Saturday, August 21, 2010

Citizens United, Politics, and the Lessons of Target Corporation

The backlash against Target Corporation’s political contributions offers important lessons about the brave new world of politics ushered in by the Supreme Court decision Citizens United v. Federal Election Commission. The lessons range from corporate marketing and governance to accountability.

Citizens United was a triumph for conservatives who believed that there was not enough money in American politics and that corporations lacked an effective voice in it. The 5-4 majority in Citizens United ruled that the free speech rights of corporations were violated in banning them from making express advocacy independent expenditures.

The decision freed corporations to make direct expenditures from their treasuries to endorse or oppose candidates of their choosing. That is exactly what Target Corporation did in Minnesota.

Tom Emmer is the Republican gubernatorial anti-tax and anti-gay rights candidate. Minnesota Forward was a PAC formed in Minnesota after Citizens United and it collected corporate donations to run ads endorsing Emmer. Target contributed $150,000 to the PAC, ads for Emmer ran, and then the sky fell in for Target. Immediately employees, gay rights organizations, and criticized the contribution, asking how the company’s donation squared with Target’s commitment to gay rights and its policy on same sex couple benefits. Target CEO Gregg Steinhafel tried to massage the protest, stating the company only endorsed the candidate’s views on taxes, not gay rights issues. But the rationalization was too late, and Target has been unable to contain the damage. Why?

Unlike other Minnesota companies such as Polaris and Best Buy which also donated to Minnesota Forward, Target occupies a unique place. Originally the Dayton and then Dayton-Hudson Corporation, this company is locally incorporated and was family owned for years. The Daytons had a record of community support and philanthropy, still expressed in terms of the company donating 5% of its profits to schools. Self-consciously, Target has curried this socially responsible, good corporate citizen brand in juxtaposition to its rival Walmart. For many, Walmart is the evil empire and Target’s progressive image made it a favored retailer for many. Steinhafel forgot all of this when he made the political contribution.

The donation supported a candidate who stood contrary to the image Target has sought to cultivate for years. Steinhafel violated the number one rule of business–know your customers.

The deterrent to corporate political contributions after Citizens United was that retail businesses would be loath to act, for fear they would alienate half of their customers. Target should have remembered that. It should have remembered how it had consciously built its image and thought about how this political contribution impacted it. Clearly Target failed to do that.

The half-hearted apology that the contribution did not mean it supported Emmer’s views on gay rights demonstrated a naivete about marketing. When companies employ celebrity spokespersons, they hire the entire package and it is impossible to separate off one part of their life or views from the rest. Think of Tiger Woods. Corporations cannot insulate themselves from criticism by saying they endorse only part of a candidate–they are stuck with the entire package.

What Citizens United and the Target donation revealed is that corporate political activity merges politics and marketing. Support of political candidates and causes are marketing and imaging statements, and companies in the future now must think about how their political activity affects their brand. Steinhafel and Target should have known that. In Target’s case, the contribution was bad branding but for other companies–such as a gun company supporting a pro Second Amendment candidate–such an expenditure might be a smart move.

Steinhafel thus violated a second rule of business–confusing his own self-interest or views with that of the interest of the company. This tells us something about corporate governance. The real power of corporations rest not with shareholders but management, and most of the major misdeeds in corporations occur when management comes to substitute their interests for that of the shareholders and stakeholders they serve. Steinhafel’s choice raises questions about how decisions are made in companies, who speaks for corporations, and whose First Amendment rights were furthered by Citizens United–the shareholder or the management?

Finally, what Target and the supporters of Citizens United forgot was that over the last 25 years corporations are increasingly being held socially accountable for the choices they make. Target understood that with its branding, but seems unable to grasp that point now that it has entered partisan politics. The brave new world of Citizens United does mean that corporations can speak, but they will be held accountable by their customers and shareholders for the choices they make.

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