10/06/2010 - 00:00

Directors wary of political connections

10/06/2010 - 00:00

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Public companies’ engagement with the political process is healthy for our democratic system.

THERE are two myths about campaign finance in Australian politics: first, that donations from ‘the big end of town’ give the Liberal and National parties a financial advantage over the Labor Party; and, secondly, that there are legal or governance barriers to company directors authorising a political donation or funding a political campaign.

The first myth is easy to deal with. Australia has well-developed political financial disclosure laws. The Australian Electoral Commission website sets out in great detail how much each political party spends and where the money comes from.

In the 2007-2008 financial year, which included the 2007 WorkChoices election, the Labor Party significantly outspent the Liberal and National parties –$111 million for the Labor Party, $75 million for the Liberal Party and $14 million for the National Party. On top of this, the returns lodged by associated entities show that trade unions considerably outspent industry associations. For example, the ACTU kicked in $14 million on radio and television advertising compared with $2 million from the Business Council of Australia.

For trade unions, the 2007 election presented a binary outcome – the Howard government and WorkChoices or Labor and no WorkChoices. The upcoming federal election looks like presenting Western Australian companies with a binary outcome – the Rudd government and a mining tax or a Liberal/National government and no mining tax. This makes it easy for company directors to justify spending shareholders’ funds campaigning against the tax and on donations to political parties that oppose the tax.

Advocates of the mining tax may argue that funding from the mining industry will provide a financial advantage to the Liberal and National parties in the up-coming election. But an analysis of financial disclosure lodged with the Australian Electoral Commission for 2007-2008 shows that a huge amount of money would have to flow from the mining industry to the Liberal and National parties for this to be the case, especially if the trade unions provide financial support to a pro-tax campaign.

There are three sources of money for the major political parties to fight the federal election – public funding, trade unions and corporate and individual donations. Few trade unions provide support to the Liberal and National parties. Public funding of the major political parties is a big deal. From the 2007 election, public funding of $18,133,645 was given to the Liberal Party and $22,030,460 to the Labor Party.

If the funding patterns of the 2007 election are repeated in 2010, the Labor Party goes into the 2010 election with a commanding financial advantage over the Liberal and National parties.

In addition, incumbency is a great political advantage; the ability to spend $38.5 million dollars on advertising is a really big deal.

In the 2007 federal election, public companies did not figure prominently among the donors to political parties and there were very few large donations and (in the context of the major parties’ overall receipts) no major political party was reliant upon a single or particular group of donors.

In fact, the majority of public companies (and, in particular, mining companies) in Australia did not donate more than $10,000 to any Australian political party for the 2007 election.

Lack of corporate support for the Liberal Party in 2007-2008 is surprising given that WorkChoices was a central issue in the 2007 federal election. The trade union movement spent considerable resources in the interest of its members supporting the Labor Party and in advertising against WorkChoices.

So why didn’t companies (who stood to benefit from the WorkChoices legislation) devote similar resources to support the Liberal Party and pro WorkChoices advertising in the interests of their shareholders?

There a several possible reasons.

Many company directors thought the Liberal Party would lose the 2007 election. People like to side with the winning team.

Electoral disclosure laws scare some directors from public support of political parties as they fear retribution from the winning side.

Companies that operate in other countries, where corruption is an issue, find it easier to navigate foreign corrupt practices legislation with a blanket policy of no political donations.

Directors perceive legal or governance issues that prevent boards from approving political donations.

Directors’ perception that there are legal barriers to corporate political donations may be misguided – especially for a mining company considering what to do in response to the proposed mining tax.

Broadly, the law requires that directors of a company must spend the company’s money for a proper purpose in what they believe to be the best interests of the company. Trade unions, most of which have incorporated status, face similar issues in justifying donations to political parties and the funding of political campaigns.

Similar issues also arise for directors considering charitable donations. While spending shareholders’ money for purely political or altruistic purposes is susceptible to legal challenge, spending is permissible where the directors can see some benefit to the company.

Directors or union officials may authorise a donation to a political party or an industry association so long as they can make out some benefit to the company or union.

In the 2007 election this was not a difficult task for the unions. If the Rudd government continues with the proposed mining tax, justifying a political donation will not be difficult for directors of a mining company.

There are views on corporate governance that question all corporate charitable and political donations. Milton Friedman’s view was the “the social responsibility of business is to increase profits”. Therefore all donations are suspect.

Warren Buffet has been quoted as saying: “Just as I wouldn’t want you to implement your personal judgements by writing cheques on my bank account for charities of your choice, I feel it inappropriate to write cheques on your corporate bank account for charities of my choice.”

At least in respect of charitable support this is not a view widely held by major Australian public companies. But views on political donations by companies are more mixed. On the one hand, some directors see politics as a contact sport that is best avoided for fear of injury to the director’s or company’s reputation. On the other hand, some people argue that if a company donates it must be after some special favour and, therefore, up to no good.

For example, the Australian Shareholders Association’s Policy Statement of May 20 2004 on ‘Political Donations’ states: “Contributions by public companies to political entities are inappropriate disbursements of shareholders’ funds. The Australian Shareholders Association opposes political donations”.

But the mining tax is changing attitudes. It is interesting to see that, in respect of the anti-mining tax campaign, the ASA has endorsed BHP Billiton chairman Jack Naser’s call for shareholder activism on this issue.

Even in the absence of a mining tax, it is in the broader community interest (and therefore in the longer-term interests of business) for politics to be won by the contest of ideas expressed in vigorous debate by equally matched opponents in terms of resources and intellect.

There is, accordingly, a certain naivety in the ASA view. By promoting the view that listed companies should not make political donations, they risk making listed companies irrelevant to the political process. The logical conclusion of no corporate donations is reliance on public funding and increased influence of private and special interest donations. If there were no donations to political parties from business, business becomes less relevant to politics.

It is simple for public companies to adopt a policy of making no political donations. However, this may not be in the longer term interests of the company or indeed, of a healthy democracy. One of the benefits of the mining tax debate may be the re-engagement of companies with the political process.

 Michael Lishman is a commercial lawyer and a member of the Liberal Party.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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