Politics & Elections Oct 5, 2020
When Executives Donate to Politicians, How Much Are They Keeping Their Companies’ Interests in Mind?
A new study looks at the motivation behind these donations, which make up nearly a fifth of all political giving.
When journalists or watchdog groups scrutinize donations to U.S politicians, they tend to focus on corporations and special-interest groups. In part this is because contributions from individuals are difficult to track. But it also stems from a widespread perception that contributions from individuals are less problematic.
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“In many people’s minds, donations from companies tend to be corrupt, or have the potential to corrupt, while donations from individuals are seen as mostly ideologically driven,” says Edoardo Teso, an assistant professor of managerial economics and decision sciences at the Kellogg School.
But does that common distinction reflect reality? After all, many individuals are linked to companies, and if they’re senior enough in their organization’s hierarchies, they may stand to benefit a good deal from a particular candidate’s victory.
It’s an important question to ask, because donations from individuals make up the majority of campaign contributions—by a long shot. In 2018, more than three-fourths of the money raised by candidates for Congress came from individuals, up from 70 percent in 2000.
Teso set out to examine how much individual political donations were made in ways meant to strategically help the donor’s company. He did so by determining the share of corporate executives or members of corporate boards who are individual donors, and then sought to isolate the motivations of that subset of donors. Specifically, he wanted to understand whether this group’s financial contributions to members of Congress were driven purely by political ideology, or whether corporate leaders were at times donating with their companies’ interests in mind.
Teso focused on how donations from corporate leaders changed as congresspeople’s power waxed and waned. He found that the likelihood of an individual corporate leader donating to a member of Congress increased by 11 percent when that legislator received a committee assignment making him or her “policy relevant” to the donor’s company. And donations increased even more, Teso found, for members of Congress belonging to the party in power at any given time—and more still for powerful committee members, like committee chairs.
Furthermore, he found that the likelihood of a corporate executive donating to a sitting member of Congress was 31 percent higher during election cycles in which that executive’s company was actively lobbying the federal government.
“My interpretation is that these donations are useful because they allow corporate leaders to get the door open, and once it’s open, lobbyists can try to convince the politicians of their views,” Teso says. “The fact that the companies that are actively lobbying are the ones whose leaders are active in donating is in line with the idea of access-seeking behavior from corporate leaders.”
Tracing Donation Trails
At the outset of his research, Teso confronted a problem that also dogs journalists and other watchdogs trying to investigate political donations in the U.S.: making sense of the Federal Election Commission’s publicly available donation data is much more difficult when the microscope is on individuals rather than corporations and special-interest groups.
The problem is a lack of continuity within the database. Though the FEC requires some personal information from individual donors—including their name, employer, and address—employers and addresses can change. In addition, some donors (like corporate executives who sit on various company boards) have multiple employers to choose from. This can make it exceedingly difficult to track a given individual’s donations over time, Teso explains.
He solved this by piecing together data from different sources to create a more complete picture of donors.
First, he drew from a dataset called the Database on Ideology, Money in Politics, and Elections (DIME), which contains standardized information on campaign-contribution amounts, recipients, and donors from the FEC and from state and local election commissions.
He then turned to a dataset provided by a company called BoardEx, which offers detailed information about corporate executives’ complete list of past and present employers. BoardEx collected this employment history on 401,557 corporate leaders from 14,807 of the largest U.S. public and private companies between 1999 and 2018.
By matching the BoardEx employment histories with the DIME contribution records, Teso was able to total contributions made by the same person, even when they listed different employers across records. This clarified how much individual corporate leaders had donated over time.
Collectively, Teso estimates that the corporate leaders in his dataset gave 19 percent of the total dollar amount recorded by the FEC between 1999 and 2018. While less than 1 percent of all Americans donated during that period, 40.5 percent of corporate execs did. “This underlines their prominence in the donor population,” Teso writes, “and the importance of shedding light on the motives behind their donations.”
Teso next needed a way to tease out the likely motivations of those donors.
If a given executive gave money to a sitting senator during the sample period, for example, how could Teso determine whether the gift was likely motivated by an alignment with her political ideology or by a strategic determination that this financial largesse could somehow help the executive’s company?
“If I see that a donor changes patterns of donations based on committee assignments, I can say with some confidence that the donation was strategic, not personal.”
— Edoardo Teso
To untangle these motivations, Teso turned to an analytic approach previously employed in political science research. He zeroed in on congressmembers’ committee assignments and analyzed whether donors shifted their gifts depending on whose committee positions were most likely to relate directly to the donors’ own interests—or rather, the interests of their companies.
By tracking both committee appointments and donation flows, Teso believed he could speculate with some confidence about donors’ motivations. “If I see that a donor changes patterns of donations based on committee assignments,” he explains, “I can say with some confidence that the donation was strategic, not personal.”
Indeed, Teso found that for the individuals in his sample, the likelihood of making a political donation to a member of Congress jumped by 11 percent when that legislator assumed a seat on a committee relevant to the donor’s industry.
He ultimately concluded that 13 percent of the gap between corporate leaders’ donations to “policy relevant” versus other members of congress was due to a desire to strategically seek influence with that member.
Teso also found that members of Congress received a larger portion of these strategic donations if they were more powerful, either because they were members of the party in power or because they held leadership positions within committees.
What’s more, Teso discovered that the likelihood of a corporate leader making a political donation in the first place jumped by 31 percent in election cycles when the executive’s company was actively lobbying the federal government.
Teso notes that though collective donations from this group are high, single individual donations are relatively small—on average, a corporate leader active in financing campaigns donated about $12,000 to members of Congress in the 1999–2018 period, a sum unlikely “to buy a policy quid pro quo,” as Teso puts it. “These donations are useful because they open doors.”
A Question of Access
What Teso finds troubling about these findings is not necessarily that corporate executives are seeking access to powerful legislators. He’s more concerned that time in senators’ or representatives’ schedules is scarce, and constituents without considerable financial means are much less likely to make their way into those schedules.
“Personally, I don’t think lobbying is wrong, per se,” Teso says. “It can contribute to writing more-informed policies. But if donations are more likely to get you access to members of Congress, that’s problematic. It would mean that congresspeople are getting a partial view of an issue.”
Though Teso can imagine a potential remedy involving limits on campaign contributions, he doesn’t have much confidence in its implementation. Recent Supreme Court rulings, including Citizens United v. FEC, have signaled that the country’s highest court is open to ensuring that corporate donations be as unrestricted as possible.
A smaller, though still useful, remedy, Teso says, involves making it easier to track where political donations are coming from. Donors could be required to disclose not just one employer, but all employers, for example. “Creating more transparency is always a helpful step,” he says.
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