct-funding affluence.

The Value of Issue Advocacy for a Corporate Entity:

There’s no question that advocacy groups can and do shape the way people think about the candidates. For instance, the now infamous 2004 “Swift-boat” ads were produced and funded by a 527 organization known as “Veterans for Truth.” Undoubtedly, their portrayal of John Kerry had some effect on the psyche of voters. How much effect is impossible to say, but there was a markable effect (Chris).

For any corporate entity, however, the tangible return on investment for issue advocacy is difficult if not impossible to measure. Say, for example, that you’re the owner of a massive oil conglomerate and one of the presidential candidates has promised to usher in an age of clean energy. How much would you be willing to spend to advocate or attack issues so as to prevent that candidate from winning?

The decreased funding for and spending of 527 groups, over time, suggests that corporations are less and less interested in issue advocacy. In 2004, 527 organizations spent a grand total of $442,472,913 on issues pertaining to the federal election (OpenSecrets.Org). In 2008, 527 groups spent almost half that amount: $257,995,880 (OpenSecrets.Org). With Obama spending unprecedented amounts on his campaign, one would think the 527 group spending would go up in direct proportion. However, this was not the case.

Likely adding to the decrease in 527 spending was the McCain-Feingold regulation on “soft money” and political advertisements - which not only prevented candidates from sending money to 527s to do their hard-hitting advertising for them but also required candidates to “stamp” their name on each add funded by their campaign.

Moreover, with the increased accessibility of new and social media, private individuals are now more able than ever to practice issue advocacy of their own. Given the frequently viral nature of new and social media, these issue advocates have almost as much potential of affecting the psyche of voters as a well-funded 527 group. Who can forget the Drudge Report’s role in the Clinton sex scandal, or the ferocity with which The Huffington Post and the Daily Kos hounded the Bush administration?

Issue advocacy still has its role in presidential elections but it seems, with increased PAC regulations and decreased barriers to entry for issue advocates, the corporate ROI for PAC is ever-dwindling. It’s unlikely that PACs and 527s will ever disappear, and for the sake of free speech we should hope they don’t. But the days where corporations and special interest groups pulled the strings of federal elections through PAC donations and issue advocacy appear to be behind us.

Summary:

One should not assume corporations no longer have a means for influencing public opinion. It’s still a general truism that an entity’s capacity to influence typically correlates to its financial status. Certainly, we can say corporations are among the wealthiest of entities. We must also understand that a favorable result in an election is looked upon as a business investment. If one elected official will create a scenario for a corporation where it can obtain higher dividends, then it is within that corporation’s best interest to help that official get elected. To assume that corporations will suddenly stop seeking out election results which favor their business simply because regulation has increased would be an err in judgment.

While the FEC regulates PAC activity and laws limit 527 ability, there is no legal infrastructure in place to stop corporations from taking their efforts to the internet. While limitations on 527 ads apply to television, radio and print, there are no such limitations on something like a YouTube video or podcast. And while PAC funding may no longer be as valued as it once was, those corporate funds can now be redirected to “get out the vote” initiatives which can be facilitated by far-reaching social networks.

PACs haven’t died; it’s just time for them to evolve with innovation and around regulation. As the role of PACs evolves, the expectations for a corporation’s capacity to influence a federal election must evolve as well. Is the capacity for corporate influence as great as it once was? No, it isn’t. Caps on donation amounts, limitations on soft money and the general negative stigma towards corporate campaign finance have all irreversibly damaged corporate capacity to overtly influence an election. But there is still a significant potential to influence which can, will and should calculate into any corporation’s budget and agenda.

As with any investment a corporation makes, an organization must take into consideration the affect its campaign finance will have on its communications strategies. The relative success or failure of a candidate can often spell success or failure for his/her campaign backers. There’s no doubt that campaign finance and issue advocacy represent strong business investment opportunities, but they also represent a public relations gamble because, once money has exchanged hands, the fates and reputations of those involved are invariably linked. The relative value of a campaign investment for a corporation is relative to the combination of potential ROI and risk a candidate represents.


References:

BBC News (June 19, 2008). Obama shuns public campaign funds.

Birnbaum, Jeffrey (June 6, 2000). The Money Men : The Real Story of Fund-raising's Influence on Political Power in America. Crown.

Borick, Chris (February 5, 2009). "The Swift Boat Ads in Comparative Context: An Empirical Examination of Advertisement Effectiveness" Paper presented at the annual meeting of the American Association For Public Opinion Association, Fontainebleau Resort, Miami Beach, FL.

Burkeman, Oliver (October 30, 2008). Obama, the infomercial: A 30-minute pitch to America. The Guardian.

Brown, Campbell (October 28, 2008). Commentary: Obama breaks promise on campaign finance. CNN.

Cooper, Michael (April 11, 2008). McCain to Obama: ‘Keep Your Word.’ New York Times. .

Federal Election Commission:
January, 2009. About the FEC.

January, 2009. The FEC and the Federal Campaign Finance Law.
FOX News (October 15, 2008). Obama Campaign Buys Ads in 18 Video Games.

International Reporter


Jensen, Kristin and Salant, Jonathan D. (June 13, 2008). Obama Risks `Pristine' Image in Question of Public Financing. Bloomberg.com.

Kolawole, Emi (November 3, 2008). Who spent more money on advertising, McCain or Obama? FactCheck.org.

McNeill, Ryan (February 27, 2001). McCain speaks at U. Oklahoma on campaign finance, stresses major reform. University Wire. Found on HighBeam.com.

Midwest Democracy Network Presidential Candidate Questionnaire: Found in on AllBusiness.com.

Nielson Wire:
November 3, 2008. 33.5 Million Viewers Watched Obama’s Infomercial.

October 30, 2008. In Philly and Tampa, Viewers Chose Baseball Over Obama.
OpenSecrets.org

Overby, Peter & Montagne, Renee (December 5, 2008). Obama Campaign Shatters Fundraising Records. Associated Press.

Rove, Karl (December 3, 2008). McCain Couldn't Compete With Obama's Money. Wall Street Journal.

Rutjim , Jim & Genberg, Rutenber (October 18, 2008). Barack Obama to Break Advertisement record of President Bush.
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