"The Swiss Bank Accounts of American Politics"

It’s 2002 and the head of government relations at Behemoth Corporation wakes up in a cold sweat. In a terrifying nightmare, Behemoth’s CEO, perversely shape-shifted into the form of a cartoon ferret, is screaming for a strategic plan to circumvent the newly passed Bipartisan Campaign Reform Act, which prohibits corporations from making unlimited contributions to national political parties and candidates for federal office. “What about the bill you drafted for Congressman Luke de Utherweigh!?” the ferret demands.
His heart pounding, our lobbyist gradually calms down, recalling that gifts to state and local candidates are still possible. And 527 committees. And state-level parties, thank heavens for them. And the trade associations. It’s not like these donations even have to be disclosed; the recipients do that, and what a mess that paper trail is.
Flash forward five years. In February 2007, The Washington Post reports that the U.S. Chamber of Commerce and its affiliated Institute for Legal Reform, which fights trial lawyers, “have broken their own record for expenditures on lobbying” the legislative and executive branches, spending close to $73 million in 2006. In the May 2006 report Hidden Rivers, the Center for Political Accountability found that trade associations helped companies conceal and spend over $100 million in 2004. This spending, the report noted, poses serious risks to company economic interests and reputations and to shareholder value. Hidden Rivers dubbed trade associations “the Swiss bank accounts of American politics.”
But things are also starting to change. In the last three years, shareholders have done some lobbying of their own, pressing nearly twenty major companies to increase their transparency and improve their accountability on their political contributions. These include high profile players such as McDonalds, Morgan Stanley, Eli Lilly, Verizon, Home Depot, General Dynamics, and Trillium Asset Management Corporation’s successful engagements withGeneral Electric, Hewlett-Packard and at American Electric Power, where we joined Green Century Capital Management in filing resolutions.
All of the companies agreed to board oversight of their political spending. In a first, General Dynamics agreed to report and have its board oversee those payments to trade associations that are used for political purposes, setting a precedent followed by GE, HP and American Electric Power. Previously, company disclosure and board-level oversight was limited to soft money contributions to candidates and parties, stopping short of trade associations and 527s.
Why the progress? As Andrew Shalit, Director of Shareholder Advocacy at Green Century Capital Management, remarked, ”Full disclosure and oversight of political contributions is a basic good business practice. It costs very little to implement, it increases public confidence, and it reduces the risk of abuse.”
Companies also recognize a groundswell when they see one. The political disclosure resolution was one of the top three vote-getters last year. Support averaged 22% at 29 companies where the proposal came to a vote. This year, twenty-four institutional investors working with the Center for Political Accountability filed shareholder resolutions with 44 companies for the 2007 proxy season. This year’s resolutions focus more on trade association spending. Seven companies have reached agreements with shareholders already, and a dozen more companies are in dialogue. Corporate involvement in the public policymaking process isn’t something that we or the other resolution proponents oppose on principle. Corporations have sometimes taken very public stands that we agree with (for example, championing affirmative action, and calling for federal regulations imposing greenhouse gas caps). But when they’re spending shareholder money, they ought not be hiding behind their trade associations when taking policy stands. That’s what makes us break out in a cold sweat.