Getting companies to be more transparent about their political contributions and lobbying activities.
By Liz Gorman
Tim Smith knows a thing or two about companies. He’s been advising clients for years on how to invest their money. But the investors he works with want more than a healthy return; they want to have a positive impact on society as well.
Smith specializes in sustainable and responsible investing (SRI). By his own admission, dumb luck had more to do with how he ended up as an SRI advocate than anything else. He left his native Toronto, Canada to study theology in the United States. After college and during the height of Apartheid, he became involved with national church organizations that were actively engaged in a movement aimed at getting companies and banks doing business in South Africa to withdraw from that country.
That led him to a 24-year stint as executive director of the Interfaith Center on Corporate Responsibility (ICCR), a coalition of socially and environmentally conscious investors. In 2000, Smith became senior vice president and director of environmental, social and governance (ESG) shareowner engagement at Walden Asset Management – one of the most influential players in the expanding SRI arena.
Engaging Shareholders & Companies
Shareholder engagement makes for the most interesting part of Smith’s job. He listens carefully to his clients and then represents their concerns to the companies they invest in. It is in this role that he often finds himself on the doorstep of many companies, sometimes as a welcomed guest and other times not. It all depends on what he is asking a particular company to do, and whether or not they are open to dialogue.
For instance, with shareholders becoming increasingly concerned about corporate governance practices – from separation of the chairman and CEO roles to having a “say on pay” when it comes to executive compensation – Smith has had his hands full. Most shareholders believe companies perform better when there is ample oversight by a board that is diverse and comprised mostly of independent directors.
On behalf of Walden's clients, Smith has become a crusader for stronger governance practices. He has knocked on some of the biggest corporate doors, sent letters requesting more disclosure of their governance practices, as well as filed his share of shareholder resolutions, which gives investors the chance to cast their own proxy votes on particular governance issues.
And the efforts are finally starting to show results. Corporate governance practices are starting to change dramatically, in large part because of the pressure he and other investors have applied on companies, and because of the compelling business case that has been embraced by companies.
But today, Smith is focused on a different type of governance issue: Getting companies to be more transparent about their political contributions and lobbying activities.
Investors Actively Push for More Disclosure on Corporate Lobbying
While political contributions are often shrouded in secrecy, corporations in the U.S. are required by federal law to file quarterly reports on their lobbying expenditures and activities. These reports are archived in a database maintained by the Senate. Anyone who has ever tried to search this database for a company’s lobbying report knows it may be easier to find a needle in a haystack. If a report is found, it may be incomplete and/or not likely to disclose lobbying via third parties, such as trade organizations or grassroots groups.
So shareholders are now asking how company resources are being used to influence elections and public policies. This question has prompted Tim Smith to probe deeper for answers and encourage companies to adopt better lobbying disclosure practices.
Some progress is happening.
During the last proxy season, Smith submitted shareholder resolutions requesting better disclosure of lobbying activities to 3M, ConocoPhillips, UPS and Devon Energy. All four resolutions received backing from shareholders – between 17 and 39 percent “yes” votes in favor of the resolution. He submitted similar resolutions to Johnson & Johnson and Target, and then withdrew the resolutions after both companies engaged in dialogue and agreed to improve their disclosure practices.
In other cases, Smith has been successful at engaging companies early on, before filing a shareholder resolution, and coaxing them to be more transparent about their activities.
Smith is not the only advocate on this bandwagon.
There are a number of investors who have filed similar resolutions with varying degrees of success. In fact, ICCR maintains a publicly available list of the most recently filed ESG-related shareholder resolutions on its website, which range from child protection codes to sustainable forestry practices. But the demand for expanded disclosure on political spending and lobbying expenditures is by far the biggest push shareholders are making today, and for good reason.
Simply put, engaging in corporate political activity can be risky.
For example, following the fatal shooting of 17-year old Trayvon Martin in Florida earlier this year, the spotlight turned to ALEC, a public/private association that advocates for limited government and free-market enterprise. ALEC, the American Legislative Exchange Council, was far from a household name before the ordeal in Florida. Suddenly its lobbying activities were front page news, especially its efforts to get the Stand Your Ground law enacted in states across the nation, including Florida.
The Stand Your Ground law was, in fact, the shooter’s defense. He argued that he felt threatened by the teenager and used his weapon to protect himself, despite the fact that Martin was unarmed.
As the case unfolded, ALEC's corporate partners were revealed. This prompted more than 40 companies to flee the organization, fearing their brand reputations would be tarnished. And this is precisely why shareholders are inquiring about the lobbying ties the companies in their portfolios keep.
In most cases, companies are not forthcoming with this information, until Tim Smith or other active investors come knocking on their door.
The Rise of SRI: More to Come
Ten years ago, the SRI community was hardly on the radar screen of Fortune 500 companies and certainly not among their CFOs. But much has changed in recent years. Today a wide range of investors in the United States – from foundations and churches to investment firms – account for $3.07 trillion out of the $25.2 trillion in the U.S. investment marketplace. The rapid growth of SRI funds has given these investors legitimacy and clout.
Smith has witnessed this firsthand with an increased willingness among companies to take his calls, listen and engage in dialogue. He is quick to see the good in most companies and give them credit for the progress they’ve made on governance, transparency, diversity and climate change strategies. Despite the incremental progress, Smith isn’t ready to slow down.
To the publicly traded companies out there that can count Walden Asset Management among their investors, if you haven’t heard yet from Tim Smith, chances are you may sooner than later.