Kevin Thomas is director of shareholder engagement at the Shareholder Association for Research and Education (SHARE), a Canadian leader in responsible investment services, research, and education for institutional investors.
When it comes to corporate donations, we know some politicians like to receive them, and some executives like to make them. But do shareholders actually like to foot the bill?
The general assumption has long been that corporate political activity – campaign contributions, lobbying and grassroots communications – is positive for the bottom line and therefore in shareholders' interest. The squeaky wheel gets the oil, as the saying goes.
But what if that assumption is wrong?
Late last year we held a roundtable of Canadian institutional investors and public companies to examine the role of corporate political spending and appropriate disclosure to shareholders. While all participants agreed that corporations can play a positive role in public policy development, they also expressed a number of ways political activity by corporations may not serve the company's owners.
First, there are campaign contributions and/or donations to political associations and think tanks that favour the executive's pet projects rather than the company's interests. A good example of that is the $50,000 (U.S.) donation by Devon Energy to a Wisconsin Super PAC to help Governor Scott Walker fight a recall campaign – even though the company has no operations in Wisconsin.
The business case for that decision was certainly not clear to shareholders.
Then there are the contributions to organizations that create controversy for the company rather than influence. Take the example of TransCanada Corp., which faced a backlash in Quebec when controversial strategies to influence the debate over the Energy East pipeline and undermine the opposition were leaked to the media. Spending on organizations that attract controversy can damage the company's reputation as well as its prospects for growth.
Lastly, there is the issue of political activity that may serve short-term corporate interests but is damaging to long-term value.
When an energy company spends shareholder money to attack, delay or undermine strong climate or environmental regulations, for example, it may help protect profits in the short term. However, for universal and long-term owners like pension plans, they may see erosion of shareholder value in other assets such as buildings, infrastructure and agricultural companies because of climate change.
The value of investments in the renewable energy sector would likely grow under stronger environmental policies. In the long run, the interests of shareholders are better served by public policy that reduces overall risks to their portfolios.
And yet, despite these concerns, the debate within Canadian companies has been relatively subdued.
Part of the reason is that shareholders are kept almost entirely in the dark about the scope and size of company spending on political activity. Only a handful of corporations report to shareholders on such activity, despite evidence that a large portion of Canada's large-cap companies are engaged in public policy either directly or through their trade associations.
Sure, there are lobbyist registries in some provinces (though not all) and campaign spending registries (although some spending such as that of leadership campaigns still flies under the radar). But the full extent of the use of shareholder dollars to create political influence is not disclosed. The numerous trade associations, think tanks, lobbyists and others receiving money from our companies' treasuries is unknown.
That's changing and smarter companies are getting ahead of the curve. This year our institutional investor clients filed the first Canadian shareholder proposals on political spending disclosure at Enbridge Inc. and TransCanada Corp. and we engaged in productive discussions with both companies on their behalf. As a result, both have set a new bar by agreeing to disclose new information on how and where they spend on political activity, as well as establishing new board-level oversight for that spending. Shareholders will vote on a similar proposal at Suncor at its upcoming annual meeting and we expect to see additional disclosure from that company as well.
Canadian citizens need a strong regulatory regime around corporate political contributions and it's up to politicians to strengthen those rules. Canadian shareholders need a strong disclosure regime around corporate political spending and it's up to us to advocate for it.