Target's PAC donation a wake-up call for reform

The big box retailer got caught making a donation to a right-wing PAC in Minnesota -- this time

Published August 17, 2010 5:30PM (EDT)

The big box retailer Target is learning the hard way what economists already knew: Political spending is risky business. On July 6, 2010, Target spent $150,000 on the Minnesota governor’s race to support an anti-gay candidate. Target, which is generally known for its good treatment of gay employees, now finds itself the subject of an ever-growing boycott by gay rights supporters, their friends and families who don’t want to frequent a store that aligned itself with a candidate who is against gay marriage. On Aug. 5, Target’s CEO publicly apologized for the political donation.

Target is a big company and from its point of view $150,000 is a pittance. But the impact on Target’s good name in its progressive home state of Minnesota may take a long time to recover from. And the cost to the bottom line if the boycott continues to grow is likely to be far more that just the original $150K.

This phenomenon of political expenditures costing companies more than the initial check is consistent with a pattern noted by professors at the University of Minnesota who studied over a thousand U.S. companies. In a paper titled "Investment or Agency?" these business professors found many American companies that spent money on politics suffered hits to shareholder value that were far bigger than the actual price of the companies’ political expenditures. This led the professors to conclude that political spending is likely symptomatic of poor management.

Target is a publicly traded company (ticker TGT). The corporate managers who decided to spend this money in the Minnesota governor’s race did not consult its shareholders first. Yet the shareholders are the ones bearing the risk of this political spending if the boycott really takes off. Since late July, when news of Target’s spending hit national newspapers, the stock price has dropped. In its Aug. 5 apology, Target stated that it would set up an internal review process for future political donations but did not give any details about how this would work.

It was precisely this type of spending that the Brennan Center warned about in its report "Corporate Political Spending: Giving Shareholders a Voice." And this is why we have urged changes in the securities laws, to protect shareholders from managerial urges to jump into political battles with corporate treasury dollars.

The investors in Target aren’t alone in facing this risk. BestBuy (ticker BBY) is also coming under scrutiny for the $100,000 it spent supporting the same political group in Minnesota. Now the Human Rights Campaign has an open letter to both companies seeking redress in the form of commensurate contributions to candidates who support gay rights.

Fortunately for the public, Target and BestBuy happened to give their political donations to a PAC called MN Forward, which had to report its funding sources under Minnesota’s campaign finance law. With the CEO of Target defending the donation as good business, the lesson he learned from this episode may not be to stop spending on politics, but rather to cover the company’s tracks better. The next time the company engages in elections, it could to do it in a way that would leave customers, shareholders and voters in the dark about the political spending.

The Target example shows why we need some reasonable changes in our laws after Citizens United, the Supreme Court decision that nixed not only the federal corporate political spending ban, but also Minnesota’s preexisting ban on corporate political expenditures. Laws in over 20 other states were also affected by the decision. Our future elections, both state and federal, are now easy prey for big dollar corporate spending.

But it’s not too late to change the dynamics. At the federal level, there are three pending bills that would address different aspects of this problem. First, we need full transparency of corporate political spending. The DISCLOSE Act would provide stronger disclosure and disclaimer requirements so that voters know who funded a particular federal political ad.

Second, the Shareholder Protection Act would provide shareholders in publicly traded companies with the ability to vote on future corporate political spending and would require companies to tell shareholders directly about their political expenditures. This bill would ensure that those who bear the financial risk of corporate political spending also have a say.

Third, the Fair Elections Now Act would give candidates for Congress an incentive to focus on small dollar donors instead of corporate special interests. The Fair Elections model would place voters first. Congress needs to act on all three bills. And analogous laws should be adopted at the state level. We need these new laws to protect voters, candidates and investors from the vagaries of the new Citizens United world where $100,000 corporate political expenditures may become the new normal.

Ciara Torres-Spelliscy is counsel at the Brennan Center for Justice at New York University's law school.

By Ciara Torres-Spelliscy

Ciara Torres-Spelliscy is Counsel at the Brennan Center for Justice at NYU School of Law and co-author of "Improving Judicial Diversity" along with Monique Chase and Emma Greenman.

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