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Corporate Political Transparency: Bringing political engagement out of the shadows
C O M P L I A N CE & R I S K
C
orporate political engagement is a legitimate activity. At its best, such engagement ensures that politicians, civil society and civil servants are well informed and have access to a range of policy options. This can result in laws and regulations that are well-designed and in the public interest. However, when engagement is disproportionate and opaque, it can lead to corruption and conflict of interest. Thus, disproportionate political engagement tends to give rise to increased public mistrust of the corporate sector causing reputational damage to companies and creating an uneven playing field. As a result, companies with undue influence may, for example, be favoured for public tenders, or may be allowed to impact regulation to the detriment of the environment or of social equality.
Conflicts of interest
Rocio Paniagua, Senior Programme Manager, and Bonnie Groves, Programme Officer, Business Integrity unit at Transparency International UK, examine the issues surrounding transparency of corporate political engagement, with reference to TI-UK’s 2018 Corporate Political Engagement Index
Within the European Commission, between 2008 and 2017, four of the five directors from the Directorate General for Financial Services went to work for companies they once oversaw, or lobbying firms hired by those companies. This movement between the public and private sector, the so-called “revolving door”, can also pose risks of conflict of interest, trading in influence, bribery, reputational damage, and public mistrust. Other scandals have pointed to the opaque role of many trade associations in lobbying on a company’s behalf. Inconsistencies in companies’ positions on climate change and the activities of trade associations to which they belong have led to fears of ‘greenwashing’, where a company promotes environmentally friendly statements or images whilst concealing or understating the environmentally damaging aspects of its activities. As a striking example of this, the Think Tank InfluenceMap found that, of the 50 companies most influential in shaping climate and energy policy around the word, 35 are actively lobbying indirectly against climate policy.
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Legislative gaps While scandals in this realm seem to be frequent, policy and regulation governing corporate political engagement are still scattered, and are often designed only to regulate some forms of political engagement and not others. This does not align with the global operations and varied activities of most large companies and conglomerates. For this reason, amongst others, it is beneficial for companies to set their own global standards to achieve transparency in this area.
Weaknesses in lobbying legislation An example of the weaknesses of current legislation can be found in the existing laws on lobbying, with the position in the European Union Parliament, France, and the UK, with respect to mandate lobbying registers, all being cases in point. In the context of the EU, the lobbying register is voluntary meaning that companies can elect whether to disclose lobbying budgets and the stakes being pursued at the European Parliament. A different shortcoming has been identified in relation to the relevant French Law, Sapin II. In this case, the sanctions for non-compliance with the disclosure rules are considered as being insufficiently stringent to act as a deterrent to those who do not want to comply. In the case of the UK, the main weakness is the limited scope of the definition of ‘lobbyists’. The consequence of this is that the activities of in-house lobbyists, business executives, and civil society advocates are all beyond the scope of the legislation.
The problem of the ‘revolving door’ The legislation and bodies governing the ‘revolving door’ in the UK and in the EU have been found to be weak and inconsistent too.
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engagement has largely been left In the UK, the Advisory Committee without answers. on Business Appointments (ACoBA) advises former public employees to In response to the lack of transparenseek and abide by its advice before cy and accountability around corpotaking up appointments after leaving rate political engagement, and the office, but the Committee lacks the resultant risk authority, resources of conflict of and remit either interest and to investigate cases abuses of of abuse or to “Alongside the need power, Transrequire action. This parency Intermakes ACoBA for companies to national UK ineffectual in terms (TI-UK) has of promoting design policies that fill itself created transparency. the gaps left by weak a benchmark. In the EU, on the and inconsistent The Corporate other hand, it is the legislation, investors Political lack of legislation Engagement around this area that are increasingly paying Index 2018 effectively allows attention to risk investigated Members of the and assessed European Parliament factors and the ethics companies’ to move to the pricurrent pracvate sector from their of a company, tices, with public posts without including how the aim of any “cooling-off” introducing a period at all. companies engage voluntary globpolitically” al standard for companies The investment around corpofactor rate political engagement . Alongside the need This is the for companies to design policies that second iteration of a pilot originally fill the gaps left by weak and inconconducted in 2015. sistent legislation, investors are increasingly paying attention to risk factors and the ethics of a company, TI-UK’s 2018 Corporate including how companies engage politically, as reported by the Interna- Political Engagement Index tional Corporate Governance Network. Equally, a recent study has The Corporate Political Engagement demonstrated that ethical companies report measured the quality and outperform the wider corporate transparency of companies’ policies community by more than 10 per cent surrounding various forms of political over 5 years – a point noted in the engagement. Ethisphere Institute report, 2018 World’s Most Ethical Companies. The five key themes that the study In other words, it pays to do the right assessed are: thing. the control environment, in other words the corporate culture and organisational structures underlyTransparency International ing its approach to political enUK benchmark gagement; In current legislation, the above risks are poorly dealt with. In other areas of risk, global voluntary standards have been introduced either by countries, international institutions or the corporate players themselves, but the question of transparency of political
political contributions;
responsible lobbying;
the revolving door; and
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overall transparency.
The full report and results of TI-UK’s 2018 Corporate Political Engagement Index can be explored at: www.transparency.org.uk/cpei/ In conducting the assessment, TI-UK considered the publicly available policies and reports of 104 global companies spanning various industries from pharmaceuticals to the automotive industry, and included information made available on the companies’ websites. The selected companies included 37 FTSE-listed companies, the four leading accounting and consultancy firms in the UK, as well as 80 companies that are part of the UK government "Strategic Management Programme". We assessed the publicly available policies of all 104 companies, ranking from A to F according to how transparent they are about their political engagement, with an A ranking indicating excellent standards, and an F ranking indicating very poor standards. TI-UK contacted the companies in advance for feedback into the questionnaire and the assessment process, as well as to give companies the opportunity to submit evidence before the research stage began. The initial assessments were also sent to companies to provide a further opportunity to submit evidence, to publish any pre-existing policies, and to encourage the organisations featured in the assessment to develop company-wide policies to strengthen their practices. It is important that policies and activities around corporate political engagement are made publicly available, firstly, in order to demonstrate to investors and other stakeholders that the company concerned is proactively addressing this risk area, and secondly, to inform stakeholders of the activities and interests that the organisation is pursuing.
Telling results Although the companies assessed performed generally well in the control environment aspect (public (Continued on page 14)
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(Continued from page 13)
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between A-C. A strength of policies and transparency in this area is clearly possible and demonstrates to investors, members of staff and other stakeholders the importance of transparent political engagement within all levels of the company.
commitment to ethical behaviour, integrity and responsible political engagement along with having relevant policies in place), and in the political contributions aspect, the average score achieved in the assessment overall was only “Demonstrating 33 per cent, putting the majority transparency and of organisations openness is becoming into band E, indicating a poor level increasingly important of transparency. Only one of the for companies, as companies asdemand for this sessed came away with an A increases from ranking.
Immediate benefits from the research exercise
Recognising the benefits of a public corporate political engagement policy, consumers and investors throughout the The companies research proalike. Public reporting targeted tended cess undertaken is one of the most to be particularly by TI-UK, many strong in having of the companies important ways in policies and proinvolved encedures prohibitwhich companies gaged in develing and limiting oping and pubcan demonstrate political contribulishing policies tions (64%), in their commitment around their own having organisacorporate politito responsible tional principles cal engagement. that meet TransAs a result, thirty political engagement” parency Internaper cent of the tional’s Responsicompanies tarble Political Activigeted improved ties Guidelines their policies (48%), and in pubaround this lishing group-wide policies for political sensitive risk area, and seventeen engagement (77%). per cent of the organisations pledged to strengthen their practices based The revolving door aspect, however, on this engagement and the research. was the weakest scoring theme overall, with 85% of companies not having A self-assessment tool covering many a publicly available procedure for of the themes in the research is availimplementing a “cooling-off” period able on the Transparency Internationfor new employees who were formerly al UK website. It can be used to get public officials. an indication of the current ranking It was striking, but not surprising, that overall the companies surveyed performed poorly in the lobbying theme. The average ranking for lobbying transparency was E (‘poor standards’), and 42 per cent of companies scored in Band F (‘very poor standards’). None of the companies was found to have reported its full global lobbying expenditure. Despite the low average score, 29 companies did achieve a ranking
of your organisation which, together with the following points on best practice, can help to improve political transparency, and thereby the general performance and reputation, of your organisation over time.
Control environment The control environment concerns the corporate culture, values, operational style and organisational structures that underpin a company’s approach
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to political engagement. Having the right structures in place enables companies to spot - and stop – political corruption.
Best practice:
Commit to values-driven political engagement, focused on integrity, ethical behaviour and transparency;
Have a legitimate voice – ensure political engagement focuses on meeting business objectives;
Ensure accountability - make sure responsibility for political engagement rests in the boardroom;
Be consistent – implement groupwide, global approaches to political engagement.
Political contributions Political contributions can range from money and gifts in-kind for a political party or politician, to loans, free or discounted services, property, sponsorship of events and the use of facilities at less than market value. Making political contributions, particularly in secret, is often associated with improper behaviour.
Best practice:
Have a policy not to make political contributions – either directly or indirectly;
If contributions are made, ensure that: 1. they are made in exceptional circumstances and only to support a genuine democratic process; 2. they do not disproportionately advantage any party or political viewpoint; 3. payments are made public, whether or not it is a legal requirement.
Responsible lobbying Lobbying is any direct or indirect
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communication with political decisionmakers for the purpose of influencing laws, regulations and government plans. It can also include attempts to influence public opinion, outside of normal advertising and marketing activity, with a view to impacting the views of politicians and government officials.
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and from the public sector – consider publishing the number, location and purpose of secondments.
Conclusion
Irresponsible corporate political engagement can lead to corruption risks as well as legal, financial When carried out responsibly, lobbyand reputational risks for companies. ing is a legitimate and beneficial Transparency International’s Corpoactivity, although it should never unrate Political Engagement Index dermine people's trust in democracy, analyses the information companies the economy, institutions and leaders. make available in relation to their political engagement, scoring them Best practice: in accordance to standards of best practice, and supports companies by Have a publicly available lobbying providing them with recommendations policy – be open about what the on how to increase their ethical company is lobbing to change; standards.
Monitor lobbyists – ensure lobbyist and membership organisations adhere to the company’s values and code-of-conduct;
Monitor activities of membership organisations;
Demonstrate transparency – reveal when a serving politician is hired and how much is spent on lobbying activities.
Revolving door
In a context in which the legislation is weak, inconsistent, or even non-existent, companies need to d ecide whether they should improve their practices voluntarily. Demonstrating transparency and openness is becoming increasingly important for companies, as demand for this increases from consumers and investors alike. Those companies that get on board with this movement now will be the leaders of tomorrow. Those that do not, risk being left behind.
The revolving door involves the movement of individuals between positions of public office and jobs in the private sector, in either direction. This includes hiring public officials, seconding staff to the public sector, receiving secondees from the public sector and contact with former staff who have taken up positions in public office.
Best practice:
Design policies and procedures for the revolving door – going beyond compliance with laws that govern the post-public employment of public officials;
Cover both the hiring of former politicians and public officials, and the movement of former employees to public sector positions;
Publish details of secondments to
Rocio Paniagua Bonnie Groves Transparency International UK rocio.paniagua@transparency.org.uk bonnie.groves@transparency.org.uk