By Timothy Smith
From the Summer 2012 Edition of Values

The caption on a billboard greeting Chicago drivers in early May featured Ted Kaczynski, the infamous Unabomber, saying: “I still believe in global warming. Do you?” The outrage was immediate, compounded by news that the billboard’s creator, Heartland Institute, had plans to similarly compare believers in climate change to mass murderer Charles Manson, Fidel Castro, and even Osama bin Laden. Twenty-four hours later, in an unapologetic fashion, the Heartland Institute removed the “experimental” billboard while declaring that it would continue to find “ways to communicate the ‘realist’ message on the climate.”

Negative media attention and targeted grassroots organizing prompted swift responses from many corporate members and funders of Heartland. Within 48 hours Diageo, the world’s largest spirits drinks business, and the Association of Bermuda Insurers and Reinsurers had publicly pledged to end contributions to Heartland. Others followed shortly thereafter, including insurer State Farm and pharmaceutical companies Eli Lilly and GlaxoSmithKline. They joined several companies that had previously pulled their financial support, such as the General Motors Foundation and PepsiCo. These companies are no longer associated with Heartland’s work to bring its rejection of climate science into classroom curricula and the public policy arena.

But Heartland’s billboard fiasco illuminates a larger issue—the responsibility of companies to carefully scrutinize their support of trade associations, think tanks, and other organizations that are significantly involved in influencing public policy through research, lobbying, and publicity. Robust policies, oversight, and procedures for corporate political and lobbying expenditures, both direct and through third parties, are necessary to mitigate reputational risk and preserve corporate brands.

For several years Walden has been a leader advocating for increased corporate accountability on political giving and lobbying activities. We began by challenging companies with strong environmental records that sit on the boards of the U.S. Chamber of Commerce or National Association of Manufacturers, both of which work to obstruct the U.S. Environmental Protection Agency’s authority to address climate change and regulate the release of toxic pollutants. Along with other investors, we highlighted the disconnect between the companies’ commitment to environmental stewardship and their active participation in the governance of trade associations whose lobbying and electioneering activities have been antithetical to a sustainability agenda.

Companies often responded that the trade association in question “did not speak for us” and that they disagreed with them on various specific issues. That defense, however, began to wear thin with the Heartland uproar, which had come on the heels of a similar controversy that had prompted an exodus of corporate support from the American Legislative Exchange Council (ALEC). ALEC is a promoter of, and in some cases a lead architect of controversial legislation. It helped propagate laws requiring onerous voter identification, “Stand Your Ground” bills supported by the National Rifle Association, and harsh legislation targeting undocumented immigrants.

What should investors seek from companies providing support to ALEC and Heartland?

Even if we accept explanations that support for ALEC and Heartland were made for narrow business reasons that did not reflect an endorsement of either group’s full agenda, companies should conduct a comprehensive review of such expenditures to examine the range of programs, priorities, and activities of these groups. They must recognize that money is fungible and that grants given for one purpose strengthen an organization’s infrastructure and program agenda elsewhere. Heartland’s $6 million budget, for example, depends significantly on recurring $100,000 contributions by Pfizer and others. Implications for the corporate brand or reputation need to be assessed with involvement of the Board and senior management. Finally, summary results of this review should be shared with investors, including specific decisions and rationales with respect to future funding of ALEC and Heartland.

Fortunately, many companies are thoughtfully evaluating membership in trade associations, think tanks, and advocacy groups to assess whether the activities of these organizations complement their company policies, business plans, and values. In the case of Heartland and ALEC, we expect more companies will find that the business benefits are not commensurate with the risks to their corporate reputations and will head for the exit.