A Window into Corporate Responsibility?(A)

Move over “sustainability,” there’s a new buzzword in town: “transparency.”
Transparency—the full, open, and honest disclosure of information by institutions to the public—has emerged as a strategy for issues as diverse as curbing escalating U.S. healthcare costs to fighting corruption in the developing world. It’s also emerged as a key tool for promoting corporate accountability and corporate social responsibility, and one which invertors are particularly well-positioned to use.
Society hasn’t always looked to transparency to solve its ills. In fact, transparency has had some past negative connotations: think of a child’s transparent excuses to get out of doing chores or your irritation at a co-worker’s transparent efforts to flatter the boss. Also, the acknowledgement that members of the public require full information because of their legitimate role to play in decision-making is relatively new. The more traditional attitude of deference to expert elites is well illustrated in the advice distinguished judge Oliver Wendell Holmes gave to doctors in 1871: “Your patient has no more right to all the truth you know than he has to all the medicines in your saddle bags….He should get only just so much as is good for him.”
Now however, we live in an era where scandals have rocked many of our most trusted institutions, notably governments, corporations, and the media, but also the American Red Cross, the Olympics, and even the TV game show American Idol. Who’s left to trust? (Well, Oprah for some and Jon Stuart for me, but who else?) At the same time, the internet and an increasingly global communications network allow people direct access to information as never before. As a result, institutions face increasing demands to provide information that enables the public to judge performance for themselves. In addition to empowering individuals with information, such disclosure provides an important accountability mechanism for ensuring that governments, corporations, non-profits and other groups are more honest, efficient, and responsible. After all, just as many of us work to lose a few pounds as the summer swimsuit season approaches, companies and other organizations also feel pressure to “get in shape” if they know they’ll be baring all to the public. Sunshine really is the best disinfectant, or in corporate-speak, “what gets measured gets managed, and what gets reported gets results.”
For these reasons, socially responsible investors have long championed increased transparency, particularly about social and environmental issues that can have long-term impacts on companies but are often ignored by traditional financial analysis. Shareholders are uniquely positioned to argue that companies should release this information and have successfully gotten companies to disclose everything from their total greenhouse gas emissions to their policies on political contributions. This trend has accelerated as larger institutional investors have grown increasingly comfortable supporting demands for disclosure on social and environmental issues that can have material impacts on long-term shareholders.
Here are just a few ways that investors have promoted more responsible business practices simply by asking companies to disclose what they are doing.

Disclosure of Political Contributions
Do you have a somewhat hazy memory that John McCain (and Russ Feingold) put a stop to corporate political contributions a few years back? If only it were that simple. In 2002, Congress did pass McCain and Feingold’s Bipartisan Campaign Reform Act (BCRA), which prohibited corporations from making unlimited (so called “soft money”) contributions to national political parties and to committees controlled by federal officeholders. But the law allows corporations to contribute soft money to non-connected political committees (commonly called 527s), to political parties at the state level, and to state and local candidates. It also allows companies to funnel political contributions through their trade associations. The non-partisan Center for Political Accountability has found that “As a result of BCRA, corporate political money has not stopped flowing; it just moves through different channels.” Companies don’t have to publicly report many of these contributions, and boards of directors typically exercise little oversight on political contributions.
Trillium Asset Management and other investors have banded together to work with the Center for Political Accountability to demand disclosure and effective oversight of corporate political contributions. In response to this two year old campaign, 10 large companies have agreed to publicly report all their political contributions on their websites each year, publicly disclose their guidelines for political giving, and ensure their boards of directors review all soft money political contributions on an annual basis. (These ten companies are Bristol-Myers Squibb, Coca Cola, Eli Lilly, Johnson & Johnson, McDonald’s, Morgan Stanley, PepsiCo, Schering-Plough, Southern Company, and Staples.) Investors are now asking more companies to follow these ten leaders on political disclosure, and to boost disclosure further by including contributions channeled through trade associations. Over time, we expect this effort will dramatically improve disclosure and accountability for corporate political contributions.
Extractives Industry Transparency Initiative
Here’s a paradox: some of the poorest countries in the world are those with rich deposits of gold, oil, diamonds, and other natural wealth—countries which receive hundreds of millions of dollars in royalties and other payments from international mining and oil companies for access to those resources. Yet these countries seem to lack the money to provide the most basic services for their citizens, from education to efforts to fight HIV. Where does the money go? Sadly, much of it is often spent on pet projects that benefit the ruling elite or is outright stolen and diverted to secret bank accounts.
To fight this problem, in the late 1990s, a coalition of non-profits began calling on companies to “publish what you pay,” on the theory that a full disclosure of payments would make it harder for corrupt government officials to steal or misallocate funds. In 2002, UK Prime Minister Tony Blair took up the cause and recruited a broad coalition of countries, companies, investors, advocacy groups, and major funding institutions like the World Bank to join the Extractives Industry Transparency Initiative (EITI). Over twenty developing countries, such as Azerbaijan, Nigeria, and East Timor, have signed on to the EITI and agree to regularly publish independently audited figures of all material payments they receive from oil, gas, and mining companies. Major companies such as BP, Chevron, and Shell have endorsed the EITI and agreed to help support its implementation. Trillium Asset Management and other socially responsible investors were early endorsers of the Publish What You Pay campaign and have also formally endorsed the EITI.

Global Reporting Initiative
Any regular reader of Investing for a Better World and our website has read about our strong support for the Global Reporting Initiative, a comprehensive set of guidelines for companies to report their social and environmental performance that was developed by environmental, labor, and human rights groups from around the world, along with companies, accountants, and many other groups as well. This year, Trillium Asset Management participated in a major update of the guidelines which will be unveiled in October and helped lead a coalition of investors that asked more than 40 companies to begin reporting using the GRI guidelines. As a result, major companies within our holdings, including AIG and Illinois Tool Works have agreed to issue their first-ever sustainability reports. We consistently hear from sustainability champions within companies that the very act of having to publicly report their policies and performance drives many companies to make new commitments and invest resources and time on environmental and social initiatives.
And More
There’s many more ways investors are using the power of disclosure to demand more responsible business practices, such as getting Wal-Mart to disclose diversity data of its workforce and GE to disclose the money it has spent on lawyers and efforts to delay cleaning up its PCB contamination of the Hudson River. It’s all just part of our transparent efforts to get companies to act more responsibly….