Shareholders have been urging companies to fully disclose the lobbying they do directly and through trade associations and third parties for six years now. This year 66 investors joined in filing resolutions with 50 companies seeking expanded lobbying transparency. Twinned with calls for disclosure of political spending aimed at affecting elections, this effort has had a steady positive effect. For example, this year companies including Raytheon, CenterPoint and DuPont came to agreements with investors to expand their lobbying disclosure.
We also find that many companies, even if they do not want to fully disclose, have expanded their reporting on items like Board oversight, priority issues they lobbied on, whether and when they did grassroots lobbying, making it easier to access their quarterly Senate reports or disclosing specific dollar amounts spent on federal lobbying.
Sticking Points
The three sticky points for many companies are in an area where increased transparency is vitally important:
- Trade association payments used for lobbying and whether this lobbying is consistent with the company’s own priorities;
- State lobbying; and
- Membership in and support for ALEC.
Without transparency in these areas, investors are left with a “trust us” assurance from management that there is Board and management oversight of the process coupled with a lack of any specific details.
Increasingly, companies are listing the large trade associations they are part of but declining to provide any details of financial support (dues and additional payments) and the amounts used for lobbying. For example, we do know the U.S. Chamber of Commerce is a lobbying powerhouse. It has spent over $1.2 billion in lobbying since 1998. If a company pays dues of $100,000 or $250,000, in many years approximately 45% was spent by the Chamber on lobbying (for 2016, this portion was 30%[1]).
So, hidden dollars can be provided to the Chamber that are used in controversial lobbying on issues like climate change, where the Chamber aggressively is campaigning against the Clean Power Plan,[2] Or when a group of insurers makes millions in undisclosed payments to the Chamber to lobby against health care reform.[3]
Similarly, industries like pharmaceuticals spend extensive time and money lobbying at the state level but since not all states require reporting on lobbying, this is often hidden from the public. For example, a recent investigation found that 16 pharmaceutical companies lobbied in 40 or more states from 2010 – 2014, and the Pharmaceutical Research and Manufacturers of America (PhRMA) lobbied in all 50.[4]
One of the most controversial public policy organizations is ALEC. Over 105 companies have ended their membership in ALEC, including BP, Ford Motor Company, Procter & Gamble, Shell and Wal-Mart. ALEC convenes corporate members and state legislators to approve model bills for state legislators. Yet, many companies that are members prefer to keep their ALEC involvement low profile.
Lobbying and Political Contributions are Separate Issues
We also note that many companies have expanded their websites or their responses in proxy statements blending disclosure of political contributions where they may get a high ranking from Center for Political Accountability (CPA) for example, but assuming somehow that should get their “good marks” and offset the limited disclosure of lobbying expenditures. We commend companies for their responsiveness to the call for disclosure of political expenditures related to elections, while reminding them lobbying disclosure is a coveted but separate topic and that “good grades” in one doesn’t offset failing disclosure in another.
Many leading companies with high scores for disclosure of political contributions do not include lobbying information through third parties and trade associations, including AbbVie, American Express, Boeing, Comcast, Dominion Resources, Honeywell, IBM, Monsanto, Pfizer, United Parcel Service, and Wells Fargo. Or a company discloses its trade association dues used to lobby, but fails to include all payments (so any payments beyond dues), such as Anthem. Proponents keep their resolutions on the proxy for a vote with these companies.
We believe it is important to have a basic set of standards for disclosure. If a company responds meaningfully, investors are pleased to withdraw the resolution in response.
Finally, many companies have established a rigorous review process assessing trade associations and the culmination of support for groups like ALEC. This is welcomed as well.
Timothy Smith
Timothy Smith is Director of ESG Shareowner Engagement at Walden Asset Management and leads Walden’s ongoing shareholder engagement program to promote greater corporate leadership on environmental, social and governance (ESG) issues. Prior to joining the firm in 2000, Mr. Smith served as executive director of the Interfaith Center on Corporate Responsibility (ICCR) for 24 years where he inspired many newcomers, like James McRitchie, to get involved in corporate governance. In 2007, 2012 and 2013, Mr. Smith was named as one of the “Top 100 Most Influential People in Business Ethics” by Ethisphere Institute. In 2008, he was elected as a board member of the General Board of Pension and Health Benefits of the United Methodist Church. In 2010, Mr. Smith received the Bavaria Award for Impact at the third annual Joan Bavaria Awards for Building Sustainability into the Capital Markets. In 2011 and 2012, he was named one of the most influential people in corporate governance by the National Association of Corporate Directors.
[1] https://www.uschamber.com/about-us/about-the-us-chamber/frequently-asked-questions (“For 2016, 30% of contributions relate to lobbying and are not tax deductible as a business expense”).
[2] “Move to Fight Obama’s Climate Plan Started Early,” New York Times, Aug. 3, 2015
[3] “Insurers Gave U.S. Chamber $86 Million Used to Oppose Obama’s Health Law,” Bloomberg, November 17, 2010.
[4] Liz Essley Whyte and Ben Wieder, “Amid federal gridlock, lobbying rises in the states,” Center for Public Integrity, February 11, 2016.
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