Ep 50: Internal Dynamics of Business PAC Fundraising

Princeton University Assistant Professor of Politics and Public Affairs, Zhao Li, Ph.D., explains her research published in the  American Political Science Review, “How Internal Constraints Shape Interest Group Activities: Evidence from PACs.”  In this episode, a fascinating discussion about what evidence exists to account for how a PAC's contribution allocation across politicians from both parties affects employees' willingness to contribute to their employee-funded PAC. 

Transcript

 Micaela Islaer:
Welcome back to the Facts About PACs Podcast. This show is brought to you by NABPAC, the National Association of Business Political Action Committees. And I'm your host Micaela Islaer, NABPAC's executive director, along with my fabulous co-host Adam Belmar. Today's episode marks the third in our series, looking at the PAC industry through the lens of political science research.

Adam Belmar:
It really does Micaela. And you know what else it marks? Our 50th episode. Congratulations to you.

Micaela Islaer:
You too.

Adam Belmar:
And loyal listeners of this show know that we often say, that employee-funded and business trade association PACs are the most regulated and transparent money in politics. And in 2021, Micaela, we've doubled down on our commitment to exploring what the wealth of publicly available data from the FEC and individual states actually tells us about the health of our campaign finance system.

Micaela Islaer:
Yeah. And so far this year, the Facts About PACs has engaged scholars as you know, Adam, from Brigham Young University, University of Chicago, George Washington University, George Mason University, and now proud to say Princeton University. And so today, we'll hear from Princeton University Assistant Professor of Politics and Public Affairs, Dr. Zhao Li on her research published in the American Political Science Review, How internal constraints, shape interest group activities: Evidence from PACs.

Adam Belmar:
The level of polarization in American politics has reached a new high in recent years Micaela, and the impacts are appreciable in many different areas. For example, more and more individuals are making small-dollar political contributions directly to candidates through digital portals like ActBlue and WinRed, while some candidates are disavowing support from employee-funded PACs. And since the attacks on the Capitol on January 6th, 2021, some employee-funded and business trade association PACs have halted their political giving to federal legislators who voted to reject the electoral college results in the presidential election. But those data points are in no way the whole story. The political science research conducted by scholars across our nation goes much deeper than that.

Micaela Islaer:
So true, Adam. And you know, as we heard from, if you remember Professor Anthony Fowler in episode 45, the data really demonstrates that despite the rhetoric, corporations in their employee-funded PACs do not have outsized influence over policy through their support of candidates and politicians holding office. And in episode 38, Professor Michael Barber explained in detail how his research reveals the moderating effects of employee-funded and business trade association PACs on American politics.

Adam Belmar:
And our listeners will hear in today's show, there are important insights for PAC managers and the C-suite to keep in mind when it comes to managing the increased tension on the fundraising side of the business PAC model while continuing to advance the collective goals of the enterprise.

Adam Belmar:
Our interview with Princeton Professor Zhao Li, is coming right up. The Facts About PACs Podcast is produced, especially, for the members of the National Association of Business Political Action Committees. In every episode, we recap this week's NABPAC activities, share actionable intelligence and best practices, all while connecting the PAC community. And today's episode, episode 50 is brought to you by Chain Bridge Bank. Looking for a financial partner who actually understands PACs? End the frustration by crossing the bridge to better banking, with Chain Bridge Bank, a group that specializes in the financial needs of the corporate and association PAC space. Chain Bridge Bank, they know PACs.

Micaela Islaer:
Thanks, Adam. And thank you to our Facts About PACs Podcast sponsor, Chain Bridge Bank. Adam, they really do know PACs. So Adam, set the stage for everyone listening. What questions did Professor Li set out to examine in her research and how was her study conducted?

Adam Belmar:
Well, Micaela, I spoke with Professor Li via Zoom, and that is exactly where our conversation began. Her research is novel, and here's how she explains the scope of her research.

Professor Zhao Li:
First of all, I'm really honored to be on this podcast. And thanks for giving us a chance to talk about this piece of research. So the goal of this paper at its core is to really understand how sort of the internal organizational dynamics of corporations and other business entities affect their PAC contribution strategies and their efficacy. Because political science research community has studied a lot about how corporations interact with the external political environment, but not as much I would argue, on how internal stakeholders, particularly employees shape the success of business PACs.

Professor Zhao Li:
So in this paper, I really wanted to understand whether eligible donors, such as many employees respond to how their PACs allocate money across politicians from both parties, and how that affects employees' willingness to contribute to these employee-funded PACs. So the study takes a two-pronged approach. First, I looked at actual campaign finance records as disclosed by the Federal Election Commission. And generally speaking through almost three decades of data, I was trying to understand if there's a general pattern where say, a company switches to giving a bit more to one of the two major parties and how that affects the willingness of its eligible employees in giving to the PAC.

Professor Zhao Li:
So let's say I'm an employee. Let's say I prefer the Republican Party. If my company's PAC starts to give more money to Democrats, for whatever reason, does that make me less likely to give to my company's PAC in the first place? And through almost three decades of records, the answer is yes, there's a very clear pattern that on average, employees donate less to their company's PACs as more PAC contributions support politicians from the party that they appear to oppose.

Professor Zhao Li:
And then through the survey, I was trying to understand a little bit more of the mechanism behind this observed phenomenon. So the survey accomplishes two goals. First, through the survey of corporate PAC donors, I asked them to take a guess of roughly speaking, what percentage of your PAC's money went to Democrats versus Republicans in the most recent election cycle? And the survey demonstrates that most of these eligible donors demonstrate a very high level of knowledge. I would say about three out of four donors knew the majority of their PACs money went to whichever party that it actually was. And most people, when they were asked to take a guess of the percentage of PAC contributions to one party versus the other, their guesses were within a 14 percentage point margin of error.

Professor Zhao Li:
And then in the survey, I also included an experiment where participants were asked to read a short solicitation letter that's modeled after real solicitation letters that employee-funded PACs and other business association PACs that were sent out. And the letter was to talk about the need to support good policy work on Capitol Hill through the PACs contributions. At the end, lists a bunch of fictitious political candidates that the PAC will be contributing to. And the experiment part comes in as I randomized the partisan labels of these fictitious candidates.

Professor Zhao Li:
And at the end of the solicitation letter, I asked each respondent, let's say you received this letter from your employer, how much would you be willing to contribute to your employer's PAC based on the solicitation letter that you just saw? And there's a very striking pattern where the dollar amounts that these respondents put down on their survey declines by almost 30%, when the candidates listed in these solicitation letters became increasingly from the party that the donors disagree with on a partisan basis.

Professor Zhao Li:
So it really shows that a lot of these eligible donors for employee-funded PACs, both are aware of how their PACs allocate money across parties and actively incorporate that knowledge into their decision of whether to personally support their PACs in the fundraising process.

Micaela Islaer:
Adam, I think the PAC managers listening are probably nodding their heads mostly in agreement right now. Certainly, the experiment Zhao describes is not consistent with the type of actual solicitations our members use. But having said that, the addition of the experiment and survey here do provide potential insight into the current thinking of the solicitable class. And I just think for our PAC managers, it's important to be aware of and really should have on their radar.

Adam Belmar:
Oh, absolutely. We certainly ask questions, not that we know the answers to, but that we want the answers to. And to plumb the depths in the most scientific way. And in this case, taking the opportunity to speak to a very well-selected audience, with specific criteria of actual giving and a history of it, and being involved in their PACs or having the opportunity to have been involved.

Adam Belmar:
But it's important also to note, Micaela, that political science research like this is based on actual data. And because of that, it is not a leading indicator of trends. It is instead a lagging indicator. One that is based on hard evidence and as such, encapsulates what has already happened. The novel element here, of course, is being able to find some actionable learnings.

Micaela Islaer:
One, you hit on something just now being novel as you've described it. What do you think specifically is new about it?

Adam Belmar:
Well, certainly the experiment in the survey portion of the paper that Professor Li published in the American Political Science Review is very much a part of what is novel. To this point, the political research community has definitely paid more attention to the effects of donations on the political process than on the dynamics and tension of fundraising within organizations.

Adam Belmar:
And this study directly looks at that tension, that is demonstrably growing between the personal politics of the solicitable class and the PACs they support. Here's how Professor Li explains her findings.

Professor Zhao Li:
So one piece of evidence that I've found in my research is that when you look at how in the real campaign finance records, how these eligible donors, their donations to their PACs respond to the partisan allocation PAC money, that responsiveness has increased in the almost three decades span that my research looked at. So the same person may not care so much about whether their PAC is given to Democrats versus Republicans back in 1990. But now in the 2020s, their decision to donate to a PAC is going to be much more responsive to that.

Professor Zhao Li:
And I don't have a definitive answer for why this pattern seems to be increasing. But some conjectures based on the broader political science research is, first of all, the increase in political polarization in this country that we have all noticed even just in our daily life. And one particular consequence of that political polarization is that it's increasingly harder to decouple say economic policies from social and other non-economic issues.

Professor Zhao Li:
So that really, at the individual level can make it really hard for an employee to support their employer's PAC, even though they understand that the PACs have very pragmatic needs to meet. They want to support candidates that will champion the company's interest on certain regulatory issues say, when the same political candidates may be making statements or championing social policies that the employees disagree with on a personal basis. So it's really hard to square that tension at the individual level.

Professor Zhao Li:
And also at the aggregate level, this means that corporate PACs and other business association PACs will have a harder time managing both the contribution side, where they need to find candidates that they can work with on policy issues and to the fundraising side, where they have to explain to employees, to their eligible donors, why money is being spent in a certain way and why that doesn't necessarily mean that companies agree with everything or every statement that the politicians they donate to, puts out.

Professor Zhao Li:
So there's that tension that's rising potentially due to political polarization. And there's also the reality that, information has been increasingly available, particularly over the past few decades. When the Federal Election Commission first came out with these records, they were not online. And it will be very hard for most people to retrieve them, absent voluntary disclosure by their own employers or other organizations. And nowadays, everything is updated quarterly, if not more frequently online. It's just a click away. Any eligible donor who wishes to know where PAC money is going can easily find all the answers, even if not through their own organizations. So I think all of these factors contribute to the increasing salience of partisan alignment in these eligible donors' willingness to support business PACs.

Micaela Islaer:
Yeah, this is fascinating. I think there's a lot of truth there, Adam, especially with regard to Professor Li's assessment about the accessibility of the reporting and transparency of how traditional PACs operate. It's one important reason that we're out here doing a public podcast. So with this polarized electorate placing new tension on the fundraising side of the business PAC model, how can this research help PAC managers better understand the risk of net losses for business PAC fundraising going forward? Does her research show any of that for us?

Adam Belmar:
This is where Zhao's findings get really actionable for our audience, Micaela. There is a big role for PAC managers to play here.

Professor Zhao Li:
I think part of what my research can point out is that definitely knowledge and information matter a lot at the micro level for individual donors, in deciding whether to support these employee-funded or other business association PACs. Beyond what is immediately available in my research, I also get the sense through some of the open responses I got from my survey, that there's potentially a big role for PAC managers to play, in terms of educating to employees about what PACs actually do and how PACs select the specific candidates that they contribute to, what their reason is.

Professor Zhao Li:
Or to try to impart on them the pragmatic wisdom that most business PACs would employ in this process. To make them that it's not a partisan endorsement, it's not blanket support of everything the politicians that receive corporate money puts out. But it is a very multi-layered decision process that's not always about partisanship, that's not always about particular ideologies or particular single issues.

Professor Zhao Li:
So my sense is that some of these tensions could potentially be diffused as employees become more informed and more educated about the PAC process. But I think this is an open area of research for sure. And I think there's also room for some really interesting AB testing to be done.

Adam Belmar:
Education and communication, both are critical components to running and keeping an employee-funded and business trade association PAC healthy.

Micaela Islaer:
Yeah, Adam. This is something that we have long recognized here at NABPAC. And it's something that our community places great value on in our association programming. We often say you don't want to wait for a crisis to be communicating with your eligible class. You should be implementing an ongoing year-round communication strategy because you know you have employees that come and go, that get promoted. You're constantly having to educate because you have so many new people coming into the eligible class at any given time.

Adam Belmar:
It's interesting that you put it that way because the truth of the matter is on the flip side with the government relations and outreach component, again, it's very much like a river. You can't walk into the same one twice. New members, new staff. That education and communications mission is always needing to be renewed and to be kept alive. And sometimes there are hard conversations to have. Any contribution is not a blanket political approval stamp from any group. It is a decision in time that's based on a whole lot of different criteria.

Micaela Islaer:
Yeah, absolutely. Well, did Professor Li point to any real-world examples in her research, Adam?

Adam Belmar:
Well, there was one that fascinated me and it was a name that everybody knows. Google. They're a leading member of the tech sector. And their PAC, in some ways, Dr. Li sees as a microcosm of an emerging trend of employee activism. Their workforce based largely out in Silicon Valley is more progressive than many other industries right now. And I asked Professor Li about this and she unpacks it for us quite nicely. As you'll hear in this clip, the need for accessible two-way conversations with stakeholders is even more critical to the success of a PAC and their managers than even we might have previously thought.

Professor Zhao Li:
So I find Google to be a really interesting example. Even though my publication is not about Google or the tech industry, per se, I think the general tendencies that my research uncovers apply to this particular sector very well. Google's PAC looks just like most employee-funded PACs. It contributes to politicians from both parties. It generally supports incumbents and relevant committee members and other legislators in power, holding positions in Congress. So it looks just like any business PAC, but unlike many other business organizations, its employee base is very noticeably liberal or Democratic-leaning.

Professor Zhao Li:
So one way we can look at that is to dig into the Federal Election Commission records and find all the individual donors who have ever disclosed themselves as working for Google. And then we can track their personal, direct campaign contributions to politicians over this roughly three-decade period. And we can find that about nine out of 10 of these Google employees, as political donors have only ever given to Democratic candidates throughout their recorded giving history. And the rest of them generally, predominately support Republicans, but there's a heavy concentration of the employee base towards the Democratic side of the political spectrum.

Professor Zhao Li:
And that poses a challenge for a company like Google, because let's say, and this happened just a few years ago, right? As both chambers of Congress were taken over by the Republican Party as then the majority in the house and the Senate, Google felt a pragmatic need to shift more of its contributions, at least in a proportional sense to Republican legislators because they held the majority. They controlled chair positions of key committees and et cetera. And it's not necessarily a partisan decision.

Professor Zhao Li:
But in spite of that, that generates backlash among its predominantly Democratic-leaning employees. Because employees might say, well, I understand that we have pragmatic needs to support these Republican legislators, but it just doesn't sit well with me as a Democrat. And I don't want my money indirectly going into the campaign accounts of politicians that I disagree with on a partisan or ideological basis.

Professor Zhao Li:
And Google is a great example of that, because of how one party dominated its employee base relative to the very bipartisan manner in which the PAC contributes to politicians. But also, Google poses an interesting case where its employees like many employees in the tech sector are relatively better educated, perhaps a bit more informed, both about the general political process and what their PACs are doing. And they also arguably have a little bit more economic bargaining power with respect to their employer. So they're not afraid to voice their dissatisfaction either through the PAC fundraising process or through other means.

Adam Belmar:
And Micaela, I think the emerging question, both for practitioners and researchers is, how will this trend of employee activism end up impacting political action through PACs? Dr. Li, for her part, has some ideas about the answer to that, but she also acknowledges that more work needs to be done.

Professor Zhao Li:
This increasing recognition that corporations are not black boxes, they're not monolithic entities. They are comprised of people, people who have different motivations, some of which are business-oriented, some of which are not. And how do you as an organization manage all these conflicting motivations in a way that advances the collective goal of a company, or of a business association? So in addition to my research, I think there's also some really interesting political science work.

Professor Zhao Li:
For example, looking at how employees are internally leading the effort for companies to engage in corporate social responsibility and other philanthropic endeavors in a way that might advance their partisan or political goals. And also how public opinion views the governance style of corporations and whether employees should have a say in corporate political activities. And to what extent employees should be informed about these processes. But as a general matter, I think this is a wide-open field and there is a lot more research to be done.

Micaela Islaer:
Yeah, Adam, this is truly fascinating. And Professor Li has really, I think, put her finger on the tensions that exist for understanding how individuals and in this case, employees and stakeholders are increasingly operating on two concurrent and parallel tracks when it comes to political giving. Two tracks that are not mutually exclusive.

Adam Belmar:
Exactly right. They most certainly are reconciled for many of us who are PAC contributors. And we have to remember, as we always say on the Facts About PACs, there are many things that are going on at once in our industry and the country at large, Micaela. And even our audience of PAC managers are seeing this dynamic play out in real-time. I think it's really helpful to digest the data and the research in an effort that we all have to better understand what works. What might need to be changed? Dr. Li put it this way.

Professor Zhao Li:
At the broad level, in terms of sources of campaign funds, certainly, for federal candidates, an undeniable trend is that individual donations have replaced PAC contributions, including not only business PACs, but other PACs as the primary source of campaign funds for most federal candidates. And that alone is the fact that I think some members of the public may underappreciate. And I think this may factor into some of these causes you mentioned for a ban on corporate PAC money when the corporate PACs were never the predominant source of campaign funds. And then within corporations, we do see that more employees are acting as individual donors, even outside of the PAC realm.

Professor Zhao Li:
So a few decades ago, very few people donated personally, but now more and more of them are participating in this campaign finance process. Not to even mention the recent growth in digital fundraising platforms, such as ActBlue and WinRed, that really led to this explosion of small donors. So a lot of individuals, including corporate employees are giving directly. And I think this may have an impact. I can't say for sure because my research does not prove this. But my conjecture is that, this participatory process may sort of change their perception of the PAC fundraising and contribution process when they're starting to be more conscientious about partisan alignment of the recipients of corporate PAC money, just as they would with their personal campaign giving.

Micaela Islaer:
Well, outstanding research. And something I'd want to continue to follow up on I think as we move forward in this highly polarized environment. Thank you for bringing Professor Li's research to all of us today, Adam. I know there was even more to your discussion. And I do want everyone to know that we are going to share more of this interview and the work of other political science researchers right here on the Facts About PACs Podcast in the weeks and months to come.

Micaela Islaer:
Thanks to everyone downloading and sharing the Facts About PACs Podcast and we're back next week with a new episode, Adam. Our guest, Adrienne Marks from Visa. Adrienne is responsible for managing Visa's political action committee, civic engagement, regulatory compliance at the federal and state level and corporate diversity and inclusion initiatives. As ever, employee funded and business trade association PACs are the most transparent and regulated form of political giving. And NABPAC is dedicated to defending that record and championing the amazing PAC professionals who lead vital teams. Subscribe and meet us right back here on the Facts About PACs Podcast.