Is Political Endorsement Considered Good Corporate Governance Practice? Patagonia Says 'Yes.'
Shortly before the November 6, 2018 midterm election, Patagonia publicly endorsed two Democratic senatorial candidates, Jon Tester from Montana and Jacky Rosen from Nevada, what appears to be a first for any corporation. Patagonia stated that it endorsed the candidates because of their commitment to public lands and waters. (Dino Grandoni, Power Post). Both Tester and Rosen were victorious in the midterm elections.
The endorsements are significant because they are the first of their kind and they also signal a new opportunity for corporations. “Patagonia’s pair of endorsements may constitute the first time any corporation has explicitly endorsed a candidate for office, experts say.” (Id.). Prior to the landmark campaign spending case before the Supreme Court, Citizens United, a public endorsement of this type would have been illegal. (Id.) A coordinator from the Center for Responsive Politics stated that no one with the organization could “think of any other time a company has explicitly endorsed a candidate” other than endorsements printed in the opinion pages of newspapers.” (Id.)
Patagonia has, however, “dipped its steel-toe boot into politics” for more than a decade, and it has taken a firm position regarding environmental issues with its get-out-the-vote campaigns both in stores and online. (Id.) In addition, Patagonia has donated to grassroots environmental organizations and campaigns. (Danielle Wiener-Bronner, CNN). Patagonia also sued the Trump Administration after it shrank two national monuments in Utah. (Dino Grandoni, Power Post). Shortly thereafter, Patagonia’s website declared “The President Stole Your Land,” and its founder called the government “evil.” (Id.)
The Federal Election Commission (FEC) governs corporate disclosures of political activity. Specifically, 11 CFR § 114.4(c)(6) allows for the endorsement of political candidates: (i) “A corporation or labor organization may endorse a candidate and may communicate the endorsement to the restricted class and the general public. (FEC § 114.4(c)(6)). Further, (ii) “Disbursements for announcements of endorsements to the general public are not contributions or expenditures, provided that: (A) ‘The public announcement is not coordinated with a candidate, a candidate’s authorized committee, or their agents.’” (Id.) Essentially, “a corporation may endorse a candidate and communicate that endorsement to . . . the general public.” (Bloomberg Law).
Patagonia’s legal counsel assured the public that its endorsement was not in violation of campaign finance regulations. (Dino Grandoni, Power Post). Furthermore, Patagonia is “well within the bounds” of the FEC rules because neither Tester nor Rosen were aware of Patagonia’s endorsement or its subsequent announcement. Id. The lack of Tester and Rosen’s knowledge of Patagonia’s endorsement dispels the notion that the communications were in concert with the candidates or their agents. (Id.)
Patagonia most likely coordinated its endorsements with the upcoming midterm election in order to motivate others to vote for candidates committed to protecting the environment. Just before its October 26 endorsement, Patagonia’s blog, The Cleanest Line, headlined two posts regarding the need to preserve Montana and Nevada’s natural resources. (Elliot Woods, The Cleanest Line). Both posts ended by saying, “go vote.” (Sharon Netherton, The Cleanest Line). These posts unambiguously promoted Rosen and Tester without explicitly endorsing either candidate. The public endorsements were announced days after the blog posts were published. The respective posts and the blog itself align with Patagonia’s long history of confronting political topics dealing with environmental issues and supporting grassroots environmental groups.
Separate from the FEC regulations regarding political disclosure, individuals have petitioned the Securities and Exchange Commission to conduct notice and comment on a rule mandating corporate disclosure of political involvement. Early in 2018, however, a recent government spending bill barred the SEC from promulgating a rule mandating corporate disclosure. (Mara Lemos Stein, Wall Street Journal). Some argue that the bar on a rule is contrary to the current trend of companies moving toward transparent political disclosures. (Id.)
Publicly endorsing political candidates will have some type of future implications for companies with a public following; whether the implications are positive or negative depends on the company and its customer base. To determine the future implications of endorsing a political candidate, experts recommend to a company that it should decide what it will disclose regarding the company’s political activities after weighing the following: “the likelihood of alienating customers and investors if campaign contributions are disclosed; and the potential benefits of strengthening investor relations by demonstrating that corporate funds are being spent in ways consistent with company values.” (N. Kathleen Friday and Tracy Crum, Practical Law).
Although Patagonia endorsed the candidates instead of contributing to either campaign in this instance, the effect on Patagonia is arguably the same. This being said, Patagonia’s long history of supporting the environment and encouraging individuals to be politically involved, makes it likely that the recent endorsement will not alienate its consumers. Additionally, Patagonia has a vested interest in promoting citizens to vote to protect natural resources because a large portion of its customer base cares about environmental issues. (Danielle Wiener-Bronner, CNN). It is logical that Patagonia would support political candidates with the same stance as its customer base on environmental issues.
While it seems unlikely that Patagonia’s public support of Tester or Rosen will harm the company’s interests, it is a risk that companies must take into account when publicly endorsing political candidates. Fortunately, public relations damage to the company can be mitigated if the company is responsive to the public and ceases its support when a candidate negatively conducts him or herself. If Patagonia’s history of boldly facing political issues and remaining consistent in its commitment to the environment regardless of negative backlash is any indication, Patagonia will not shy away from ceasing its support of a candidate who does not portray its values. Other corporations may follow in Patagonia’s footsteps if the company has a particular message that is not being heard by the current political representatives.
 Adapted from original content by Kate Sawyer Keane and Tyler Hagenbuch, Perkins Coie LLP, and Andrew H. Werbrock, Remcho, Johansen & Purcell, LLP, Bloomberg Law