Paul Hodgson: Why corporations are turning ice-cold on ALEC

Link to sign up for a free trial to Responsible Investor

On March 23, when BP announced it was leaving ALEC it became the third major oil company to do so, following Occidental Petroleum and Conoco Phillips’ decisions last year. It also brought the number of companies which have left ALEC in the last three years to more than 100.
Frankly, before this news I didn’t know what ALEC was nor what it did. And since that may also be the case for many non-US readers, it is worthwhile to explain ALEC’s mission before discussing its corporate effect.
ALEC, the American Legislative Exchange Council, describes itself as “America’s largest nonpartisan, voluntary membership organization of state legislators”. By its critics, it is described as a partisan conservative organisation that sponsors legislation that, among other things, questions who is responsible for climate change. It was also involved with the infamous “Stand your Ground” legislation, which states that a person may use “deadly force in self-defence without the duty to retreat when faced with a reasonable perceived threat”. In 2012, a group of major corporations, including insurer Blue Cross/Blue Shield, Coca-Cola, and PepsiCo, terminated their membership over ALEC’s sponsorship of “Stand your Ground”.
It is also notorious for sponsoring legislation that limits workers’ protections. A recent press release from ALEC described the rallies held by American workers to try to increase the minimum wage as “self-interested raise negotiations disguised as political activism and often funded by organized labor attempting to unionize employees”.
It also describes the US Environmental Protection Agency as a train wreck, saying its regulations are “causing the shutdown of power plants across the nation, forcing electricity generation off of coal, destroying jobs, raising energy costs, and decreasing reliability.” And while it no longer denies the existence of climate change, as its critics allege, materials that would help state legislatures block EPA guidelines include statements such as the following: “Climate change is a historical phenomenon and the debate will continue on the significance of natural and anthropogenic contributions.”This, while admitting climate change’s existence, intimates that there is some kind of continuing debate about who or what might be responsible.
Even most oil companies recognise that that debate is over.
Thus, the new post-‘Aiming for A’ BP left ALEC because, as a widely-quoted spokesman said: “We have determined that we can effectively pursue policy matters of current interest to BP without renewing our membership in ALEC.”

BP’s decision puts pressure on the other oil majors like ExxonMobil and Chevron which are still members of ALEC. Indeed, almost half of the top 50 companies in the Fortune 500 have left ALEC since 2012. Technology companies have also come under pressure since Google left last September as a result of ALEC’s position on climate change. A whole series of high-profile technology companies, including Yahoo, Yelp, Facebook, and eBay, also left ALEC last autumn, following Google’s example. Shortly after the company announced its decision, its chairman, Eric Schmidt, told US National Public Radio: “We should not be aligned with such people. They are just literally lying,”

BP’s decision puts pressure on the other oil majors

As with many such developments, corporations rarely take these kinds of actions on their own initiative. In this case, as with so many others, shareholder campaigns have been the instigator. Timothy Smith of Walden Asset Management said: “WAM is one of numerous investors who urge companies to be open and transparent about their political spending and lobbying expenditures using investors’ funds. On occasion such payments can embroil a company in controversy. The request for disclosure is both for direct payments and also through third parties like trade associations and non-profits.”
Shareholder resolutions on lobbying disclosure, that frequently cite membership of ALEC or focus entirely on it, were filed at 53 companies in 2015 by 65 institutional and individual investors. ALEC members receiving 2015 proposals included: AT&T, Chevron, Comcast, Dominion Resources, ExxonMobil, Honeywell, Time Warner Cable and United Parcel Service.
While none of the resolutions received majority support, at each of them support increased, sometimes significantly. At AT&T a resolution filed by the United Auto Workers went from 25% support in 2014 to 34% in 2015, according to figures provided by John Keenan of the AFSCME union. Other firms that received only low levels of support are companies that have heavy insider ownership, like Comcast and UPS. In most cases, the resolutions were supported by both ISS and Glass Lewis, though Glass Lewis was less supportive.
A specific example of a 2015 ALEC resolution was sponsored by Walden at pharmaceutical giant Pfizer (which also did not receive majority support). It states: “Transparency helps ensure lobbying activities are consistent with stated corporate policies and values, thereby reducing reputational and business risk.” While this is true, is it enough to make enough shareholders care?
The Pfizer resolution focuses exclusively on its ALEC membership and requests the company to review its membership of all lobbying organisations to determine whether ALEC’s activities are consistent with Pfizer’s code of conduct. While the resolution is restrained in character in order to get past SEC regulations, its implication is clear: it believes membership of ALEC to be antipathetic to the corporation’s fortunes and any support offered to it is misuse of investors’ funds.And there is the true aim of many of the resolutions, they are about disclosure rather than prevention. Shareholders simply want to know what is being spent and where so they can make their own decision about how the funds are used.
Since these resolutions do not explicitly call for companies to leave ALEC, however, some credit must be given to those companies that have reviewed their membership and decided to leave.
But even when a company has withdrawn from ALEC, shareholders are just as likely to keep after them for membership of other lobbying associations. The Connecticut Funds co-sponsored a resolution from the Needmor Funds earlier this year at Occidental Petroleum. The resolution commended Occidental for withdrawing from ALEC, but went on to say: “However, Occidental lists on its website its membership in the Western States Petroleum Association and has contributed over $2.5m to WSPA since 2009.” The WSPA has spent millions opposing California’s clean energy bill. Again, the resolution asks the board to determine if membership of this group is consistent with its code of conduct. Clearly, leaving ALEC is not enough. Next target, the US Chamber of Commerce?

Paul Hodgson is an independent governance analyst.