Should you spend money for political purposes? Such expenditures heighten reputational risk for the corporation and its board members. Here is how your board can align your policies and procedures with emerging best practice.

• Author: Lukomnik, Jon
• Position: GOVERNANCE REGULATION

'MAN IS A POLITICAL ANIMAL," Aristotle famously declared more than two millennia ago. Now, thanks to the U.S. Supreme Court, so too are companies. In its Citizen's United ruling in 2010, the Court vastly broadened the type of political spending open to corporations. Whether or not you agree with the court as a concerned citizen, you don't have a choice but to consider the ramifications of Citizen's United ruling as a board member.

Measured by traditional financial metrics, corporate political spending is relatively minor. An IRRC Institute/Sustainable Investment Institute (SI2) study found that the aggregate political spending of the S&P 500 in 2010 was $1.1 billion or about $144 per $1 million in revenue. That included spending on federal lobbying and federally registered political committees, and state-level candidates, parties and ballot initiatives, but not local races or "indirect spending" through trade associations and other third parties. Of that, the vast majority was for lobbying. Jon Luke)

High risk, high impact

However, mere dollars understate the importance of such expenditures; political spending is high risk/high impact activity with impacts disproportionate to the dollars spent. Political expenditures are the eye not of a storm, but of a hurricane. And it's buffeting a number of companies. Consider just a few examples:

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* Investors filed 120 proxy resolutions relating to political spending this year, double the number just two years ago, according to SI2. At least partially as a result, a host of companies, including Aflac, Cigna, Coca-Cola, CSX, Eli Lilly, General Electric, Halliburton, Johnson and Johnson, Hershey, Northrop Grumman, Occidental Petroleum, RR Donnelly, Reynolds American, Safeway, Sempra Energy, and Zimmer Holdings, have agreed to improve the governance and transparency of their political spending, including lobbying and indirect spending through trade associations. Some companies, such as Chubb and State Street, have agreed to ban indirect political spending outright.

* A veritable who's who of American corporate icons, including McDonald's, Intuit, Kraft Foods, Coca-Cola, Wendy's, and PepsiCo, have ceased financial support of the American Legislative Exchange Council following a civil rights group highlighting the companies' financial support and tying it to ALEC's role in promoting so-called "stand your ground and voter identification laws.

* Various companies have found that their...