Note: Originally posted on the Responsible Investment Association (RIA) website.
Guest post by Kevin Thomas, Director of Shareholder Engagement with the Shareholder Association for Research and Education (SHARE)
Disclaimer: the views expressed in the following blog are those of the author and not necessarily those of the Foundation.
Calls for disclosure of corporate spending to influence the political process have become the single most frequent subject of shareholder resolutions in the United States, where the amount of money corporations spend to achieve political outcomes is massive – and largely undisclosed.
Concern about political spending has been less prominent on the responsible investment agenda in Canada, however.
Part of this has to do with Canada’s campaign finance system, which places stricter limits on party financing and third party spending during elections in many Canadian jurisdictions. But before we get too smug, shareholders may want to take a closer look at just how active Canadian corporations are in the public policy sphere.
That may be difficult, however, according to a new discussion paper from the Shareholder Association for Research & Education (SHARE).
Although limited public records show that Canadian corporations are very active in lobbying governments, making campaign contributions and funding trade associations and policy think-tanks, few Canadian corporations are disclosing this activity to shareholders. Furthermore, few have disclosed any policies governing this activity or demonstrated regular board oversight and risk management.
Participation in the political process by corporations can be a positive thing. It can provide decision-makers with knowledge and expertise, assist in designing effective regulations and support measures that build value. But there is no shortage of examples where corporate influence has stalled popular measures, removed or hindered critical environmental or financial regulations, or created short-term advantages for an influential minority at the expense of long-term growth for the economy as a whole.
Political activity by large corporations is usually discussed as a public governance issue. But we see it as a corporate governance issue as well.
Political activity can create reputational risks for a company, where it is seen by the public as having undue influence or associated with unpopular positions or candidates. It can also divert company resources and focus in areas that may enhance senior management’s personal influence but don’t create real value for the corporation itself.
Less understood, but perhaps most important, are the portfolio-level risks political activity can create for investors. Think, for example, of companies and trade associations that lobby against effective carbon pricing, or to limit oversight of risky financial products that can create system-wide instability. Is this really in shareholders’ interests?
SHARE’s paper, Dollars, Democracy and Disclosure, is part of an ongoing project to promote discussion amongst investors and issuers about the appropriate governance of corporate political spending, including policies, disclosures, and regulatory measures. The paper quantifies what we know about corporate political spending in Canada, and sets out a series of discussion questions about effective governance and disclosure with investor interests in mind.
SHARE is planning ongoing opportunities for investors to contribute to this discussion, starting with an online survey which can be accessed here.
About the Author
Kevin Thomas is the Director of Shareholder Engagement with the Shareholder Association for Research and Education (SHARE), a Canadian leader in responsible investment services, research and education for institutional investors.