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The Conversation

The New Minefield of Corporate Political Spending

Thursday August 12, 2010

by Charles Fombrun

Earlier this year, when the US Supreme Court ruled that corporate funding of independent political

broadcasts could not be limited under the First Amendment (in Citizens United vs. Federal Election

Commission),the outcry was immediate and vociferous. The decision opened the door for private

companies and unions to contribute directly to political campaigns at the federal, state, and local levels.

Surely, critics predicted, we would enter a new era of campaign finance in which big corporations wouldspend lavishly to advance their selfish agendas.

But as the first round of state primaries ends, a different cautionary tale is unfolding. Various activists and

consumers have been vigorously expressing their anger towards a group of Minnesota-based companies,

including Target and Best Buy, for the large contributions they made to MN Forward (for Minnesota

Forward), an organization devoted to regional economic development which in turn endorsed and paid for

ads backing a Republican candidate for governor.

According MN Forward's executive director, the group favored the candidate, Tom Emmer, because of his

progressive ideas for creating jobs and growing the state's economy. But after a federal judge decided onAugust 4th to overturn California's Proposition 8 banning same-sex marriages, a national debate was

ignited on gay marriage and the spotlight fell on Emmer's conservative stance on social issues. The

corporate contributors to MN Forward (beyond Target and Best Buy, they include Pentair, Hubbard

Broadcasting, Davisco Foods International, and Polaris Industries) suddenly found themselves on the

receiving end of consumer boycotts, petitions, and social media attacks.

The story shows where power now lies. We've entered a new "reputation economy," in which people

increasingly choose among competing products and services based on their impressions of how the

companies behind them behave. Corporate brands therefore have to worry more than ever about

becoming embroiled in any controversy that might tarnish their image. As Brayden King, a professor at

Northwestern's Kellogg School of Management, told Bloomberg Business Week,there's "a market out

there for reputation. Activist communities are well aware of that and will use it as a way to get leverage."

King uses the term "private regulation" to describe what we may see as a result: companies being constrained

not by government but by private interests with enough power to keep them in check. But a company's actions

can have ramifications far beyond the effects the company intended, as the Minnesota

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imbroglio suggests. Therefore, even companies who are expert at understanding and tracking consumer

perceptions might hesitate to take advantage of the new rules of campaign finance.

Meanwhile, as Target struggles to wash off the bulls-eye painted on its back, the curious silence

emanating from Goldman Sachs starts to make sense. Over the last 24 months, Wall Street's leading

investment bank has been railed against by both clients and regulators for its conduct during the financial

crisis. It has lost a great deal of political capital and reputation. Nonetheless, Goldman has declined the

invitation to speak out and defend its actions. One wonders if and for how long the company can resist the

temptation, but so far it has refrained from funding any political advertising.

Perhaps its management realizes it's a tough climb back to a top-tier reputation. Certainly, advertising doesn't

offer the shortcut it used to. Earlier this year, when Reputation Institute asked 7,790 US consumers if they

"trust what companies promise in their advertising," nearly 20% claimed to overtly distrust corporate

advertising, outweighing the 17% who said they believe what brands promise. Faced with such skepticism of

their paid messages, few companies will be able to talk their way into customers' good graces. To earn asolid reputation to enjoy people's trust, admiration, esteem, and good feeling

they will have to deliver quality products, and beyond that, model ethical behavior, corporate

citizenship, innovation, institutional leadership, and workplace excellence.

The companies who are willing to commit to doing all of that are more likely to find people willing to listen to

their views on policy matters. And that may be true whether they pay to advance those positions or not.

Dr. Charles Fombrun is founder and chairman ofReputation Institute, a private advisory and research firm

specializing in corporate reputation management that consults to companies around the world.

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