Lobbying Disclosure Campaign Highlights Values Misalignment
In 2018, the investor demand for lobbying disclosure remains resolute. Since 2011, a coalition of investors comprised of religious investors, foundations, public and labor pension funds, asset managers and international and individual investors have filed over 300 shareholder proposals asking companies to disclose their federal and state lobbying, trade association payments and support for the American Legislative Exchange Council (ALEC).
Corporate lobbying to influence regulation affects all aspects of the economy, on issues from climate change and drug prices to financial regulation, immigration and workers’ rights. Over $3.3 billion was spent on federal lobbying in 2017 and companies spend more than $1 billion yearly at the state level. State lobbying is far less visible and transparent than federal lobbying. Further, trade associations spend over $100 million annually lobbying indirectly on behalf of companies.
Investors believe lobbying may pose reputational risks when it contradicts a company’s public positions, resulting in a values incongruity. Corporate reputation is an important component of shareholder value. Companies with a high reputation rank perform better financially than lower ranked companies, and executives find it is much harder to recover from a reputational failure than to build and maintain reputation. Without transparency, corporate lobbying can present reputational risk. A major focus for investors is undisclosed trade association lobbying which essentially allows for companies to say one thing and do another.
Climate change, drug pricing and tobacco present clear examples of the values incongruity. Many companies have programs to address climate change, yet are also members of the Chamber of Commerce, which has consistently opposed legislation and regulation to address climate change. Or a pharmaceutical company believes patients need access to affordable medicines, yet funds Pharmaceutical Research and Manufacturers of America’s $100 million campaign to oppose lower drug price initiatives, or supports smoking cessation, yet belongs to the Chamber of Commerce, which has lobbied against global antismoking laws.
Trade associations also can lobby to undermine shareholder rights. Many companies belong to the Business Roundtable, which is lobbying against the right to file shareholder resolutions. And a third party group like ALEC is controversial for promoting bills that undermine regulations on climate change, raising the minimum wage and workplace safety.
The 2018 proposals have been filed at companies that spend the most to lobby and do not disclose their trade association involvement, highlighting value incongruities covering issues from broadband accessibility, the climate, drug pricing, net neutrality, shareholder rights and tobacco.
The coordinated campaign continues to produce real results, as more than 60 companies have agreed to provide greater lobbying disclosure, and coalition members have engaged more than 70 companies that have left ALEC. Secrecy in political spending is not analogous to free speech, reputational risk from undisclosed lobbying is real, and shareholders have a right to ensure that boards of directors are monitoring this risk. With the Securities and Exchange Commission’s continued refusal to take up the most popular remaking petition in its history to require corporate political spending disclosure, investors are left with no choice but to either file proposals or engage in direct dialogues with companies.
Corporate Governance Analyst, AFSCME Capital Strategies