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Corporate political activities: a competitive advantage or a ruined reputation?

Written by Peter Van Veen on Thursday, 6 August 2015

TI-UK looks at problems that can arise when companies become too involved in political activities and previews the upcoming Corporate Political Activities Guidance and Index.


Most large companies engage with the political process to some degree with the aim of benefiting the meeting the interests of stakeholders.  This can take many forms. For example, seeking to improve the economic environment, create new markets and opportunities and improve, modify or even prevent legislation.

Corporate political engagement can result in laws that are well designed for their purpose and create economic and social environments where resources-resources-businesses and societies can prosper. Engagement can also be an expression of corporate responsibility by strengthening the democratic process in societies and providing resources and expertise.

But despite the strong resources-resources-business case for corporate political engagement, companies need to recognise that engagement brings legal and reputational risks. Inappropriate engagement damages public trust in the political process. The consequences of improper, negligent or inadvertent performance in political activities can be significant.

Public trust of companies in this area is not high. The Global Corruption Barometer published in 2013 by Transparency International found that 54 per cent of the some 107000 people surveyed thought that their respective governments are, either largely or entirely, captured by self-interested groups, rather than being run for the benefit of the public at large. For the UK and USA, countries with significant corporate political engagement, the figures were even higher at 59 per cent and 64 per cent respectively.

The US Security and Exchange Commission’s (SEC) ongoing investigation into the hiring of the children of Chinese officials by JPMorgan Chase and at least six other large banks highlights the dangers of engaging with public officials. The case has had major reputational and financial implications. The banks are suspected of hiring officials’ children in exchange for resources-resources-business in China including deals with state-owned enterprises.  Such political activities could constitute a violation of the Foreign Corrupt Practices Act (FCPA).  By trying to gain improper influence through political activities, a company may well find itself prosecuted for bribery with not only reputational damage to contend with.

It is important not to forget that the FCPA (the grand-daddy of modern anti-bribery legislation) came into being specifically to deal with US companies bribing politicians.  At the time of the Watergate investigations, more than 400 US companies admitted to making “questionable payments” to foreign officials and politicians totalling more than US$300M.

A lot has changed since the FCPA came into force in 1977 not only in legislative terms but also in terms of the expectations of stakeholders.

There is also growing investor attention to how companies interact with politicians and the risks that such interaction may bring. Increasingly, shareholder resolutions are demanding companies to prohibit political donations and declare their policies and expenditures for political activities.  Stakeholders are also encouraging increased transparency through voluntary good practice codes, such as the OECD’s Ten Principles for Transparency and Integrity in Lobbying.

TI-UK’s Corporate Political Activities Guidance and Index

To help companies manage the risks around political activities, Transparency International UK will be producing a guidance outlining best practice in this area in September/October 2015.  We aim for this guidance to be a practical tool and it will be available as a free download once launched.

The guidance will be supported by the Transparency in Political Activities index (TPA) which will take stock of how corporate Britain currently measures up to a number of key indicators reflecting best practice.

Both the guidance and index will cover four key areas of risk where the interaction between companies and the body politic are most open to abuse:

  1. Political Contributions
  2. Lobbying
  3. Membership of professional/industry associations
  4. Revolving Doors

Finally:

A transparent approach to political activities is not a luxury, but the only way to convince stakeholders that a company’s political activities are a genuine and legitimate part of the democratic process.

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Read 1421 times Last modified on Wednesday, 25 November 2015 16:01
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Peter Van Veen

Peter is the Director of TI-UK's Business Integrity Programme. You can follow him on Twitter @pvanveen

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