Corporate Social Responsibility
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“Government, mining companies, donors and civil society must take action,” says OxfamAmerica.
Political Convention Financing: The Public Citizen Explains Special Interest Groups’ Influence on Congress Members
The U.S. presidential election season is in full swing and both political parties have plans to throw lavish national conventions to elect their party’s candidate for president. As the Democratic National Convention got underway yesterday, more public advocacy groups are keeping a sharp eye on campaign finance spending. Public Citizen, in particular, claims there are large ethics loopholes that allow special interest groups to finance expensive events to “honor” U.S. congressmen without penalty. U.S. ethics reforms, which were passed in Congress in the middle of last year, were meant to curb the influence of lobbyists, trade unions and corporations on government officials and are now being trampled on.
Public Citizen, a U.S. nonprofit consumer advocacy organization, has released a report outlining the specific loopholes allowing special interest groups to spend large sums of money during the conventions. The report cites that money from special interests to finance the conventions in 2008 will be in excess of $112 million, which will greatly overshadow $16.4 million in public grants.
According to rules set by the Federal Election Commission (FEC), “each national party must form a presidential convention committee subject to contribution and spending restrictions and reporting requirements. However, the Commission redefined several types of expenditures as falling outside the category of convention-related expenditures, and thus exempt from the spending ceiling for party convention committees.”
The Public Citizen says this loophole allows special interest groups to have unlimited spending powers if they can prove their events are unrelated to the conventions.
The report also states that the FEC determined that wealthy individuals, corporations, unions, and even banks may make unlimited contributions, for certain purposes, to “host committees” unaffiliated with the national party convention committee. A host committee is “any local organization which is not organized for profit; whose net earnings do not inure to the benefit of any private shareholder or individual; and whose principal objective is the encouragement of commerce in the convention city, as well as the projection of a favorable image of the city to convention attendees.” Today, these “host committees” claim their nonprofit status – collecting unlimited and unregulated funds – by stating that their purpose is to raise funds for “civic boosterism” in the convention host cities – not for political purposes.
Paying for Influence
In return for these generous contributions, corporate sponsors to the conventions are promised a variety of benefits, ranging from advertising opportunities to VIP tickets to the convention centers.
Lack of Fiscal Accountability
Reporting is lax as well. The report states “The official convention committee of the political party, which is not allowed to accept soft money, must file regular quarterly and post-convention reports disclosing how it is using the public funds for the conventions and any contracts made by the committee, host committee or municipal funds for convention expenditures. Host committees and municipal funds, on the other hand, file their disclosure reports 60 days after the convention with the FEC.”
Corporate Parties Used to Boost Relationships
Another way special interest groups have been trying to influence members of Congress is by throwing lavish parties after the convention. In the past, many events sponsored by corporations were held specifically in honor of a Congress member or group of members. In this way, corporate sponsors and lobbyists were able to have exclusive access to the member to make their case. The 2007 ethics reform rules now prohibit members from attending these types of parties. However, according to the Public Citizen, the House of Representatives interpret the ethics law more loosely so that a member could attend a corporate-sponsored party only if no specific names of other Congress members are mentioned on the bill.
Although the Public Citizen says the new reform rules are making somewhat of an impact as to the types of activities being held during the conventions, there are still problems and confusion over how these rules should be interpreted.
Alternative Funding Activities
The Public Citizen suggests that the money donated to political conventions could be put to use to practice real “civic boosterism.” The money for the Democratic National Convention, held this year in Denver, Colorado, could fund Denver’s Safe City Initiatives, and the money for the Republic National Convention, held in Minneapolis, Minnesota, could support the backlog of road construction projects that materialized after the tragic collapse of the I-35 bridge in that city.
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In the middle of what will surely be the most expensive American presidential campaign season in history, corporations are particularly feeling the pressure to increase political spending. Corporate political spending carries with it a number of risks, and many senior executives have found themselves paying substantial fines or serving prison time.
Bruce Freed, executive director of the Center for Political Accountability, and Karl J. Sandstrom, part of the General Counsel at the political law firm Perkins Coie, wrote an article for The Conference Board’s Executive Action series on the growing support for disclosure on corporate political spending and how directors can provide better oversight in this department.
According to Freed and Sandstrom, there are a number of factors that are putting pressure on companies to increase their disclosure of their political spending. Corruption investigations in recent years have emphasized the risk associated with violating complex U.S. campaign finance laws, shareholders are increasingly concerned about the issue, some academic studies have questioned the benefits of political spending, and pressure has increased from proxy-voting advisory services for corporate disclosure.
Based on the risks involved, Freed and Sandstrom highly recommend appointing a director to oversee a company’s political spending who is knowledgeable about current campaign finance laws and long-term business strategy. The two authors created a list of actions the director must undertake in order to ensure compliance and conduct ethical business. The following approach is essential to carrying out thorough oversight, state Freed and Sandstrom. “However, for that oversight to be truly effective, directors need to know that they will be subject to shareholder and public scrutiny. Disclosure of their company’s political spending will help them make better decisions and conduct more rigorous oversight.”
A Director of Oversight of Corporate Political Spending Should…
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Naming The “Most Influential” Lobbyists Can prove Difficult, Canada’s The Hill Times Tries
The Hill Times published Canada’s Top 100 Lobbyists, or those “lobbyists [who] register their clients and public policy concerns in a federally regulated, online public registry.” This political newspaper in Ottawa, Canada pictures the most influential lobbyists on its front page, but candidly admits that determining who is most influential is difficult. In Brussels, Washington DC and in other important capitals this question is being asked more and more as the numbers of lobbyists rise rapidly.
The detailed report in The Hill Times, which includes short profiles of each of the 100 lobbyists, coincides with continuing reporting in Canada on alleged corruption involving former Canadian Prime Minister Brian Mulroney and Europe’s Airbus Industries.
The newspaper reported that the investigation by the Canadian Government’s Ethics Committee has ended. However, further public inquiries are likely.
According to Democracy Watch, a Canadian civic advocacy group, and the February 25 cover of The Hill Times, concerns about unethical relationships between politicians and lobbyists are not new. The publication of Canada’s Top 100 Lobbyists, or those “lobbyists [who] register their clients and public policy concerns in a federally regulated, online public registry,” is not negative about lobbyists’ activities, but defines the most influential lobbyists (the ones on the list) as those who have “the capacity to impact federal government policy or receive favorable treatment from the government.” The article highlighted the difficulty of developing the list: "Like HT's list of the 100 most influential people in Ottawa, this was a difficult list to create." There are many ways lobbyists can exert influence, the article says.
"Many if not most important regulatory decisions affecting business interests are not made by Cabinet ministers. They are made inside departments and regulatory bodies, and that's where lobbyists with good strategic advice can prove to be influential for their clients. Lobbyists who know government processes have the ability to provide valuable analysis, insights, and strategic advice. They may know that it is crucial to submit a certain position paper to a certain director at a certain time, and can advise on the best strategic approach. The lobbyists on the list, then, must be influential with the current government."
In addition, the lobbyists on the Top 100 have to be registered, since many people in Ottawa take part in lobbying activities, but are not registered as such, the article says. Such distinctions complicate who is actually a lobbyist and who isn't.
Democracy Watch puts the matter more forcefully - “The System is the Scandal.” The government oversight organization recently wrote an editorial condemning the extent of corruption in Canadian politics - see excerpts below.
“The federal Liberals’ recent promotion of an illegal fundraising scheme, along with the federal Conservatives’ court battle with Elections Canada over spending during the last federal election, and the widespread ongoing involvement of lobbyists in all political parties, reveals just how much the attitudes of the inside-Ottawa-elite and wannabe-elite are the main barrier to having an honest, ethical, open, representative and, therefore, waste-preventing federal government.”
“Yet the Liberals recently advertised an auction offering the highest bidder (whether an individual or corporations) the opportunity to play golf with Liberal MP Paul Martin, attend a hockey game with Liberal MP Ken Dryden, or play tennis with Liberal by-election candidate Bob Rae and his brother John, Executive VP at Power Corporation (which lobbies the federal government). The Liberals changed their plans when the auction was questioned in media articles, and ended up limiting bids to individuals up to their annual party donation limit of $1,100. However, the Liberal MPs expressed no concerns about selling access to themselves for cash, a clear violation of ethics rules that prohibits MPs from accepting any such gift or benefit other than the compensation they receive as an MP (in particular gifts that could compromise their integrity) and that require MPs to uphold the highest standards, to maintain and enhance public trust and confidence in their integrity, to avoid real or apparent conflicts of interest, and to act in a manner that bears the closest public scrutiny.”
Read the whole op-ed on the Democracy Watch website about the many loopholes that still exist in campaign finance rules and lobbying regulations.
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The Center for Political Accountability, a U.S. non-profit organization that works to increase transparency in corporate political giving, released a primer on U.S. corporate political spending and disclosure requirements to help companies, shareholders, and the media understand the various ways in which corporate money can be used for political purposes. The paper defines corporate political spending, the different routes that corporate money can take, and provides a map of corporate political spending and disclosure, noting where there are significant breaks in transparency.
According to the primer:
The primer argues that these “gaps in transparency and accountability create serious financial, legal, and reputational risks for companies that make political contributions or that belong to politically active trade associations.” Because of this, “companies should adopt approval, oversight, and disclosure policies that cover the full range of corporate political activity”
To view the full primer visit the Center for Political Accountability's website.
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January 24, 2007: The Center for Political Accountability reports increasing transparency in political giving by corporations at a time when major actions are being taken to strengthen ethics in U.S. politics. Companies are facing public pressures to increase disclosure of all of their political activities. Both houses of the U.S. Congress approved ethics reform legislation in January, 2007.
The Center for Political Accountability made the statement together with Trillium Asset Management and Green Century Capital Management, which are part of a nationwide campaign to bring transparency and accountability to company political spending. They stated:
The In a major expansion of company political disclosure, General Electric, Hewlett-Packard and American Electric Power have agreed to report their trade association payments used for political purposes as part of their overall disclosure of political spending with corporate funds. In addition, Home Depot has adopted disclosure of its soft money political contributions. All of the companies agreed to board oversight of their political spending.
These companies join 15 other major companies which adopted political transparency and accountability policies during the 2005, 2006 and 2007 shareholder resolution seasons. The companies are Bristol-Myers Squibb, Staples, Amgen, McDonald’s, Southern, General Mills, Morgan Stanley, Johnson & Johnson, Schering-Plough, PepsiCo, Coca Cola, Eli Lilly, Verizon, Monsanto, and General Dynamics.
Last month, General Dynamics became the first company to agree to report and have board oversight of its payments to trade associations that are used for political purposes. Previously, company disclosure and accountability was limited to political contributions made with corporate funds, popularly known as soft money.
“GE, HP and AEP are to be congratulated for recognizing the importance of much broader political disclosure. Through their agreements, they are establishing a new best practice. This will encourage companies to pay much closer attention to how trade associations use their money politically and will give shareholders a fuller understanding of how their money is being used,” said CPA Co-Director Bruce Freed. “The Center applauds Home Depot for recognizing its responsibility to make public and account for its political spending with shareholder money.”
Shelley Alpern, Director of Social Research and Advocacy at Trillium Asset Management, said, “These resolutions have clearly touched a sensitive nerve. Nearly every company we have approached has been interested in complying. Many are realizing that they have as much to learn from gathering the information as we will learn when it is disclosed. It is a very positive step forward for good governance and political risk management.”
Andrew Shalit, Director of Shareholder Advocacy at Green Century Capital Management, said, “Companies often push back on requests from shareholders, but in this case we’re seeing the majority of companies agree with our assessment. 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.”
AEP pledged to ask its trade associations receiving more than $25,000 in annual AEP payments for the portion of the company’s payments used for political and lobbying purposes. (The $25,000 threshold may be reanalyzed in 2009.) The company said it will include the dollar amounts reported by the associations in its annual sustainability report. HP said that it would include in its annual report the company’s soft money political contributions along with its political payments made to trade associations “and any other [corporate] payments used for political purposes.”
In its Statement on Political Contributions, GE committed to asking each association that reported that it has or will spend $25,000 or more of GE’s money on non-deductible lobbying or political expenditures to tell the company the amount used for political campaigns. “We will include in our political contributions report any responses we receive to such request,” GE said.
Current campaign finance law allows corporations to make donations in many states and to political committees commonly known as 527s, but not to federal candidates. However, companies aren’t required to disclose political contributions made with corporate funds or payments made to trade associations that are used for political purposes. Moreover, associations aren’t required to disclose the specifics of their political spending or their membership. This secrecy leaves institutional investors and individual shareholders in the dark about the use of company resources for political activities.
For the past two years, the CPA, a non-partisan, non-profit advocacy group, has been leading a shareholder campaign that includes 19 institutional investors and allied groups to get companies to agree to political disclosure and accountability. For the upcoming proxy season, CPA-model resolutions will be filed with more than 50 companies.
Background: Center for Political Accountability’s Corrporate Political Spending and Accountability Statement of Principles
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Update 7.20.2006 - Amnesty International Launches Global Campaign Against Internet Repression, Releases Report on U.S. Tech Companies. The report, "Undermining Freedom of Expression in China" provides useful background information on international norms and regulations regarding the internet and the human rights responsibilities of companies, as well as the human rights situation in China. It also includes a compelling analysis of Yahoo, Google and Microsoft's policies, actions and publicly stated arguments. To download the report visit Amnesty International's website, www.amnesty.org or click here.
Are Profits More Important Than a Corporation’s Values?
“The Internet in China: A Tool for Freedom or Suppression?”
Note: For example, Google declares in its corporate ethics code: “The core message is simple: Being Googlers means striving toward the highest possible standard of ethical business conduct.” And, it adds, “Our communications with our users should be appropriately clear and truthful. Our reputation as a company our users can trust is among our most valuable assets, and it is up to all of us to make sure that we nourish that reputation.”
Google’s Special Service in China
Miscrosoft & Cisco
Finally, Cisco Systems Inc., a leading networking equipment and management company, has become embroiled in this situation because it has sold hardware to the Chinese government that facilitates censorship and tracking of Internet mail.
The controversy has been a public relations nightmare for the tech companies, which have responded with varying degrees of defensiveness. Prior to the hearing the most vocal had been Microsoft which announced on January 30, 2005 a new set of guidelines on blog closings: it pledged to make a blog or website available elsewhere, even if it was legally obligated to block it in a particular country. Furthermore, the company promised to clearly inform users when a website has been blocked due to a legal order. Previously, it had only reported that its content was unavailable.Profits Over Principles?
At the February 15 hearing several Congressmen publicly decried the companies behavior charging them with violating American principles of free speech and bowing to pressure from China. For instance, James A. Leach (R-Iowa) said to Elliot Schrage, a Google executive, “So if this Congress wanted to learn how to censor, we’d go to you – the company that should symbolize the greatest freedom of information in the history of man?” His point is underscored by the fact that the company’s motto is “Don’t Be Evil,” as well as by its stated emphasis on corporate ethics.
All four companies testified, despite their notable absence at a similar Congressional Human Rights Caucus hearing earlier that month. They made the argument that, as a whole, despite individual cases of censorship, the Internet has increased national Chinese dialogue and access to information simply by existing. Elliot Schrage of Google emphasized that, “this was not something we did enthusiastically, or something that we’re proud of.” The companies also suggested that the US government could and should do more than US companies to advance human rights overseas.
However, many argue that the stance being taken by the companies is insufficient, as ordinary Chinese citizens cannot maneuver their way around security walls anymore than the average American can.
On February 14, 2006 the US State Department reported that it had created a task force to help technology companies protect free speech in countries like China that engage in Internet censorship. State Department officials vowed to encourage foreign countries to allow greater freedom of expression online as well as aid US businesses in their business strategies when they are called on to uphold repressive laws in countries where they operate.
However, numerous NGOs and Congressmen, such as Christopher Smith (R-NJ) Chairman of the committee that held the hearing, believe that the government must go further. They are calling on Congress to enact new laws to regulate the behavior of companies negotiating with foreign governments with questionable human rights records. Congressman Smith announced at the hearing his plans to introduce an “Online Freedom Act of 2006.” Congressman Smith’s Speech.(Also see an editorial in the Washington Post, where on February, 2006 columnist Sebastian Mallaby argued that the issue is more nuanced than many have portrayed it.)
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