With a major US election cycle rapidly approaching, questions about corporate influence in politics inevitably return to the fore. But this influence goes far beyond campaign donations, to the everyday activity of relationship-building, issue-promoting and issue-suppressing we know as lobbying.
Popular opinion has it that lobbying is unethical. But over the years, Lee Drutman, one of the most widely published experts on political lobbying and a senior Political Reform fellow at New America, a Washington D.C. think tank, has contended that isn’t inherently so. While his assertion may be hard for some to swallow, his reasoning is worth following. Drutman sees lobbying as a natural part of the political process: interest groups of all shapes, sizes and representations joining the give-and-take of dialogue between ever-evolving coalitions of elected politicians. This, he argues, is politics. Indeed, in its most basic form, lobbying is a critical First Amendment right: that of petitioning the government. Where the system has broken down, according to Drutman, is in its total lack of balance.
In 2019, according to the Center for Responsive Politics, fully 88% of spending on federal-level lobbying came from business. The other 12% represented the combined D.C. financial clout of interest groups, consumer groups, labor, religious and ideological groups, etc. All of these are clearly dwarfed by corporate spending. But it hasn’t always been this way. In the 1970s, it was rare for companies to have any of their own Washington lobbyists. Today, the biggest companies may have more than a hundred lobbyists representing them. The result: absent other, usually temporal changes in the landscape, the political agenda tends toward the priorities of business, rather than focusing on the needs of the broader public.
Another result of this glut of corporate money in politics is stasis. Whether through campaign donations or lobbying expenditure, corporations frequently give to both sides. More often than not, the end goal is to maintain the status quo. Industries selling products including tobacco, opiods, and oil and gas have all benefited enormously from their ability to lobby against change. To the long list of reasons why Washington gridlock has become so pronounced, add corporate lobbying. In fact, a survey of corporate lobbyists ranked “protect[ing] the company against changes in government policy” at 6.2 out of 7 in a list of reasons for maintaining a presence in Washington–the highest score received by any of the reasons given.
As socially responsible investors, we are alarmed by the imbalance in today’s federal lobbying environment, and the resulting political gridlock over some of the most urgent issues of our time. But looking deeper, we find even more reasons for concern. While federal lobbying by corporations is hugely problematic, it is at least a problem that sees the light of day. In the meantime, state-level lobbying has also grown rapidly, but much more quietly, in part because nearly half of states require only limited reporting of lobbying activity, or in some cases none at all. Even at the federal level, much of the corporate money flowing into politics enters via associations and other business groups, which are not required to report their membership. Both loopholes allow companies to funnel even more money into the political sphere, without being required to reveal how much they are truly spending or why.
Even when required by law, lobbying disclosure is not as straightforward as it sounds. While corporate lobbying reports must typically include a relevant issue area, it is not always clear what side of the issue the company is actually on, or which particular outcome it is pushing for. When reviewing corporate lobbying reports as part of our engagement practice, we find the answer is sometimes obvious, but just as often not. In these cases, understanding a company’s motivations can demand a level of specific knowledge beyond the purview of most investors and consumers. Even voluntary disclosures often suffer from this obscurity: for instance, if a company voluntarily reports equal donations to both sides of a state senate race, without any supporting information, how is the average observer to know what outcome it is trying to effect?
The ultimate solutions to these problems must be legislative. But in the meantime, as socially responsible investors, we see an opportunity for companies to raise the standards of lobbying disclosure without any government intervention whatsoever. Some already have. Alphabet (the holding company for Google), despite a well-earned reputation for major lobbying expenditures, provides relatively comprehensive disclosure of its public policy engagement, including PAC contributions, non-federal, state and local contributions, national committee contributions, its trade and membership organizations, a description of key issues and internal oversight mechanisms, and links to its required federal reporting. Since the beginning of 2019 the company has also ceased making campaign donations, a step we strongly support. At the other end of the spectrum, Amazon (second only to Facebook in 2019 corporate federal lobbying expenditures) shares no reporting whatsoever beyond the minimum required by federal law.
Alongside tech, health/pharmaceuticals and insurance are the industries that spend the most on lobbying. In the prior category, some larger companies, such as Johnson & Johnson, disclose at a level similar to Alphabet (while Johnson & Johnson does make campaign contributions, these are at least disclosed at all levels). Pfizer, the highest spender in the health/pharmaceuticals category, also provides better-than-average disclosure, although its state and local reporting is severely lacking. Still others, such as life sciences company Agilent Technologies, do not lobby or make political donations at all. In each case, pressure from investors and consumers has pushed the standard in a much more open direction without any legislative support.
Ultimately, we believe voluntary disclosure has a key role to play in returning balance to the lobbying landscape. By building pressure on more and more companies to not only disclose all their spending, but to reveal the narratives behind it, we can help consumers and other investors judge for themselves whether they support the outcomes companies desire. Corporate political goals that run counter to the interests of the general population could become too expensive for corporations to continue fighting for, creating downward pressure on overall lobbying expenses. None of this, perhaps, can be fully realized without legislative support. But as with so many environmental, social and governance issues we face as investors, it is our conviction that we have an important role to play.
