They can’t vote in this year’s federal election, and they aren’t allowed to contribute funds to federal political campaigns, but most Canadians would probably be surprised how heavily involved Canadian corporations are in the public policy realm.
Unfortunately, so would their shareholders.
The 60 biggest companies in the Toronto Stock Exchange have almost a thousand lobbyists currently registered to represent them in the halls of government, and when you add the lobbyists at the trade associations to which those companies belong, their ranks grow considerably. Those top 60 companies initiated almost 1,100 meetings with senior federal officials last year alone, while their five most active trade associations initiated another 729 meetings.
It’s not just confined to lobbying. While corporations are prohibited from contributing to federal political campaigns, in 2013 46 of the top 60 TSX companies still gave money to candidates at the provincial level (where in many cases corporate donations are still allowed). Only 11 of those reported to shareholders that they made contributions, and none disclosed how much they gave to which parties. Publicly-traded companies also contribute to party leadership campaigns (legal in 8 provinces), contribute to think-tanks that advocate for (sometimes controversial) policy positions, and run their own advertising and advocacy campaigns to generate support for policies or projects.
Political activity by corporations is not necessarily a bad thing. Governments can benefit from the insight companies and trade associations bring to the table when designing regulations and setting economic policy. They can help share innovations, ideas and opportunities from the private sector that can inform policy-makers and inspire new programs or improve old ones.
However, lobbying, advocacy and other political spending by corporations and trade associations can also inhibit good policy-making, hold back progress, undermine critical environmental, social or economic regulations, and offload private costs onto the public.
Governments have made efforts to improve accountability by requiring lobbyists to register their activity and making campaign contributions public, predicated on the idea that transparency will reduce the risk of undue influence.
That accountability and transparency, however, hasn’t happened inside of Canadian companies. As a matter of good corporate governance, it should.
Political spending by corporations can create risks for investors—even at relatively low amounts. Individual corporate donors can become associated with unpopular political positions or personalities, with serious reputational and sometimes financial impacts. Just ask Target, which faced a national boycott from gay-rights activists in the U.S. after a small donation to an anti-gay candidate was exposed.
Sometimes the risks are even broader. Lobbying which might profit an individual corporation in the short term can hurt investor portfolios in the longer term—think of the effect all that lobbying for financial de-regulation in the United States ultimately had on investor portfolios in 2008. Or think of the price the Canadian economy is expected to pay for the damage wreaked by climate change after years of oil industry lobbyists opposing serious carbon reduction policies.
How can shareholders assess the risks that they’re taking on when they invest in a company, when they don’t even know how much the company is spending on political activity, what their companies are advocating for or against, or what criteria the company is using when it makes decisions about political spending?
Without disclosure, shareholders can’t assess whether the activity is in the company’s interests or whether it creates additional risks for them, as investors. If Canadian companies are going to engage in political spending, that needs to change.
Kevin Thomas is the Director of Shareholder Engagement with the Shareholder Association for Research and Education, a Canadian organization providing responsible investment services, research and education for institutional investors. Follow him @kthomas_share
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