Ethical Performance
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reshaping the political influence of companies

April 2002

The ethics of corporate giving to political causes face a new test as changes in the UK law bring new opportunities for political influence

BP’s announcement at the end of February that it was ending all political donations received a lot of media attention because of its timing, coming in the midst of the two highly public rows on both sides of the Atlantic surrounding Enron and steel entrepreneur Lakshmi Mittal. In fact, the oil company says it has not made a political donation in the UK ‘in living memory’, though it has in the US.

BP’s decision is part of a wider trend. UK company donations to political parties are in decline. Corporate giving to the country’s two largest parties fell by a massive 86 per cent between 1994-5 and 1999-2000, according to data collected by Labour Research, and the number of companies involved dropped from 198 to 36 (see box).

Behind the decline lies increased public scrutiny of political donations which has prompted legislation that imposes strict disclosure requirements on companies. The Companies Act 1985 as amended by the Political Parties, Elections and Referendum Act 2000 (PPERA) requires any company to seek the approval of its shareholders before giving more than £5000 ($7100) in any year to a political party or organization. The definition of what constitutes a political donation includes sponsorship, loans or transactions at a favourable rate.

The Honours system has also been tightened up. The Honours Scrutiny Committee now examines all corporate political donations exceeding £5000 made in the previous five years when considering an employee or director nominated for a knighthood or higher honour.

The effect of this reputational, administrative and legal barrage has been to scare companies off to the point where trade union-funded Labour Research says it may abandon its watchdog role.

Yet companies still make political donations. In February, the Electoral Commission, an independent body established by Parliament to oversee the new controls on donations to political parties, published the names and amounts of contributions made last year.* Slough Estates Finance, JCB and Seeboard were among 150 companies giving a total of £2.541m to the Conservatives, while British Airways, Compaq and Vauxhall Motors were among the 60 which donated a total of £409,607 to Labour. The Electoral Commission got its figures from the parties, whereas Labour Research used company reports and other sources, so the two sets of figures are not comparable.

Simon Webley, research director of the Institute of Business Ethics, argues: ‘Best practice in political donations is that you don’t do it. Corporate giving to political parties was more critical when industries were being nationalized because it was a defence of shareholders’ assets. But nowadays it makes more commercial sense to have an explicit global policy of making no political donations. When you have assets overseas and political parties demand money, you can then defend yourself by saying, “we have a blanket policy on this.”’

Webley says that less corporate support for political parties advances CSR because companies now have to take greater account of the wishes of shareholders. ‘The political views of the board may not represent the views of all stakeholders. The days of financial support being given to a political party at the chairman’s whim are gone’. Of course, this constraint applies more to listed public companies than private ones.

The question remains why companies give money to political parties. Idealists argue they have a right to support the democratic process. Realists counter that they seek to buy influence. Niaz Alam, social team leader at the Ethical Investment Research Service, believes the need for greater transparency has driven political influence further into dark corners. ‘Government has made political giving more transparent, but not lobbying – unlike in the United States,’ he says. ‘BP is a politically well connected firm’. Eiris, which tracks political donations, will this year examine how it might capture such webs of influence.

The announcement by chairman Charles Clarke that the Labour Party is to ask its members whether state funding should replace political donations from unions and companies altogether shows the extent to which the scene is changing. Indeed, the recent legislation has also opened new avenues for political influence. PPERA specifically allows UK companies to campaign on a political issue.

So companies could become actively involved in the euro referendum, for instance, though they would have to register with the Electoral Commission before incurring referendum expenses above £10,000. ‘When companies get involved in politics it’s a business decision’, says Webley, ‘and the referendum is the new battleground’.




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