Political Contributions
The role they play in investment due diligence and why it matters
Political contributions are never far from the headlines. The implication that political influence can be bought is always sure to stir up a Twitter storm. When scandal breaks, the moral fiber of the politicians that accept donations and those individuals that donated to their campaigns is called into question. In this report, we explore the trends in individual political donations, why it matters for executive management, and what red flags to watch out for.
A view from the top:
Executives’ political contribution trends
Political contributions are usually seen as deeply personal and mostly private. However, political contributions made by executive management are often seen as a reflection of the company for which they work. Therefore, who is contributing and which candidates they are contributing to becomes publicly significant.
Executives are more likely to contribute when it benefits business
It is well documented that the higher the level of education a person has the more likely they are to engage in the political process and make contributions to political causes. There is a gender divide found in political contributions; while men and women contribute in approximately equal numbers, contributions made by men account for 66.7% of overall contributions in dollars.
What is less well known is that the further an individual moves up in their career the more likely they are to make a political contribution. One study examined past political donations made by S&P 500 CEOs. In each subsequent election cycle (as they presumably moved up in the professional hierarchy) they were 137% more likely to make a political contribution.
Executives are also likely to put their personal money behind the causes that further their company’s interests. Another study looked at the contribution habits among corporate leaders in relation to specific members of Congress, comparing donation levels and the relative influence of a particular Congress member. The likelihood of a corporate leader donating to a specific member of Congress increased by 11% when that member was assigned to a committee that related to policy matters that could benefit that executive’s business interests. If the company was actively involved in lobbying the federal government then the likelihood of making a contribution jumped to 31%.
What risk intelligence can tell us about executive donation trends
With the advent of AI-powered risk intelligence and automated background checks, an unprecedented level of data is available on trends in executive political contributions. Intelligo is leading the field as a provider of AI-powered background risk intelligence for financial services. Drawing upon publicly-disclosed information from more than 4,000 individuals analyzed, and leveraging the company’s proprietary risk intelligence system, Intelligo has been able to offer new insights into the political contribution patterns of investment management professionals.
‘48% of the analyzed managers donated at least once in the last 12 years’
Between 2012 and 2020, the number of executives donating to Democrats rose by 12%, while those donating to the Republican party declined by 69% over the same time period. In fact, over the four Presidential election cycles analyzed, the only time the Republican nominee received support equal to the Democrat was in 2012, when Mitt Romney – a candidate with significant Wall Street ties – was nominated.
More than twice the number of investment managers donated solely to Democratic candidates over Republican candidates. It is interesting to hypothesize whether this was due to personal political convictions moving towards the Democrat party or considering the good of their company, based on the evidence that corporate leaders’ political contributions are in part based on which candidates will have potential influence over issues that benefit the company.
Median Dollars Donated
Democrats and Republicans had the exact same median donation. In our analysis, there were a few larger “single donor” donations for the Democrats than the Republicans, which created a higher average, but it appears that the real differences between party donations lie at the extreme, or “megadonor,” levels.
All out in the open:
Where does political contribution data come from?
The laws governing federal political donations in the US require that all political action committees, political parties, and federal candidates disclose any and all contributions received that are over $200. When making a political donation, citizens are required to provide their legal name, address, size of the donation, and the candidate or party of their choosing. If the contribution is above $200, the donor must also provide their occupation and employer.
This information then becomes public record and is freely available and tracked by the Federal Elections Commission (FEC.) Many organizations report all contributions to stay on the safe side of disclosure laws.
There are some loopholes to the transparency of political contributions. Contributions to advocacy organizations such as 501(c)(4) (social welfare) and (c)(6) (business league) organizations are not publicly disclosed unless the organization spends the money for political activity in the few states and localities which require disclosure of even these contributions (notably California and New Jersey).
The public record data can be accessed by any individual on the FEC website. This free access can offer a unique viewpoint to learn more about an individual and their political affiliations. For companies performing background checks- either pre-hiring or pre-investment- this data can add a very valuable dimension to assessing a candidate.
What to watch out for
2 ways that personal political contributions can affect your investment bottom line
The right to make political contributions and hold a personal political opinion is protected by law. It would seem that the private political contributions made by staff members are not a company’s concern. However, political contributions do have the capacity to have a profound, and surprising, effect on a company’s standing. We look at the top two:
Political contributions can be a sign of character
As they can reflect personal convictions, political contributions can be telling in terms of character. While the suitability of a candidate for a position or investment opportunity should not be evaluated on political leanings alone, it can be a useful piece of added information. Particularly in turbulent political times, a company might be wary of hiring an individual who supports politicians who espouse marginal viewpoints. This could be to ensure a good match in terms of company culture or that the individual can be trusted to make choices in sound judgment.
Donations could be a reputational risk
Inasmuch as they are readily available public information, political contributions can pose a reputational risk for a company should they be construed to have negative implications. With shifting political tides, today’s donation could be tomorrow’s scandal. For example, the personal political contributions of the Facebook executive team are being retrospectively analyzed in a time that the company faces political scrutiny into their business dealings.
How to get the information when you need it
Political contributions have a great potential impact on a company. The real value in political donation information for investment firms is an additional data point that helps verify or contextualize potential employees or investment partners. Despite the data being freely available, many commercial background check firms fail to include it in their standard reports.
The real value in political donation information for investment firms is an additional data point that helps verify or contextualize potential employees or investment partners.
For in-house due diligence teams, with hundreds of candidates and investment opportunities being researched annually, uncovering the information can be an impossible challenge. It is simply not possible to manually check every potential donation for an individual.
Thanks to advances in background checking systems, political contributions data is now being incorporated into human capital intelligence gathering.
Intelligo is a leading risk intelligence company fusing AI and Big Data to digitize employee and pre-investment executive due diligence. Armed with this data, organizations are empowered to make confident and informed business decisions. Intelligo’s AI-powered solution suite, Clarity, allows stakeholders to make fast, accurate intelligence-driven decisions, providing a 360° view of an executive’s or a company’s reputation, legal and financial backgrounds, including a history of past political contributions. With this depth and breadth of information, companies are able to reduce business risk and increase the trust they have in their employees and investment partners.
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