The Red Flag Group®

Political donations – the blurred line between right and wrong

Political donations – the blurred line between right and wrong

Supporting political initiatives through the donation of money or other gifts raises a number of issues surrounding morality and fairness and preserving the interests of the democratic process. Accordingly, political financing and donations are often heavily regulated, though regulations on which types of donations are acceptable vary between democratic countries.

Amid the perceptions of bribery and corruption that can be associated with political contributions there are a number of calls for even greater transparency on any form of donation, and for complete and accurate disclosure of specific payments, gifts and entertainment. For companies especially, this adds to the ever-increasing burden of monitoring the activities of staff in supporting politicians and political initiatives.

The landscape

Politicians, their parties and the campaigns they run all incur significant expenses in terms of travel, staffing, consulting, advertising and communications, to name but a few aspects. This is the same around the globe, and not necessarily unique to particular countries or regions.

The most obvious concern is that, while politicians and political parties legitimately require funds to compete in the political landscape, the donations themselves may alter (or at least give the perception of altering) a government official’s priorities to serve the interests of their donors as opposed to their constituency.

Many studies have been performed examining the role of money in politics and the influence it has over the outcome of an election. Even with the often-strict requirements of full public disclosure of benefits received, there remains widespread public perception that donors expect (sometimes illegitimate) favours in return for their contribution.

There have also been other initiatives from would-be recipients. In Australia in 2009, then New South Wales premier Nathan Rees made it illegal for property developers to donate to political parties and for political parties to accept donations from property developers. One of the main drivers behind this was to ensure that New South Wales citizens would be entitled to a property planning and governance system that was free of corruption. From that point on it was substantially more difficult for a politician or public servant to make decisions on council grants or property developments that otherwise may have been influenced by lucrative donations.

The construction and property development industry in New South Wales is worth approximately AU$25 billion per year. In order to assess the merits of a particular construction project, there are many people across the country who make thousands of decisions day in, day out to weigh up various elements. Such decision makers include officials, planners and politicians in local councils and state and federal governments. Whilst an essential bureaucratic process, if there is any lack in oversight the risk of exploitation exists. Political donations are one such channel for this exploitation to occur – eliminating the possibility for any kind of donation to occur is an extreme but effective way of minimising the possibility of corrupt behaviour.

Best practice

While governments and public bodies around the world devise and implement legislation to ensure political donations are not misused or abused, responsibility equally sits with existing and would-be donors to safeguard that any gifts or financial assets cannot be orchestrated to facilitate illegitimate favours.

Participating in such donations generates a risk-management minefield for companies. At the root of the solution to managing this is not only overseeing compliance with political-contributions laws of the particular country, but also ensuring that a culture exists where only moral practice is pursued. Companies quite rightly and legitimately support corporate citizenship initiatives in communities, and engage in civic activities as part of the political and democratic process. From the outset, an organisation must very clearly state its position on political contributions and expectations of trusted employees who engage in such activities. Many companies at some point in their existence will engage in discussions with governments on public policy issues. If determined that it is in the best interests of a company to work with governments in this manner, frank and full disclosure on any engagement activities is a must.

To avoid any perception of coercion of a government official, there is an increasing trend for major corporations to have a firm stance against any use of company resources for political donations, regardless of whether to a political party, political committee or candidate. But whether or not a company’s position permits any form of donation, it is paramount that compliance officers invest substantially in internal policy development, communication and reinforcement. Just as a well-constructed and communicated code of conduct sets the tone for ethical behaviour generally, a programme structured around any corporate political involvement is the mandatory first step to mitigating any risk of the perception of bribery and corruption. If donations are to be made, it must be clearly displayed what the aim, purpose and goals of each contribution are. Without this, there is a lack of understanding throughout the organisation as to what the limits are, what is acceptable within the parameters of the law, and how to maintain a reputation of the highest moral values.

For many organisations, navigating the blurred lines of corrupt behaviour and political affiliations and contributions is too risky, so donations are banned altogether. But for others, their survival relies on frequent and open communication and collaborative efforts with government bodies. Despite the uncertainties that may exist in pursuing such activities, companies need to draw their own lines in the sand. Involving a compliance officer in the process and creating a political-contributions programme will be invaluable. Strict oversight and constant reinforcement of values and aims are keys to successfully staying on the legitimate end of political involvement.