Canada’s Public Companies Should Disclose Political Spending: Report

Unlike the U.S., where the wellspring of cash flooding federal elections is reaching a new level of absurdity (try $5 billion), Canada has kept federal political campaigns relatively grounded by placing an outright ban on corporate donations during elections. 

Yet the influence publicly-traded corporations exercise in Canada – through lobbying, political contributions during provincial elections, think tank support, advertising and advocacy campaigns – remains hugely significant, according to a discussion paper recently released by the Shareholder Association for Research and Education (SHARE), an organization that provides investment services and research to institutional investors.

“Concern about the effect of money on politics is perennial,” Kevin Thomas, report author and director of stakeholder engagement for SHARE, writes. “Aside from the obvious concerns about the outright corruption and/or illicit expenses and bribery, there is a broader concern about the influence of private interests on the development of policy and regulation, as well as on the content and tenor of public political debate.”

The paper, Dollars, Democracy and Disclosure, argues corporations hazard a reputational risk when they pursue a political agenda or, for example, lobby for policy changes that may benefit a company while shortchanging the public.

Thomas told DeSmog Canada “there is a great deal of political activities being carried out by corporations in Canada and very little of it is disclosed.”

Where it is disclosed, Thomas explained, information on corporate political spending is often dispersed and hard to access. A lack of regulated, standardized reporting on all kinds of corporate spending means that not only are the dollar amounts left unknown, but the risk that such spending creates – from both a public and corporate governance perspective – are not fully understood, Thomas said.

“It really comes down to the question of risk, and I think that’s really where our report starts and ends.”

Corporate Political Spending Creates Risk

Thomas said political spending by corporations can create all manner of risk for investors.

“Leaving aside the public side of it – where you wonder about the influence of any one party on the political process, any party that has a lot of money…the risks we look at are to the company itself.”

Thomas said SHARE asks basic questions about the risks associated with putting money to political agendas: “Is it diverting resources and focus to matters that will make the CEO look good but actually have very little to do with creating a profitable company? Is it creating risks in terms of the types of things the company associates itself with – the party, the candidate or the issues it’s chosen to involve itself with?”

Take SHARE's survey to weigh in on Canadian Corporate Political Spending Disclosure.

Thomas said some of the most difficult and important questions have to do with the market-level, economy-wide risks corporate activity can create.

Take lobbying by corporations or trade associations against effective carbon pricing or climate legislation.

“That may seem like a good idea to that individual company, to their management that is heavily invested in oil and gas, but does it actually benefit shareholders?”

At times the express activity of shareholders and corporations can be at cross-purposes, he said.

And the issue of fossil fuel industry influence is significant in Canada, where the majority of the nearly 1000 lobbyists for TSX60 companies are registered to lobby on behalf of the oil and gas industry.

This infographic from the discussion paper details the lack of disclosure of corporate political influence in Canada. From Dollars, Democracy and Disclosure.

Counter-climate Lobby May Disadvantage Shareholders

Thomas pointed to coalitions of shareholders demanding more climate accountability. In September, investors worth a combined $24 trillion signed a joint letter calling on governments to take action on climate change and price carbon effectively.

“At the same time,” Thomas said, “the companies they’re invested in are doing the exact opposite – don’t price carbon, don’t regulate our activities. There’s a real disconnect there.”

“If investors see climate change as a real risk to their own long-term interests then there’s a disconnect with what the companies and the trade associations are doing here.”

Thomas also pointed to the fact that in the lead up to the United Nations Framework Convention on Climate Change (UNFCCC) in December, UN Climate Secretary of Christiana Figueres asked attendees at a Principles for Responsible Investing conference to actively fight those who lobby against strong climate policies.

“Help me to scrub the lobbying practices,” Figueres said.

“Even if you individually are not lobbying against ambitious climate policy in the jurisdictions within which you are present, I wouldn’t guarantee that your associations, your networks, everything that is under your influence is doing the same. I ask you to commit to finding out whether everyone who is under your sphere of influence is at least being neutral on climate policy – but it is in all our interests they are lobbying for a climate policy.”

Canada's Long History of Corporate Political Influence

Thomas said public concerns over the influence of corporate money goes all the way back to Canada's first political scandal around the time of confederation.

“There was a whole scandal that forced our Prime Minister (John A. Macdonald) to resign because of money he received from Canadian Pacific Rail. So we’ve got a lot of history with this and it’s embedded in concern that democracy is harmed when any one party can drown out the voices of others.”

More recently the bungled relationship between TransCanada, the proponent of the Energy East pipeline, and Edelman, a public relations firm, demonstrates how reputational hazards can occur when a company endeavours to influence public opinion.

While in the public sphere thare are some methods of demanding accountability when it comes to the exercise of corporate influence, big gaps still exist, he said.

“A lot of provinces don’t have lobbyist registries, they don’t make that information available to the public. Or they allow corporate donations to political party leadership campaigns but don’t also require that those donations be made public. Those are some gaps in our public regulation that need to be dealt with.”

But when it comes to corporations, Thomas said, the accountability gaps are much more pronounced.

“What we found even more so was an incredible gap in corporate governance where there is no common understanding of what needs to be disclosed in that area to shareholders, and there are no regulations affecting it.”

As the SHARE discussion paper outlines, there are no basic disclosure requirements for corporations spending to influence the political and legislative process.

For the most part, shareholders have no way of knowing the extent to which companies are spending to influence these processes and to what extent shares have been put at risk in doing so.  

“So in a sense this is a very opaque area for investors and that’s where we come in: we want to have a discussion on what should be disclosed,” Thomas said.

“What are the limits that we as shareholders can put on activity which doesn’t really contribute to either a solid democracy or the profitability of the companies we’re invested in.”

Image Credit: David Gorbould via Flickr