Perceiving the problem of political donations

On February 27, London-based oil giant BP (formerly British Petroleum) announced it would no longer be making political donations ìanywhere in the world.

In a speech in London on February 27, BP chief executive officer Sir John Browne said, "We'll engage in the policy debate, stating our views and encouraging the development of ideas, but we won't fund any political activity or any political party."

Analysts say the move is fallout from the Enron affair. It is alleged that huge political donations from industry players involved in that scandal bought political favours and encouraged U.S. officials to loosen regulatory requirements that might have prevented the largest bankruptcy in corporate history.

The main impact of BP's new policy will be felt in the United States, where the company contributed roughly $1 million each to the Republicans and Democrats in the 2000 election. In the 2000 Canadian election, BP gave smaller amounts -- $25,000 to the Canadian Alliance, $8,000 to the Progressive Conservatives, and through its Amoco subsidiary, $14,000 to the Liberals.

Even when putting an end to their political donations, corporate donors never admit that money buys influence. Occasionally, they concede that it buys "access" or "visibility." And in the case of BP, they commonly acknowledge it creates a "perception" problem. But never influence.

Alcan Inc., for example, has had a no-donations policy since the 1970s, citing the possibility of an "appearance of impropriety."

Other companies in Canada have given up this high ground. Two of the Big Three U.S. auto companies once had policies against political giving in Canada. Until 1999, Ford Canada refused to make donations because of the potential for perceived conflicts of interest. However, that year the company ended the policy and Chief Executive Officer Bobbie Gaunt even hosted the Liberals' biggest fundraising event, the Confederation Dinner in Toronto.

Two years earlier, General Motors Canada CEO Maureen Kempston Darkes hosted the Confederation Dinner, just a year after her company defended its no-donations. Company spokesperson Greg Gibson told the Hill Times in July 1996, "It's because we know that government's change and that we want to be in a position that we can work with whatever government that's in power." The following year, the company donated $13,000 to the Liberals, and Kempston Darkes helped the party raise money from other companies.

It is nearly impossible to know the real reasons for these reversals, but looming battles over auto leasing, which pitched the auto industry against the formidable bank lobby, and Ottawa's decision over whether to maintain its 6.7 percent tax on imported vehicles may have helped GM change its mind on the issue of political donations. (The auto industry won both battles, keeping the banks out of auto leasing and maintaining their protectionist tariff.)

Let's assume for a moment that obtaining political favours is not the intention of political donations. If so, why are top donors almost always those with the greatest stake in the political process -- regulated industries, government contractors, recipients of government loans and subsidies, and those lobbying on policy matters?

How can corporate executives, who have a legal duty to be accountable to shareholders, justify large outlays of cash to political parties unless there is a payoff for the company? Unlike charitable donations, few among the general public view political donations as part of "good corporate citizenship." (When was the last time you saw a public company boasting about its political donations in its annual report?) On the contrary, most view it quite intuitively as palm-greasing.

As noted by Financial Post editor Terence Corcoran, "There are no obvious shareholder benefits when professional managers give away shareholder profits to politicians -- unless the corporation is receiving back-door favours." Shareholder activist Yves Michaud, who raises corporate governance issues at the annual meetings of Canada's major banks, goes one step further. "Bank contributions to political parties are an abuse of power by board members because they are taking shareholder money to support their own opinions," he says.

The Enron scandal and the recent BP announcement will undoubtedly prompt other multinationals to review their donations practices. We will likely be hearing more about the perception problem associated with political donations.

We should make it easy for them. The federal government should adopt a law already in place in Quebec and Manitoba that places a $3,000 limit on political donations and a ban on donations from corporations, unions and other organizations. An anti-avoidance rule would limit the ability of companies to circumvent the law by encouraging and subsequently reimbursing employees who donate.

Perhaps we should admit that perception is reality, and clean up the system before the next scandal.