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Donation Debacle: avoiding the PR nightmare and the use of ethical impact reports

When I was living in Hong Kong in 2002, I received a small stipend to design a newsletter for the Asia-Pacific region of The Conference Board, Inc.501(c)(3) non-profit business membership and research group organization. It counts approximately 1,200 public and private corporations and other organizations as members, encompassing 60 countries. The Conference Board is a leading source of knowledge about corporate governance, corporate performance, business ethics, corporate security, human resources management and global corporate citizenship

As the presidential campaign has started, company leaders are “wrestling with the determination of whether a political spending decision requires caution. The Conference Board suggests that executives need to go beyond deciding whether the act meets the company’s ethical code. They must also ask:

 -how a political spending decision first came to be considered

- who will be the ultimate recipient of the expenditure

-how the money will be spent.

 Other questions include:
• Is the recipient — whether a politician or an organization — known by the company?
• In what manner was a member of the government relations staff approached to contribute?
• Has the recipient spent prior contributions prudently?
• Is there reason to believe that the funds could promote policies that would encourage risky company behavior or practices?
•In the case of high-risk expenditures (e.g., judicial candidates, issue campaigns, and ballot initiatives), did the company follow up to learn how the recipients used the company’s money, who the ultimate recipients were, and how the recipients used the money?”

To further protect their business from negative press related to political donations, The Conference Board notes “Some corporations that are seeking an alternative means of addressing ethical issues in the political sphere are considering the creation of an “ethical impact report”— a standard protocol for important company decisions that raise ethical questions. Such a report—still in the conceptual phase at this time—would ask and answer questions about the effects of a proposed company action; list potential impacts of proposals, positive and negative, as well as ways of mitigating negative impacts; and discuss potential harm to the corporation’s reputation.

In its conclusion, a [ethical impact] report would take a position on whether particular actions are justifiable and in line with the company’s business and social objectives considering their ethical implications. Such a report might help prevent ethical missteps. When managers and other employees understand that an ethical impact report will cover all aspects of a company’s political actions, they will more naturally build ethical thinking into the decision-making protocol, guaranteeing the time for ethical considerations in these key corporate decisions.”

According to The Conference Board, “Strengthening a company’s ability to avoid imprudent political spending requires both an effective compliance system and an ethical corporate culture. An ethical corporate culture will encourage a greater degree of deliberation and review than the law minimally requires. It holds corporate decision makers to higher standards of conduct and, therefore, corporate actions are less likely to result in the kind of behavior that can tarnish reputations, diminish profits, or even endanger the sustainability of the company.

In their political activity, leaders at companies with strong ethical cultures enunciate and invoke their ethical codes. Ethically strong corporate cultures encourage debate on company behavior, place a premium on transparency and broad participation, articulate the rationale for the company’s political involvement, and reward rather than punish those who raise legitimate concerns. If a company seeks to minimize the risks involved in corporate political spending, it must take concrete steps; however, the value of these efforts can only be maximized when grounded in an ethical corporate culture.”

You can read the full Conference Board report here:

Kenneth Wind