Question

Recent election cycles have brought new challenges for corporations and their boards of directors. For example, in the 2016 presidential election campaign, candidate Hillary Clinton unveiled a prescription drug plan to lower prescription prices following the Turing Pharmaceutical price gouging scandal. Yet ironically, the pharmaceutical industry was one of the most generous industry donators to her campaign, as well as those of the other candidates. In fact, the health industry overall (including health professionals, hospitals, HMOs, and pharmaceutical companies) donated over $10 million to the presidential candidates by spring of 2016. In essence, the pharmaceutical companies and health-care professionals spent money to promote policies that went against their own financial interests. This happened in congressional elections as well. In 2010, the pharmaceutical industry’s trade group, PhRMA, donated funds to nonprofit groups that used those funds to help elect 23 representatives who subsequently voted to limit access to contraceptives. Some of those funds came from firms like Pfizer, Bayer, and Merck — all manufacturers of contraceptives. Political spending is also an issue with individual companies. Target Corporation, a company that had positioned itself as an LGBT-friendly corporation, found itself the target of angry employees and customers when they learned about Target’s political spending. Target, a sponsor of the annual Twin Cities G4y Pride Festival, donated money to a business group that supported an antig4y rights candidate for Minnesota governor. Angry employees and consumers conducted protests outside Target stores and threatened a boycott. These examples show how political spending can have dramatic consequences for corporations. Politicians take positions on a range of policies and so the same politician may hold some positions that support and other positions that damage a corporation’s best interests. This problem was exacerbated when the U.S. Supreme Court’s Citizen United decision changed the political spending landscape for corporations. Before that decision, political spending was constrained to political action committees (PACs), and PAC political activity had to be disclosed to the FEC (Federal Election Commission). Now firms can make unlimited contributions directly to candidates or indirectly to 501c4 nonprofits and trade associations, who can then hide both the donors who provided the money and the way the money was spent. Firms are now freer to become politically involved but, as Target and the pharmaceutical companies found out, that freedom comes with risk. Shareholders and other stakeholders are asking firms to be transparent in their political spending. They want to judge those expenditures for themselves to avoid agency problems and other conflicts of interest. Ira M. Millstein, founder of the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School, proposes a new policy for boards of directors to follow in this new landscape. He suggests that: 1. Companies should require trade associations of which they are members to report to them on their political spending, 2. Companies should require trade associations of which they are members to disclose the donors who provide the money for their political spending, and 3. Companies should then disclose the information they receive from their trade associations when they disclose their other spending to shareholders and other stakeholders.

1. How would you react to the problem of political spending?

2. As the Chief Executive Officer of a pharmaceutical company, what would you do? Would you retain your PhRMA membership? Would you attach any conditions to your membership?

3. How would you react to the Target situation? What would you do as the CEO?

4. What is your reaction to Ira Millstein’s suggestions? Should corporations demand that trade associations disclose this information before they join?

5. Should companies start disclosing the information they gather? If a trade association refuses to give up that information, should the company decline to join?

Answer 1

ANSWER :

1. The political spending here needs wider governance standards and subject to compliance as laid by apex courcourt and should penalise parties amd companies for non compliance or violation.
2. As CEO of pharma companies, kts best to adhere to guidance and guidelines as laod by government and regulatory authorities and promote highest degree of transparency and ethics even if it causes hit on business profits. As any unethical behaviour may cause permanent seizure of licenses which may have thought provoking negative implications on company and economic situation both.
3. As CEO of Target, he must convince employees as why LGBT friendliness is important based on US Civil rights Act 1964 Title VII which barred discrimination on basis of age, sex, caste, creed and thus each employer is termed as an equal opportunity employer.
4. Corporation must demand trade information before joining to promote highest integrity standards and discard ambiguity over unethical or illegal funds which breach or violation of the aforementioned act.
5. Companies definitely must collate data, comply to ESG and Ethical audit and Sarbanes Oxley Act as well as risk management frameworks and must join trade association only on basis of strong ethical background checks and complete transparency To avoid further complexity and negative ramifications which affects long terms sustainability.