In a meeting with automakers on the fourth day of his presidency, Donald Trump appeared eager to cooperate with executives. But that tone was in stark contrast to his messaging on Twitter and at a pre-presidential news conference, where he targeted some businesses for attack and embraced others.
Trump assailed the pharmaceutical industry at his Jan. 11 news conference, saying drug companies “are getting away with murder.” Key drug stocks immediately plummeted.
The following day, Trump tweeted that Americans should “Buy L.L. Bean,” after thanking an L.L. Bean board and family member for her political support. With his tweet, he put an iconic Yankee company in the crosshairs of a polarized national discourse.
Whether Trump has been testing messages to use as president or launching a regular practice, he has used his own “bully pulpit” to put some businesses on notice and to commend others. This approach is raising questions about what some economists call “crony capitalism” and also about quid-pro-quo politics, and it’s shaking up company executives who might otherwise be optimistic about pledges of economic growth.
Seven years ago, the Supreme Court’s Citizens United decision freed companies to engage in political spending. The cost of elections keeps surging with the 2016 presidential cycle nearing $7 billion, up from $6.3 billion in 2012. Today, how will U.S. companies respond to rising concerns about bullying or favoritism in federal government intervention, and will Trump’s L.L. Bean endorsement provide a greater incentive to engage politically?
U.S. corporate leaders from Carrier (HVAC manufacturing) to Boeing (aircraft manufacturing) and Ford (auto manufacturing) have been among those targeted by Trump as he presses his job-growth agenda. On Jan. 11, the nine top pharmaceutical companies in the S&P 500 by market cap lost a staggering $24.6 billion in 20 minutes during Trump’s press conference, according to one analysis. Trump said the drug companies charge the government too much for medicines.
On Jan. 12, Trump tweeted about L.L. Bean, which an anti-Trump group called Grab Your Wallet had added to its list of companies targeted for boycotting. An L.L. Bean official quickly reminded inquiring news media that the company makes “no political endorsements or contributions,” despite the fact that board member Linda Bean donated thousands of dollars to a political action committee that supported Trump.
A dynamic, growth-oriented capitalist system requires a level playing field in which companies focus on how best to compete in the marketplace, not in the political arena or with political money. A number of economists believe crony capitalism brings harmful uncertainty to U.S. companies. And there is academic research suggesting an association between government-induced risk and companies’ increased political donations.
How, then, would U.S. companies respond to a new president’s bully pulpit? When he urges millions of Twitter followers to buy a company’s products in the wake of its board member’s political contributions, will business leaders see it as a quid-pro-quo endorsement?
Or will they listen instead to the skeptical Trump who boasted on the campaign trail of giving money to politicians to get them to “do whatever the hell you want them to do,” while calling the existing campaign finance system “broken”?
These aren’t idle questions, given what we’re seeing in company contributions to the Trump inauguration. According to news reports, Trump-target Boeing pledged $1 million. Chevron, which has a deep stake in the incoming administration’s energy and regulatory policies, gave $500,000. And AT&T, which is seeking to merge with Time Warner, has acknowledged that it contributed.
It’s too early to tell what factors the new president and new Congress will take into account in making decisions about businesses. In the meantime, in the interest of promoting economic growth along with their own protection, businesses can take concrete steps to protect themselves, shareholders and our democracy.
Being transparent about when they give political money and adopting clear policies for this spending are two of the most significant safeguards companies can adopt at a time when one of Citizens United’s central promises has not been fulfilled.
In his Citizens United opinion for the court’s majority, Justice Anthony Kennedy unshackled companies to engage in almost unfettered political spending while asserting that modern technology has the potential to make “disclosures rapid and informative.” The latter promise has not been met.
In large part due to Citizens United and other court rulings, the U.S. election cycle in 2016 broke spending records. Driving much of the record costs were outside groups not formally connected to either political party, including organizations not required under U.S. law to disclose their donors. These latter groups’ secretive political funds often are called “dark money.” Because these organizations may keep their donors anonymous, they are particularly attractive to like-thinking corporations and others who want to keep their donations under the radar.
The U.S. Chamber of Commerce, for example, a powerful business trade association, is allowed under U.S. law to keep the sources of its political spending hidden. It spent almost $30 million on influencing 2016 House and Senate races. So-called “social welfare” groups run ads about hot issues, sometimes attacking candidates, and they are also permitted to hide donor identities. All told, political dark money was projected to add up to at least $132 million in 2016.
Unfortunately, the promise of broad, effective disclosure that the Supreme Court embraced in Citizens United still seems remote. It is impossible to measure the total largesse of rivers of corporate political giving intended to influence elections.
It is possible, however, by looking at disclosed spending, to get a sense of scale of corporate political engagement at another level: in the states, where more and more companies are turning for action. In the 2014 election cycle, business interests spent $1.1 billion on state candidates and committees. By comparison, in the same period labor groups spent $215 million and ideological or single-issue groups spent $137 million.
When companies are transparent about their political contributions, they can protect against payments that might cause a backlash in our fiercely divided political climate, or an ill-considered payment that can damage their reputation. A clear policy on political spending can protect them against public or private pressure from a political candidate, allowing them to cite company policy in order to say “no.”
These steps are getting mainstream traction from companies acting on their own. According to a recent nonpartisan report examining the S&P 500, 305 of these companies were disclosing some or all of their political payments. One hundred and eleven had policies requiring board oversight of political spending. And 143 had placed some level of restriction on their political spending.
It looks like Trump will continue to use his bully pulpit to shame and blame companies, and concerns about crony capitalism will keep growing. If this happens, companies can protect themselves and their integrity by following guidance from Business Roundtable, which encourages company boards to oversee political spending and consider adopting a policy on disclosure. It’s modest advice, but it may help companies in the eye of Trump’s next storm.
For more Reuters Commentary coverage of Trump’s first 100 days, click here.