Political Accountability and Corporate Donations
by Peter D. Kinder

There is no more important issue today in American society than the role of corporate money in politics. None.

Names - shorthand for large, complicated, subtly intertwined scandals - roll from the pen: Enron and Halliburton, Abramoff and DeLay, the Club for Growth and the National Chamber of Commerce. Each evoke the interplay of corporate money and political influence.

Of most significance about these scandals is how little we actually know. Where did the money go? From whom? Via whom? To whom? What did it buy? Those concerned about corporate governance add: Who authorized passing the money? What supervision did executives and the board exercise over them?

Those questions have answers. But history tells us they usually emerge in the course of prosecutions or litigation years after the events, long after anything can be done.
In 1913 Louis Brandeis prescribed sunlight as the best disinfectant for corporate misfeasance. Thirty years later, Brandeis's insight guided the enactment of the Securities Acts, the most successful of US regulatory efforts. Corporate political contributors need a similar sunshine check on their actions.

Since an effective legislative solution is unlikely, investors must protect themselves - and their companies - by compelling their companies to disclose. To deter, sunlight must shine at two points.

First, it must fall on the company's policies, procedures and practices. Shareholders must view their disclosure as a preventative - to let management and the board know they are accountable.

Second, shareholders must monitor key indicators for signs of political activity. These reveal much about corporate and management character.

'Pay to Play' arrangements have clear effects. Money buys access. But other corporate activities - often licit - tell one much about companies.

Accountability on political contributions and trade association memberships casts light on corporate reality as opposed to the protestations of corporate social responsibility. None is more telling than a company's tax policies, especially at the state and local level. Tax breaks to corporations affect their employees' tax rates. Since the give aways rarely come back in new revenue, local school services and public amenities suffer.

For prevention, the best approach was/is /always will be disclosure. Starting next month, after more than a year's work, we at KLD will redesign our corporate governance category of screens. We will focus on three areas: transparency and accountability, public policy controversies and taxation.

Transparency and Accountability will look at companies that have established guidelines for corporate political involvement and how they are reported on.

Public policy controversies will identify the public policy positions that companies take and support - both industry related and more general issues.

Finally, taxation will spotlight companies involved in local, state and federal tax disputes.

In the area of corporate political contributions, KLD will work with the Washington, DC based Center for Political Accountability (CPA). The Center seeks greater transparency on corporate contributions by analyzing publicly available data and by supporting shareholder resolutions requesting reports.

KLD's new governance screen and the Center for Political Accountability's shareholder resolutions share a common theme: Americans should hold their corporations accountable for their effects on the community in the same manner as they hold government accountable.

KLD's new governance screens will cast some sunlight on corporate political activity. For corporations to be good citizens they must be accountable to the people who allow them to live and enjoy their privileges.

In the greatest words of political wisdom never spoken, "Deep Throat" supposedly told Woodward & Bernstein, "Follow the money!" What was true of political activity is every bit as true of corporate activity. Following the money usually leads to the truth.

No one should underestimate the difficulties in front of us with the new screens or CPA with their resolutions. They go to the true heart of the corporation. They reveal what the corporation stands for, what the corporation's short and long term objectives as citizens are.

Following the money means that we are taking on a hard issue as opposed to a soft one. That distinction, which most corporations make, puts these reporting resolutions on very different grounds from, say, the resolutions at ExxonMobil on diversity. Diversity is a classic soft issue. It is one that many social investors regard as important substantively and analytically. Performance and resistence tell us much about the corporation's culture. But for the ExxonMobil's of the world diversity is a diversion, a soft issue.

In contrast a hard issue is one connected to corporate strategic objectives - and to management's self-image - and their options. And affect their manager's compensation and the value of the company's stock.
Thus, more is at stake here than simply holding corporations accountable. The very existence of CPA's resolutions moves corporate accountability to a new, much more sophisticated level. They look at the company's most elemental relationship to society. What kind of elected officials and judges are corporations giving us? What kind of policies - economic, social, environmental - are corporations advancing? These resolutions will be fought. We must be prepared for the battles.