For 2023, proponents have filed at least 30 proposals asking for lobbying disclosure reports that include federal and state lobbying amounts, payments to trade associations and 501(c)(4) social welfare groups used for lobbying, and payments to tax-exempt organizations that write and endorse model legislation.
Dark Money Attack on ESG
The ongoing attack on ESG demonstrates why investors need disclosure of corporate lobbying, especially payments to third parties, including nonprofit groups writing model legislation. The American Legislative Exchange Council (ALEC) has drafted two anti-ESG model bills. ALEC was already controversial for promoting bills that undermine regulations on climate change, raising the minimum wage and workplace safety, and more than 100 companies have cut ties. Yet, hundreds of companies essentially remain represented by their trade associations as the U.S. Chamber of Commerce, PhRMA and NetChoice each sit on ALEC’s Private Enterprise Advisory Council.
Risky Spending
Undisclosed, unlimited third-party spending remains an unknown risk area for investors. Risks include reputational damage for lobbying that contradicts company positions or payments to controversial groups, as well as financial fines and regulatory sanctions for illegal payments. Company payments to trade associations and social welfare groups have no restrictions, allowing companies to give unlimited amounts secretly to third party groups that spend millions on lobbying.
Utilities Using Dark Money Groups
FirstEnergy’s trial about $60 million of dark-money payments led a prosecutor to conclude a social welfare group is “a perfect entity to receive a secret bribe.” S&P notes the bribery scandal has increased scrutiny of how utilities use ‘dark money’ groups. For example, NextEra Energy faces a complaint about secret spending in a Florida ghost candidate scandal, while DTE Energy is under scrutiny for undisclosed payments to a social welfare group that supported repeal of COVID emergency powers in Michigan. Given the number of utility dark money scandals, it is a clear risk for shareholders when utilities fail to disclose their payments to social welfare groups.
Demand for Tech Companies to Disclose
In 2022, shareholder proposals at Alphabet, Amazon, Meta and Netflix all received majority support from independently-owned shares. Proponents have refiled at Alphabet, Amazon and Meta, which together list more than 1,000 trade associations, social welfare groups and non-profit groups that get company support but do not disclose how much of these payments are used for lobbying. Support goes to controversial groups like the Federalist Society, which is linked to the war on ESG, and the Independent Women’s Forum, which reportedly has promoted “anti-trans fear mongering” and assailed masking and vaccine requirements. Meta is the sole funder of American Edge, a social welfare group that has received millions to fight antitrust regulation.
2023 Lobbying Disclosure Campaign – Misalignments Abound
In addition to dark money risks, shareholders have ongoing concerns about cases where company lobbying contradicts publicly stated corporate positions, for both direct and indirect activity via trade associations. The 2023 proposals highlight lobbying misalignments on issues including climate change, product safety, drug pricing, workers’ rights, corporate taxation, net neutrality and voting rights. Pharmaceutical, fast food, tech, telecom and utility sector companies are among the recipients of proposals.
John Keenan
Corporate Governance Analyst, AFSCME Capital Strategies