Corporate political accountability has become an increasingly important issue for stakeholders, particularly investors who often rate it as one of their top corporate sustainability issues. Over the past three years, investors have filed almost 300 environmental, social, and governance (ESG) corporate resolutions on this topic alone.
Specifically, investors and other stakeholders are focused on four key aspects of political accountability: corporate lobbying, political contributions, political/industry association support, and public positions on sustainability issues. According to the Center for Responsive Politics, through its website opensecrets.org, a record amount of over $3.4 billion was spent on lobbying in the U.S. at the federal level in 2018, with the majority coming from corporations and the industry associations they support. A significant amount was also contributed at the state level.
The ever-increasing involvement of corporate money in the political process can be traced in a large extent to the Supreme Court case of Citizens United almost 10 years ago. The ruling allowed for unlimited contributions by corporations and unions, the development of political action committees (PACs), and “dark money” contributions by non-disclosed donors.
What can corporations do to demonstrate alignment between their political activity and corporate sustainability strategies and goals?
A large concern for an organization such as BSR, as well as many other stakeholders, is that while corporations develop sustainability strategies on environmental and social issues, subsequent political activity is not aligned with those sustainability positions. For example, many leading auto companies have strategies and goals to reduce climate and environmental impacts. It is not always clear, however, if political activity and lobbying efforts by the same auto companies are aligned with those environmental goals, particularly in cases where they are not disclosed.
This leads to the question: What can corporations do to demonstrate alignment between their political activity and corporate sustainability strategies and goals? We recommend the following three good practice approaches.
Although there are some legally required disclosures for corporations on their political activity, good practice – and what is increasingly expected by stakeholders – is that corporations go further. The annual CPA-Zicklin Index of Corporate Political Disclosure and Accountability, which was released in late October and is managed by the Center for Political Accountability and Zicklin Center for Business Ethics at Wharton Business School, is a well-respected and publicly available resource for companies to gauge how well they are disclosing their political activities against 24 scoring criteria.
A positive takeaway is that the Index shows there has been a “trend toward enhanced accountability, transparency, compliance, and oversight across all corporate sectors” since Citizens United. I recently spent a day with CPA-Zicklin team, as well as many leading experts on this topic, and the key takeaway from the discussion was that transparency alone is not enough – the intent of the political activity and public positions on issues are what is really important.
A key attribute of a best practice approach is to have principles-based alignment on the topics which a corporation will advocate for/against to provide insight into the intent for political activity. A good example of leadership is Microsoft’s Public Policy Agenda which provides a framework for the sustainability issues on which they engage the political process. As a principles-based document, Microsoft provides a set of material sustainability issues – e.g. freedom of expression, immigration, privacy online, etc. – on which it plans to advocate and the general positions it will take. This Agenda allows for a clear and concise way for stakeholders to review Microsoft’s actual political activities against their own stated positions.
A major form of corporate lobbying and political activity comes indirectly through political or industry associations. Many of these types of organizations have diverse supporters and take positions on a variety of public policy topics which makes it complex to determine how well aligned they are with a corporation’s sustainability interests. In addition, many corporations do not have clear criteria to decide which groups they should support and how to manage any conflicts of interest with these groups.
Shell is a good example of a company that has a publicly available report on its involvement and criteria for political/industry associations. As an proof point, Shell recently ended support for an industry association due to increasing misalignment. A lesson learned is that periodic review for alignment on material sustainability issues is needed.
Along with senior leaders from the Center for Responsive Politics, Trillium Asset Management, and BSR, I will be exploring this topic further next week during the session The New Climate for Corporate Political Accountability at the BSR Conference 2019 taking place November 12-14 in San Jose, California. I hope you can join us to participate in the discussion of how corporations can improve their efforts and adopt good practice with regards to political accountability. We look forward to seeing you there.