c,'oc< l17l 'Þ
PACs and
Election Reform
by Herbert E. Alexander
.The recent
of corporate political actíon
committees (PACs) is changing the patterns of campaign finance
Experiencing a dramatic Arowth, more than
in American politics.
quintupling their number in the last three years, corporate PACs
have become a major factor on the national political scene.
Their growth, both in numbers and sophistication, has been notaemergience
ble; in L978, for example, corporate PACs contributed more than
did labor unions to the twenty nelscomers elected to the U.S.
Senate
The corporate PAC surge has been accompanied by a large in-
crease also in the number of business-related trade association
pACs, representing various industry groups. The business community
that has put organized labor
on the defensive, and has led some observers to predict a growing
imbalance of political money--if not political povrer--between
has demonstrated a politicization
business and labor.
To understand this phenomenon, we must begin with definition
A political action committee normal,Iy is organized
by a business, Iab.or, professional, agrarian, ideological or
issue group, to raise politícal funds on a voluntary basis from
and description.
stockholders
members,/or employees,
for the purpose of aggregating numerous
smaller contributions into larger more meaningful amount's that
are then contributed to favored candídates or political party
committees. Of the 1910 PACs registered with the Federal Election
The Alexander Collection
Item Numb
?27
Donated by Herbert E. Alexander, 2008
",
2
Commission in November 1978r some 812 were classified
as corpor-
ate, 275 as labor | 2s7 as non-connected organizatíons, s2g as
ttad'e/membership/health PÀCs, 12 as cooperatives and 23 as cbrporates without stock. The 257 non-connected pACs are mostly
ideological, issue-oriented or functional groups, such as The
I{omenrs Campaign Fund.
There has been an increase in each type of pAC.in recent years
but the largest increase has been in corporate-related committees.
The reasons for the recent proliferation
of corporate pACs are
many and have been the subject of frequent commentary by political'
analysts' both lauding the development of political interest
and predicting its conseguences in the fragrmentation of our politica1 system. As with most thíngs, the truth probabry is to be
found somewhere between the two extremes.
In the past, businessmen and politicians alike were often
secretive about campa5-gn contributions. Neither wanted to give
the publíc the impression that public officials could be influenced
by those who gave financial support to their campaigns. Until the
1970s, the federal election laws were so vague and i1l-enforced
that there was usually litt1e problem in hiding campaign contributions, particularly in pre-nomination campaigns. sometimes
off il1egal1y from corporate funds for
that purpose- A few corporate executives were given bonuses with
the explicit understanding that the after-tax balance would be
contributed to campaign funds. ExecuLives might be detailed
illegally to work on campaigns while remaining on corporate paymoney was even siphoned
3
roIls.
Slush funds v¡ere set up under various facades and money
was secretly disbursed from them--often in cash--to candidates.
rn generar, the.pubtic knew.little about what was going ãn, and
the influences on public policy were often unclear or unknor^¡n.
watergate disclosures, hovrever, provided a fuller view of
the ways a few businesses went about funnering money into political campaigns. A total of 2L corporations and/or their executives v¡ere indicted in 1973 and Lg74 for ilIega11y contributing
corporate funds to political campaigns. Much of the money went
to the Nixon re-election campaign before the 1971 reform legislatÍon took effect in April Lg72, but smaller contributions were
made by some of those companíes to Democratic candidates as well.
The companies included subh major corporations as Ãmerícan Airlines,
Ashland OiI, Braniff Airways, Goodyear Tire and Rubber, Gulf OíI,
Minnesota Mining and Manufacturing, Northrop and phillips petro1eum. For the most part, the companies or their executives
pleaded guilty or nolo contendelq and v¡ere f,ined and several
executives involved were forced to resign or retir*
No one knows hor¿ widespread
ea-rty.
the corporate practices exposed by the
I{atergate ínvestígatíons rrere, but of the thousands of publ:'-c1y-owned
corporatíons, relat.ively f.ew, perhaps 100, had subsequent exposure of
secret sLush funds. The involvemenÈ of even these few large companies
and theír top offícers ín the ÍJ-legal use of corporate money for political
contríbutions unguestionably increased publíc suspícion of busíness ínvolvement
in po]-ítics
and made corporatÍons
take in poJ-ítical affairs.
hesÍtant about what role to
The use of corporate funds to seek to influence public
figures and elections goes back at leaàt a century to the
Credit Mbbilier scandal of Ulysses s. Grantrs administration.
Then, during elections at the turn of the twentieth century, it
was charged that corporations were pouring millions into the
Republican campaigns to elect William McKin1ey and Theodore
Roosevelt. As a result, corporations \^rere the first whose electoral activities were subjected to public regulation. In J'}OT
the Tillman Act, the first leg.íslation prohibiting corporate
contributions to federal elections, was passed as a reaction to
the systematic way in which political boss Mark Hanna had r.aised,
money from corporatíons.
Disclosure laws in 1910 and 1911 gave \â/ay in L925 to the
Federal Corrupt Practices Act, which became the basic 1aw gov."tting federal elections. This 1aw required pre- and post- election
disclosure reports of receípts and expenditures by candidates for
the Senate and House and by political committees which sought to
influence federal elections in two or more states.
the restrictions enacted in L907 on corporate giving were
temporarily extended to labor unions in the Smith-Connally Act
of 1343 when resentment had mounted against wartime strikes and
laborrs successful organizing drives of the 1930s. Labor leader
John L. Lewis had contríbuted $500,000 in United Mine llorkers
funds to Franklin D. Rooseveltts 1936 re-election campaign. In
L943, Congress overrode the President's veto and enacted the
Smith-Connally Act barring labor campaign contributions for the
5
In L947, the Taft-Hartley Act made
the ban permanent and barred corporate and union contfibutions
and expenditures for primary elections and nominating conventions
duration of World War II.
as well.
In its approximately 45 years as the principal statute
governing Federal electíons, the Corrupt Practices Act was
Iargely ineffective in regulating political campaign finances because it was circumvented easily and went largely unenforced.
Although the Act required disclosure reports, many candidates
filed incomplete reports or did not. file at all. Only one case
for failure to file, in 1933, was ever brought.under the law.
An issue difficult to translate ínto voter enthusiasm and interest, campaign fínance reform became long overdue.
For a variety of reasons, reforms in the regulation of
political finance began to capture wídespread attention during
the 1960s. The drive for change was nurtured by the ever-increasíng costs of campaigní.g, the incidence of millionaire candidates,
the large disparities in campaign spending between various candidates and political parties, some clear cases of undue influence
on the decision-making process by large contributors and special
interests, and the apparent advantages of incumbency in an age
of mass communications with a constant focus on the lives and
of office-holders
Concern about these problems culminated in the Federal Election Campaign Act (FECA) of I97L which finally replaeed the
Corrupt Practices Act of J,925. The new 1aw, which became effecactivities
6
tive in April L972, required fuller disclosure of political
funding than ever before--a factor that was to play a key role
in Watergate developments. Most significant, however, is that.
the L97L FECÂ became the key to the corporaLe PAC explosion of
the 1970s, a development resulting primarily from the addition
of an amendment introduced by Representative Orval Hansen (ReP.fdaho). The Iaw had prohibited corporations and labor unions
from making contributions or expendítures from their treasury
funds in support of any federal candidates. The Hansen Amendment, drafted by the A-FL-CIO, modified Ëhat provision by aIlowing the use of corporate or uníon treasury funds for the purpose
of esLablÍshing and administering political action committêêsr
and for fund raising expenses incurred in seeking voluntary conIn addition,
tributions by employees, stoekhblders or members.
the treasury funds could be used to communicate with stockholders or members and to.conduct non-partisan registration and
get-out-the-vote drives among stoekholders or members.
Since labor PACs, such as the AFL-CIO's COPE, had been operating since the 1930s, labor's support of the Hansen revision was
primarily an eff.orL, following an ambiguous Supreme Court decision, to legitímize its continued use of PACs to influence
politics.
During the 1960s, business and professional grouPs
had begun to establish such organízations as the Business Industry Political Action Committee (BIPAC) and the American Medical Association Political Action Committee (AMPAC) r so in order
to gaín Republican support for the Hansen amendmentrcorporations
were included. Labor people were doubtful that corPorations could
fulI-y exercise their rights in.this area, since the provisions
of the old law barring federal contractors from "directly or
indirectly" contríbuting remained intact in the new law. Using
treasury funds to administer a PAC could be considered an indirect contribution, thus precluding direct political activity
by most of the nation's largest corporations, most of whom are
government contractors.
on government contractors inhibited
somewhat the growth of corporate-related PACs after the J.97L
FECA, the sígnificance of the L97L law was that it sanctioned
direct and open participation of both labor and corPorate organizations which wished to play a prominent role in partisan poliAlthough the restrictions
tics. Even with existing restríctions, in fact, almost 90 corporate-related PACs were in existence during the L972 election,
many sprouting after enactment of the L97L lawThe Lg|2 elections brought new pressures for more election
reforms, culminating in the 1974 Amendments to the FECA. Along
with the creation of the Federal Election Commission (FEC), the
establishment of contribution limitations to candidates for federal offíce and the extension of public funding to presidential
nomination campaigns and the national conventions, a fourth Provj-sion had a significant impact on the use of PACs by corporations
as a main vehicte for political giving. The L974 Amendm.ents
changed the definition of "government contractor" to permit corporations and labor unions which were contractors to create
PACs.
I
it was labor which successfully worked to
have the prohibition amended. Having secured government manpower
training contracts, a few labor unions were concerned that their
maintenance of PACs otherwise might be challenged because they
Againr. ironically,
held government contracts.
The 1974 Amendments allowed PACs to contribute up to $5r000
per candidate per electíon (i.e., $51000 in a primary and another
$5, OO0 in the general el-ection) provided. that the committee had
been registered with a federal authority (either the FEC, the
Clerk of the House of Representativesr or the Secretary of the
Senate) for at least. six months, had more than fifty contributors
and supported five or more candidates for federal office. Otherwise, the committee was restricted to the $1rO0O limit of an individual contributor. For political party contríbutions, PACs
were límited to $15r000 gifts.
Even after the 1974 Amendments, many companies with govern.
ment contracts were sti1l reluctant to establish PACs. Unsure
of the validity of such corporate political activities, business
organj-zations and major corporations throughout the country awaited
an FEC ruling regarding a request by the Sun OiI Company to set
up a pAC. The controversía1 and widely publicized advisory opinion by the FEC. came on November 18, L975. In a 4-2 decision, the
FEC voted to permit corporations to support the election campaigns
of candidates for President, Vice President, the Senate and the
House so long as the money came from voluntary employee contributions. However, it cautioned that there is a potential for coercion in soliciting employees and therefore it set guidelines on
9
solicitation of political contributions by employees to such
funds: firstr Do superior should solícit, a'subordinate; secondt
the solicitor should inform'.the solicited employee of the poJ-itical
purpose of the fund for which the contributíon is solicited;
and third, the solicitor should inform the employee of his or
her right to refuse to contribute without reprisal of any kind'
Following the SunPAC decision, the business community began
to realize the potential of PACs as a means of competing with
labor unions for political influence.. Moreover, the Public Affairs
Council, t.he National Association of Manufacturers, the Chamber
of Commerce óf'the U.S., among others, wasted no time in sponsoring well-attended seminars on how to organize and administer
pACs to make them effectÍve.
In the six months following SunPACr
corporate PACs more than doubled in number'
Having recognized. its strategic errors in supporting changes
in the original FECA and concerned about the rapid growth of corporate PACs, labor sought legislative remedies among congressional
supporters. The Lg76 Amendments to the FECA placed new restricThrough their PACs,
tions on the range of corporate solicitatíon.
corporations may solicit, without any 1imit, their stockholders,
executíves or administrative personnel, and their families for
contributions. "Executives or administrative personnel" is defined as those employed by a corporation who are paid by salaryr
rather than on an hourly basis, and who have policy-making, manaCorporate
gerial, professional t ot supervisory responsibilities'
committees can solicit employees who are not stockholders or administrative personnel twice a year but only through mail addressed
IO
to their homes. Solicitation of any other corporate sources ís
forbidden. Restrictions hrere placed on one company or one labor
. organization establíshing a number of PACs in order to evade the
ceiling of $5r000 on contributíons to a candidate in each el-eètion. This provision r,rras intended to prohibit proliferation of
such eommittees by each offíce or facility
'Ioca1 of a union.
of a company or each
,
These changes .in the Iaw paved the way for the increase in
of PACs ín 1976, especially corporate and trade
assocíation PACs. the statistics in terms of PAC numbers and
dollars raised and spent, are remarkable. According to Common
Cause, special interest groups contributed ç22.6 milIíon to eongressional candidates in L976t or nearly twice the amount (S12.5
million) they had given ín 1974. Completed figures for L978 will
show in excess of $32 million given to congressional candidates.
Contributions by corporate and business-related tradê association PACs increased dramatically in I976, almost tripling J-974
totals. FEC records show that the 450 corporate-related PACs
registered for the \976 campaign reported receiving $6,782'322
and spending $5,803,415 during L975 and L976. Most committees
were smal1, with 86 percent reporting receipts and expenditures
of less than $201000. Only nine reported spending more than
$100,000 and these spent a total of çL,O74,2OBr or 18.5 percent
of all corporate PAC expenditures. (Labor, by way of contrast,
had 42 committees spending more than S100,000, and their proportion of nearly $17 million was 83.6 percent of laborrs PAC support.)
activities
11
The advent of publíc funding for the presidential
election
of L976 led corporate P.ACs in another direction: they focused
greater concentration on congressional.campaigns. (The total
amount contributed by PACs to the presidential Pre-nomination
campaigns r^/as less than $1 million, and no private giving to the
general election campaigns was Permitted. ) Both corPorate and
' trade association PACs, in deciding which candidates to support'
reported placing the most emphasis on candidatesr voting records
on issues of concern to the business community. Some corporate
pACs were especíall-y interested in candidates representíng disof. the companyts operations were located,
and most were concerned that the candidate should. have a reasonable chance to win and need additional resources. fncumbency was
a factor for both corporations and associations and neither said
that party identífication was important. Controversy has arisen
tricts in which
some
regarding corporate PAC contributions to incumbents, many of them
Democrats with labor. suþport, rather than to business-oriented
conservatives, maín1y Republican challengers. Since company
tobbyists in Washington often urge their corporate PACs to con-
tribute to incumbents whose legislative help they .seek, considerable
business support goes to the Democrats who control Congress and
are on key Congressional committees dealing with legislation
affecting businêss¿
In spite of the impressive sums corporate and trade association
pACs spent in 1976, some individuals and groups criticized them for
not taking more advantage of. their opportunities. Only 44 of
L2
Fortuners top 100 corporations had PACs during the L976 campaign
and mdny of those were too late in the campaign to be effective.
Despite the FECrs SunPAC ruling, most companies concentráted
their solicitation efforts on top-leve1 management personnel, only
a few solicited stockholders, and most stilL took a cautious
approach. While PACs could give up to $5,000 per candidate per
election, most corporate PACs gåve less than S500 to the candidate
they supported. Some did contribute the maximum amount, however,
and more did so late in the campaign. In short, it seemed. that
many corporate leaders in J'976 stitl felt constrained by the
public's overwhelming reaction to the Watergate disclosures, and
cautiously.
Obviously, business PACs did not reach their full potential
.
in 1976; their rapid and continuous growth since then, however,
seems to confirm predictions that they would_ figure more prominently in the financing of future elections. According to FEC reports, from the end of 1976 through November Ig78, the number of
active PACs increased from J-1J-46 to 11910. The number of corporate
PACs increased from 45p to 8I2, while the number of labor PACs
decreased from 303 to 275. Duríng this period all PACs raised
Trade association and mem$67.8 million and spent $60.4 million.
bership PACs led. in direct contributions to federal candidates
at $10.7 million. Labor PACs folIowed. closely with $9.3 million
However, these preand corporate PACs contributed $8.8 million.
liminary figures.do not include some 1978 activity just prior to
moved ahead
and after the November election.
13
But the reality pales in comparison to the potential, for
as late as.September 1978, only 196 of Fortune magazine's toP
500 companí.es.had registered PACs with the FEC. Seven of the
top 25, and 29 of the'top 100 companies had no PACs. FEC disclosuie reports revealed that eight Fortune 500 companies, five
months before the electíon, had raised more than $100,000 in PAC
contributionå in I977-L978. For the same period, 94 of the 135
Fortune 500'companies in existence for the'L976 elections had
raised more than they spent in L976. Eight companies had already gone S5O'000 ahead of l'g76 dísbursements.
IronicaÌIy, these recent changes in po1ítica1 contribution
patterns have come about partly as a result of the election reforms
of the 1970s. These laws were aimed at reducing the political
power of "f.! catsr " whether individuals or large corporations,
organized business groupsr labor unions or other special interest
groups in American society. The ideal sought was to prevent corruption and to redistribute elements of political po!üer, reducing
the presumed influence of monied interests. Under this ideal,
campaigns would be financed by many smaller contributions,
perhaps
in part by public funds, and once public officials were freed
from the big-money yoke of specíal inLerests, government would
then concern itself with the public interest.
But public policy seldom develops precisely the way reformers
want it to evolve. ft is ironic that the political financing reforms are leading to the development, through corporate PACs and
related lobbying techniques, of even greater business and cor-
L4
As the role of political parties
continues to decline in the United States, in part because of
legisJ-ative restrictions on political- contributions, interest
have helped to ftll the voLd. Now most
have offices in Washington, and many have established
groups /
porate influence in politics.
PACs. Business lobbying is more intensive and sophisticated
than ever beiore as evidenced in Lg77 and Lg78 by the successful
business efforts to defeat labor and consumer-protection agency
legislation despite large Democratic majorities in the Senate and
the
House.
In short, business, with its advantages of large resources
and organization, increasingly is being organized for political
action, and both political parties have begun making direct efforts
at obtaining a share of corporate PAC money. Both the Republican
National Committee and the Democratic National Committee hired
staff to solicit contributions, seeking in particular to channel
funds' into hotly-contested congressional and gubernatorial eleccorporate PACs' while the
rarely
approach labor PACs. The Republicans are particuRepublícans /
larly keen on increasing the role of corporate PACs in future
elections, and sometimes complain that so much money goes to Demotions.
Both party committees solicit
crats not sympathetic to business.
Contributions by corporate and trade groups did take a more
partisan turn in the weeks just prior to the l-978 elections.
Examíning the financial activity of 10 major PACs, Congressional
Quarterly found that 5 business and trade assocíation groups gave
an average of 70 to 75 percent of their contributions to Republicans during September and the first three weeks of October L978
15
and the large number of oPen seats meant that less money than
usual went to incumbents. Since they are consídered like1y winners,
however, incumbents still received much more money than challengers. For the Lg77-78 period, more than 60 percenL of corporate
PÄ,C money went. to Republican candidates. In contrasË, some 95 percent
of labor PAC rnoney goes to Democrats.
In our current political worId, there are more definable groups
than ever before seeking attention and each has its subgroups dealing
with a specific.industry or issue. Larger groupings are fragmented'
so the voices heard most effectively seem to be those with large
resources or those achievíng dramatic appeal.
The corporate and association PACs acquired. valuable experience
during the 1976 .and L978 campaigns in making their voices heard
and likely wilf be better Prepared in 1980. Many political observers, especially labor and its supporters, are concerned about
of a widespread, well-coordínated corporate PAC
movement which may be able"to concentrate its efforts to a greater
extent in support of particular candidates; Bernadette A. Budde'
Dírector of Political Education for BIPAC, contends that "business
has a long way ti: go before putting labor out of the political
arena. " She suggests that corporate-related PACs learned a number
the possibility
of lessons ín 1978 which will help them in the future. Among these
v¡ere taking risks with funding challengers, analyzing and sharing
of information on candidates between the PACs, taking a greater
part in the nomination phase of elections, and becoming more involved in the recruitment of candídateshowever, such as Edwin Epstein, Professor of
Some critics,
Business Administration at University of California, Berkeley'
15
fear that the increasing effectiveness of corporate PACs malz êndanger the electoral system. Labor is frozen at fewer than 300
unions with no likel-ihood of larger numbers. At present, labor's
main instrument is its abitity to generate'manpower, not money,
because labor cannot. compete with business-oriented PAC contributions when supplemented by large indívidual contributions made by
wealthy business owners and well-paid managers. Labor, of courset
can generate large amounts of communication expenses in dealing
wÍth its members and their families on electoral issues and candidates and, at present, laborts registration and get-out-the-vote
activity is generally more effective than is that of business.
Should corporate PACsr'however, equal or surpass labor in both
fund raièing and sophistication, the former could come to dominate
congressional politics in the near future. There are some 50,000
publicly-owned corporations in the U.S., each of which could organíze a
PAC.
continue to press for
public fundíng of congressional campaigns, but the defeat of such
legislation in the Senate in 1977 and in the House in J-978 would
seem to indicate that ,extension of funding to congressional races
is still some way off despite President Carter's support of it and
Extending public financing to
renewed efforts to achieve it.
senatorial and congressional campaigns is designed to lessen candidate dependence on PAC contributions, but there is controversy
Common
Cause and óther reform groups will
as to whether that goal would be achievedI-n L976 and 1978, the $1r000 limit imposed on individual contributors had the effect of diminishing the individual gift component while inereasing the group PAC gift component as a percentage
L7
of total contributions in many congressional campaigns. This unintended result of reform efforts might be rectified by raising
the individual contribution limits or reducing those of PACs.
rncreasing the individual contiibution limits wou1d. have the
effect of increasing the total amount of campaign money, while
each contribution could sti1l
possibility
remain low enough to diminish the
of contribuLors unduly influencing candidates. Decreasing the PAC limit would seriously reduce the amount of political money available.
It is important to retain some degree of private giving in
the electoral system. For the citizen, the act of giving to the
candidate or group of hís choice, even if only a small amount, instills a sense of participation in the political process. For the
candidate, the neéd to meet with potentíal donors and solicit their
contríbutions can provide feedback on the cencerns of the electorate
that is both more immediate and more personal than that provided
This tends to make candidates more
in other campaign activítíes.
attentive, and government more responsive.
There is danger to our pluralistic society if indj-viduals and
groups are overly restricted in their political activity.
Similarly,
there is danger if some groups are dominant, and countervailing
power does not develop among opposing groups. Hopes of raising
levels of confidence in the election process, the ultimate goal
of recent reform, depend upon avoidíng the dangers and maintaining
acceptable balances among population, resource and power segments.
18
SUGGESÎIONS FOR FURTHER READING
Adamany, David and George E. Agree. Po1itical Monev: A Strateqv
for Campaign Financing in America. (Balt;imore and. London¡ The
Johns Hopkins Press, L9751.
.Alexander, Herbert E. Financing Politics:
Political Reform. (VfashÏngton, D.C.: C
M
ections
and
ffi
Alexander, Herbert E. (na.¡.
Sage Publications, L979) .
political
Finance. (Beverly Hills:
,'Larry L. , Harlan Hahn and rTohn R. Schmidhauser. CorruptÍon
the
American Political System. (Morristown, N.J.: General
in
Berg
Crottyr, William J. Bo_liti_cal Reform andjþe American ExPeriment.
(tlew York: Thomas Y. Crowell Company, 1977) .