Influencing PowerReviewing the conduct andcontent of corporate lobbying

Contents

Executive Summary

1.0 Introduction1.1 Benchmarking Corporate Lobbying1.2 The Scale of Corporate Lobbying1.3 Background to Lobbying and

Corporate Responsibility

2.0 Our Approach2.1 Scope of the Project2.2 Method2.3 Limitations

3.0 Results and Findings3.1 Transparency is Increasingly Accepted3.2 Key Drivers3.3 Disconnects3.4 What Gets Covered and Why3.5 A Common Approach3.6 Recommendations

4.0 Where Next?4.1 Creating Competitive Advantages4.2 Third Generation Lobbying4.3 Final Word

Acknowledgements

We are extremely grateful to the severalindividuals who reviewed Influencing Power,providing thoughtful and challengingfeedback. The report has benefited greatlyfrom their input, and any outstanding errors of fact or judgement are ours alone.Our sincere appreciation to:

Robin Aram, External Relations, Policy and Social Responsibility, Royal Dutch /Shell; Mike Barry, Head of CR, Marks and Spencer; Philippe Blanchard,Managing Director Public Affairs, Hill and Knowlton Brussels; Shelly Fennell; André Fourie, Chief Executive, NationalBusiness Initiative South Africa; Matt Gorman, BAA; Professor R.H. Gray,Centre for Social and EnvironmentalAccounting Research, University of StAndrews; Adrian Henriques, MiddlesexUniversity; Jane Leavens, Assistant Director,UK Department for Trade & Industry;Professor Jean-Pierre Lehmann, IMD / The Evian Group; Jiggy Lloyd, formerDirector of Sustainable Development atAWG; Alex MacGillivray, Senior Associate,AccountAbility; Michael Massey; Paul Monaghan, Head of SustainableDevelopment, Co-operative FinancialServices; Professor Tim O’Riordan,Professor of Environmental Sciences,University of East Anglia; Liz Umlas, Senior Research Analyst, KLD Research &Analytics, Inc.; and Allen White, VicePresident and Senior Fellow, Tellus Institute.

We would also like to express particularappreciation to Bruce Freed, Center forPolitical Accountability; Steve Lippman,Vice President of Social Research andAdvocacy; Trillium Asset Management and Daniel E. Rosan, Program For PublicHealth, The Interfaith Center on CorporateResponsibility who provided insights into the US perspective.

In addition, there were several individualsfrom SustainAbility and WWF-UK whoprovided input and feedback. Our thanks go to:

Yasmin Crowther, Tom Delfgaauw, John Elkington, Jeff Erikson, Mark Lee, Dax Lovegrove, Geoff Lye, Sally Nicholson, David Norman, Sophia Tickell and Peter Zollinger.

Publication Details

Influencing Power: Reviewing the conduct and content of corporate lobbyingFirst Edition 2005ISBN 1-903168-14-7

© 2005 SustainAbility Ltd and WWF UKAll rights reserved. No part of thispublication may be reproduced, stored in aretrieval system or transmitted in any formby any means, electronic, electrostatic,magnetic tape, photocopying, recording orotherwise, without permission in writingfrom the copyright holders.

Any errors of fact or judgement are ours. If you detect any, please let us know.

WritingSeb Beloe, SustainAbility Jules Peck, WWF-UK Jodie Thorpe, SustainAbility

ResearchKelly Cruickshank, SustainAbilityPhilippa Moore, SustainAbility

Information DesignRupert Bassett+44 (0)7958 629290

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8889

10101014141618

19191920

Lobbying

State of CR

Role of Lobbying

Three Generations of Corporate Responsibility and Lobbying

Figure 0.1

First Generation

‘CR as PR’

Links betweenlobbying and CRare rejected

Second Generation

CR as a way ofmanaging reputationor operational risk

Transparencyand consistencysupported primarilyas part ofreputational riskmanagement

Third Generation

CR as strategicdifferentiator

Lobbying as anopportunity to drivestronger social andenvironmental policyin support of corebusiness

3Influencing Power

Executive Summary

This report describes the results of aSustainAbility and WWF research project toreview how 100 of the world’s largestcompanies report on their lobbyingpractices. Our objective was to assesscorporate transparency on lobbying andpublic policy behaviour, and the degree towhich reported activities align with corebusiness values, particularly when it comesto influencing governments on keycorporate responsibility issues, such asclimate change and human rights.

Benchmarking Corporate LobbyingThis report is very much a work in progresson this agenda and follows on from our2000 publication, Politics and Persuasion,produced in partnership with the Omnicomlobbying firm Government PolicyConsultants (GPC). Where the 2000 reportmade the then bold claim that corporateresponsibility practices should be explicitlylinked with a company’s lobbying andpublic policy activities, this report looks athow a cross-section of businesses hassubsequently responded to the challenge oftransparency and reporting in this area.

The report ranks how 100 major companiesnow report on lobbying and its relationshipto their core business — from the provisionof no information, through to basic,developing, systematic and integratedreporting. While the methodology revealedthat over 50% (51) of our sample achievedat least a basic rating and that a handful ofcorporate reports make it into thesystematic category — BASF, BP, Chevron,Dow, Ford, General Motors,GlaxoSmithKline and HP — no high scoreswere without issue or qualification. Widerresearch and the process of independentreview raised several questions with regardto the consistency of wider corporatelobbying activities that may not have madeit into their formal corporate responsibilityreport.

For instance, while Ford and GeneralMotors may have high levels oftransparency and a growing sophisticationin reporting their lobbying activities, theystill actively resist controls on greenhousegas emissions via sponsorship of theirindustry trade group. Similarly, whileGlaxoSmithKline may report on theexcellent work it is doing on access policiesfor essential drugs in developing countries,it is also a major member of PhRMA, whoseposition on intellectual property rights isstrongly criticised by HIV/AIDS policyexperts.

Transparency and ConsistencyInconsistent approaches to corporatelobbying — saying different things todifferent people via different parties — areunlikely to be tenable for the long term.Legislative developments and growinginterest from shareholder activists andNGOs, plus internal aspirations for greateralignment, are likely to drive change. Beingseen to conduct lobbying activities in waysthat are transparent and consistent withcore business — and wider societal — valueswill be essential to re-establish trust with avariety of stakeholder groups. Based onemerging good practices within ourresearch group, the report makesrecommendations on how companies canconsider and evolve their current approachto responsible lobbying and influence.

Third Generation LobbyingAlthough our research finds thattransparency around lobbying isincreasingly accepted, most companiesstrike an overwhelmingly defensive tone —asserting their right to lobby and theirpositions on particular issues. This approachwe characterise as ‘second generation’corporate responsibility. Here, the maindriver is risk management, and transparencyand consistency in lobbying are promotedprimarily as a way of minimisingreputational risk to the business.

In contrast a ‘third generation’ approachwould view corporate responsibility as astrategic differentiator and recognise thepotential for lobbying to help drive strongersocial and environmental policy frameworksin support of core business. A fewcompanies show indications of evolving thisapproach, such as the support IBM andPhilips give to waste recycling, or the verypublic stance that the Corporate LeadersGroup on Climate Change took inencouraging UK Prime Minister Tony Blairto pursue more aggressive policies onclimate change. However these initiatives,while welcome, are largely underminedwhere other lobbying activities appear toreflect a ‘first’ or ‘second generation’attitude. The overall impact is contradictionand inconsistency, communicating a senseof hidden agendas and stories only halftold.

Shortly before this report went to print, itseemed apt that there should be mediacoverage of the role ExxonMobil hasplayed in helping frame the USadministration’s position on climatechange,1 as well as alleged inconsistenciesbetween BP’s position as a member of theCorporate Leaders Group on ClimateChange and its lobbying activities inWashington DC.2 It seems unlikely thatthese are exceptional instances in theblurred and complex relationships betweenbusiness and government. The shift towardstransparency and consistency in thepractice, reporting and disclosure ofcorporate lobbying appears to have onlyjust begun.

4 Influencing PowerIntroduction

1.1 Benchmarking Corporate Lobbying

Over the past few years the number ofmajor companies picking up the corporateresponsibility (CR) 3 agenda has beensubstantial. As part of the work for thisreport, for example, we found that overthree-quarters (77) of the world’s 100largest companies now produce some formof stand-alone corporate responsibility orsustainability report. So widespread is thepractice, in fact, that while ten years agopioneering companies were remarkable forproducing such reports, today it’s the lackof reporting at the other 23 companies thatis more noteworthy.

Despite this impressive rise in reporting bylarge companies,4 substantive progress onthe big social and environmental challengeswe face remains elusive. We believe thislack of progress derives partly from the factthat CR is often an add-on — leaving corebusiness models and operations largelyuntouched; and partly from the fact thatmarket frameworks within whichcompanies operate do not provide thesignals needed to encourage companies toadopt more progressive practices.5 This gapin market frameworks, in turn, is oftenattributed to government concern overbusiness resistance to new policies. As agroup of leading companies including BAA,BP, Cisco Systems and HSBC haveexplained with relation to climate change:

‘The private sector and governments arecaught in a “Catch 22” situation . . .Governments tend to feel limited in theirability to introduce new policies forreducing emissions because they fearbusiness resistance, while companies areunable to take their investments in lowcarbon solutions to scale because of lack of long-term policies.’ 6

This brief report builds on an initial paperproduced by SustainAbility and GovernmentPolicy Consultants (GPC) in 2000. Thatpublication, Politics and Persuasion,7 madewhat was then seen as a bold claim — thatCR practices needed to be explicitly linkedwith a company’s lobbying and policyactivities. (See Panel 1.1 for an outline ofsuch activities.)

At that time, the suggestion that these twoareas might be connected was widelyconsidered to be at best an unwelcome‘stretch’ for corporate responsibility, and atworst a harmful restraint on a legitimatebusiness practice. Five years on, thegrowing activity around this topic suggeststhat the scales are tipping in favour ofthose working to bring greater transparencyand responsibility to lobbying (see Section1.3).

But although there has been a ground-swellin activity from NGOs, investors and othercommentators, progress within the businesscommunity has never, to our knowledge,been systematically analysed.8 The first aimof our project is to address this gap bybenchmarking 100 of the world’s topcompanies on how they report on theirlobbying, and to derive recommendationson how this process could be improved. Thesecond aim is to move from a focus on‘conduct’ to look at ‘content’, and make thecase for companies to work withgovernments and other stakeholders inhelping shape public policy for sustainabledevelopment.

Introduction

1.0

Figure 1.1

1

IntroductionExplains the basicconcepts andbackground behindthis report.

2

Our ApproachSets out the processused in reviewingcompany reports anddiscusses limitationsof the approach.

3

Results andFindingsProvides the majorresults from theresearch as wellas our principleconclusions onthe conduct ofcorporate lobbying.

4

Where NextSets out ourassessment ofwhy and howcompanies shouldadopt bestpractices in linkingCR with thecontent of theirlobbying.

Section

Structure of the Report

5Influencing PowerIntroduction

A Complex and Contentious Issue

At this point it is worth emphasising thatlobbying is a complex area. At any one time,a multinational may be interacting withmany different policy-making bodiesaround the world through many differentmechanisms. From the US through the UKto France, Japan and China, the nature ofthe business–government interface variesenormously. The situation becomes evenmore complex in the context of conflict,failing states or societies in transition. Inaddition, interactions can take place atlocal, national, regional and internationallevels.

We also recognise that lobbying can becontentious. For some, lobbying is part of acompany’s right to free speech. Increasinglyit is also acknowledged that effective publicpolicy — including on sustainabledevelopment — requires companies to takean active role.9 Others argue that lobbyingundermines democracy due to thesignificant imbalance of power andresources between companies and otherentities, with companies perceived to bepursuing narrowly self-interested positionsat odds with the rest of society.

This perspective was underlined as thisreport went to print, when revelations weremade concerning the close relationshipbetween ExxonMobil and the Bushadministration on climate change.10 As oneGreenpeace activist put it, ‘The cynical wayto look at this is that ExxonMobil hasremoved its sleeper cell from the WhiteHouse and extracted him back to themother ship.’

Undoubtedly, the reality is generally morenuanced, with companies needing toconsider costs and benefits as well as theneeds of other stakeholder groups in theirinteractions with policy-makers. But therelative lack of transparency aroundlobbying leads many to assume that whatcompanies communicate privately togovernment — either independently orthrough industry bodies — often conflictswith society’s best interests.

Ultimately until this ‘black box’ of lobbyingis comprehensively opened up, allowing theinterface between private business andgovernments to be more transparent andbetter understood, trust — which has beenflagging for many years 11 — will remainelusive. We believe it is in the interest ofbusiness urgently to address such concerns.

Who the Report is For

The primary audience for the conclusionsand recommendations of this report is thebusiness community. Given the significanceof this issue for many stakeholders, animportant secondary audience consists ofinvestors (who seek out ‘responsible’companies or want to understand politicalrisks), governments (who set policy andregulate business), NGOs (who both act aswatchdogs of business and influence publicpolicy themselves) and trade associationsand professional lobbyists (both of whomlobby on behalf of companies).

1.2 The Scale of Corporate Lobbying

To provide some perspective on the scale ofcorporate influence on government andpublic policy we turn to the US, wheredisclosure laws mean more information isavailable. It is estimated that during the2004 US election cycle, donors withbusiness interests contributed US$1.5billion to politicians and political parties.12

This scale of corporate campaign financehas led to much concern and somelegislative reform (see Panel 3.2).

Lobbying and Other Public Policy Activities

This report considers a range of corporateactivities or decisions which are intended to influence public policy. These includeefforts to:— influence the outcome or direction of

proposed or existing legislation.

— influence how regulators apply or enforce existing laws.

— influence the broad direction of public policy, whether at the local, national orinternational (e.g. through the UN orWorld Trade Organisation) level.

— support (either directly or indirectly)external organisations including industryassociations, chambers of commerce,think-tanks, NGOs, etc. that seek toinfluence public policy.

— develop or improve the company’s relationships with government officials,civil servants or the judiciary.

— support political candidates or incumbents through, for example,monetary donations or other forms of support.

These activities go beyond just ‘lobbying’and may include, for example, relativelyneutral engagement between business andgovernment without business seeking aparticular outcome. However, to keep thelanguage simple we have chosen to use thecommon term ‘lobbying’ instead of abroader alternative like ‘corporate publicpolicy activity’.

Panel 1.1

6 Influencing PowerIntroduction

In 2004 alone, investor groups working with the Center for Political Accountabilityfiled 23 shareholder resolutions calling for disclosure of political donations.

Yet less talked about but even moresignificant is the amount spent on lobbyingCongress, the White House and more than200 federal agencies. This is estimated tobe over US$3 billion in 2004 — up fromUS$1.6 billion in 1998.13 While this moneydoes not all come from the private sector —NGOs are also involved, for example — thetop amounts do. Figure 1.2 shows theamounts spent on lobbying by the top 20companies and organisations. Note thatsome of the largest amounts come fromindustry bodies — the US Chamber ofCommerce, the pharmaceuticals industryassociation, PhRMA and the BusinessRoundtable, to name a few.

These figures are available because the USLobbying Disclosure Act of 1995 requiresmandatory public disclosure. In Brussels,however, where 15,000 lobbyists areestimated to represent a €60–90 millionindustry,14 disclosure is voluntary, leavingcomprehensive figures unavailable.

1.3 Background to Lobbying andCorporate Responsibility

In the short time since the publication ofPolitics and Persuasion, the slow drip-dripof pressure around lobbying has grown toinclude a wide range of groups concernedwith the social and environmentalperformance of the corporate sector. TheNGO community championing this agendaincludes both organisations dedicated toaddressing issues around lobbying (e.g.Corporate Europe Observatory15) and othersthat have picked up the cause in recentyears, such as the Association of CharteredCertified Accountants, which promotesdisclosure on lobbying through its annualreporting awards programmes.

In the US, the socially responsibleinvestment community is in the vanguardof actions aimed at driving greatertransparency of lobbying within thecorporate community. For example, in 2004alone, investor groups working with theCenter for Political Accountability filed 23shareholder resolutions calling fordisclosure of political donations. Theresolutions gained significant support frommainstream shareholders, garnering up to16% of votes at corporate annual generalmeetings. Similarly a coalition of investorgroups working with the Interfaith Centeron Corporate Responsibility (ICCR) wrote tonine of the largest pharmaceuticalcompanies in autumn 2004 asking them todisclose corporate political contributionsand their policies and procedures tomanage such contributions.

Other notable initiatives include:

— Investors and investment researchers such as Generation InvestmentManagement, KLD Research andAnalytics, Trillium Asset Managementand the UK Institutional Investors Groupon Climate Change are activelyconsidering ways to assess the approachthat companies bring to their publicpolicy activity.

— The work of Greenpeace and the UK’s Green Alliance16 in this area, supportedby a broad coalition of NGOs andbusiness groups, has culminated in thepublication of The Private Life of PublicAffairs in 2003,17 and instigated a letter-writing campaign to the FTSE 100 groupof companies asking for theirperspectives on the issues the reportraises (see Panel 3.1).

— NGOs such as WWF,18 the CORE Coalition19 and Forum for the Future 20

have published research intended tocatalyse action by companies and tradeassociations. The issue has also beenhighlighted a number of times in recentyears in the Lifeworth annual review ofcorporate responsibility. 21

— The Institute of Business Ethics launched a report 22 in June 2005 looking at ethicaland business issues related to lobbying.

— AccountAbility and the UN Global Compact are developing principles toguide companies in their framing oflobbying approaches on public policyissues.

— Siim Kallas, Vice-President of the European Commission, launched aninitiative calling for legislation toincrease the transparency aroundlobbying of European Union institutions.23

— The Alliance for Lobbying Transparency and Ethics Regulation (ALTER-EU) waslaunched in June 2005, with over 80 civilsociety groups calling for ‘endingcorporate privileges and secrecy aroundlobbying in the European Union’. 24

Figure 1.2

$193,582,839US Chamber of Commerce

Altria Group

Verizon Communications

General Electric

Edison Electric Institute

Northrop Grumman

PhRMA

Business Roundtable

Lockheed Martin

American Medical Association

American Hospital Association & State Affiliates

AT&T

Freddie Mac (Federal Home Loan Mortgage Corporation)

SBC Communications

Boeing

National Association of Realtors

Microsoft

Fannie Mae (Federal National Mortgage Association)

ExxonMobil

Pfizer

$125,274,200

$105,426,174

$105,166,256

$100,312,966

$92,958,937

$92,582,135

$90,376,500

$88,931,565

$84,000,000

$80,071,000

$72,185,000

$71,975,000

$71,333,037

$71,075,810

$63,200,000

$61,644,500

$60,397,000

$60,270,242

$54,845,520

Company / Organisation Reported

Money in Lobbying 1998–2004 25

0 $50M $100M $200M

Reported Lobbying Expenditure (US$)

$150M

7Influencing PowerIntroduction

2.1 Scope of the Project

The core of the research for this projectinvolved a benchmark of the Standard &Poors (S&P) Global 100, a widely recognisedlisting of major global companies, 26 toassess disclosure around companies’lobbying and public policy activities.

Our research focused on the conduct oflobbying — assessing the level oftransparency and looking for evidence thatcompanies are actively linking lobbyingwith their stated commitments and values.The benchmark is not, however, anassessment of the content of corporatelobbying, nor is it an assessment of acompany’s overall CR performance.

Transparency is a basic requirement of ourassessment. So companies that may beusing their influence over public policyresponsibly but without transparency willreceive a low rating. We feel this is justifiedas transparency is integral toaccountability, although we concede thatthere are a small number of specificcircumstances in which transparency couldbe counter-productive, for example in thecontext of corruption or human rights infailing states or dictatorial regimes.

Overall our assessment is based on theconcepts of:

— TransparencyDoes the company provide informationon its lobbying and public policyactivities?

— MaterialityDoes lobbying and public policyinformation focus on the most materialissues for the business (see Panel 3.4)?

— ConsistencyAt least within the scope of this report,consistency refers to alignment betweena company’s lobbying activities and itsvalues and business principles. How fardoes the company go in demonstratinghow lobbying is linked to and supportiveof its core values and principles?

Although the focus of this report is onbenchmarking company performance, webelieve these principles apply to all groupsinvolved in lobbying government includingNGOs.

2.2 Method

Collecting the relevant documentation forreview then involved a two step processand included:

— Checking if the company has a published report covering theirapproach to CRFor conglomerates we focused on thegroup or corporate report rather thanreports relating to just one country orarea of operation.27

— Reviewing the group or corporate website for information on lobbyingand public policy positionsIn order to manage the time spentreviewing websites (in some casescompanies have over 1,400 pages on CR issues) we limited our search forinformation to 20 minutes on the basisthat if more time than this was needed,we would consider the information to be too far buried to be considered‘transparent’.

Having collected the relevant material, we analysed the documentation based on a rating system derived from theSustainAbility/UNEP report benchmarkingmethodology,28 but focusing exclusively onlobbying (See Figure 2.1).

8 Influencing PowerOur Approach

Our Approach

2.0

2.3 Limitations

It is our view that the method outlinedabove allows us to paint a picture of theapproach that companies in the S&P Global100 take to lobbying in the context of theirvalues and principles. The higher a companyscores, we believe, the more it can claim tobe transparent and consistent in itsapproach to lobbying.

However, there are some important caveats.For example:

— The research assesses the transparency of lobbying based on company-suppliedpublic information for 100 companies.The approach does not allow us to assesswhether some material information isnot being disclosed — which wouldrequire an investigative approach moreappropriate for a much smaller group ofcompanies.

— Companies may be influencing policy in ways that are inconsistent with theirstated policy positions, through supportfor organisations like trade associationsor think-tanks (see p.14).

However, company influence throughsuch third parties was considered only inso far as information was provided incompany reports or websites.

— There are many forms of soft influenceon public policy, ranging from supportingthink-tanks that influence the broadpolicy environment to fosteringrelationships with government officials(e.g. by hiring former government staff or the secondment of staff betweenbusiness and government). This is anabsolutely critical area but hard tomeasure and was considered in therating only where company informationwas available.

— The S&P Global 100 was chosen as the basis of the benchmark in order to have awidely recognised listing of major globalcompanies, representing a spread ofindustrial sectors and geographies.However, this listing includes only thelargest companies and will notnecessarily reflect the corporate sectormore broadly. It also disregardscompanies in many world regions,especially outside the OECD countries.

— As noted, political cultures and the business–government interface can vary enormously from one country to the next. Many of the underlyingassumptions in this paper are based onan Anglo-American model as we wereunable adequately to address a diversityof cultures within the scope of thisproject (although see comments on p. 14). We acknowledge this bias as amajor gap, but hope that the papermakes a helpful contribution to a debatewhich others will certainly expand upon.

9Influencing PowerOur Approach

Figure 2.1

NoneNo informationprovided onlobbying. Or thecompany makesgeneral references,such as a simplestatement ofcompliance with thelaw on politicalcontributions, butprovides no insightinto activities orimpacts.

BasicCoverage recognisesthe relevance oflobbying to corporateresponsibility issues.

DevelopingAs above butinformation alsoincludes signs thatrobust systems andprocesses are beingdeveloped to activelymanage and discloselobbying and publicpolicy activities.The company likelydiscusses at leastone ‘material’ issuein some depth.

SystematicCoverage of lobbyingindicates thatsystems exist toactively manageand disclose lobbyingand public policyactivities. Thecompany likelydiscusses policypositions on severalmaterial issues insome depth.However, approachto lobbying is stillnot fully integratedwith companyvalues, businessprinciples and corebusiness decision-making.

IntegratedAs above and inaddition there isan explicit linkmade betweencorporate valuesand principles, corebusiness decision-making (includingcorporate govern-ance) processesand a company’sapproach to publicpolicy.

There is likely, forexample, to beevidence of adecision-makingprocess leadingfrom basic valuesand principles tospecific businessobjectives andlobbying thatsupports theseobjectives.

The quality of theinformation andapproach adoptedby each companywas given one of thefollowing ratings.

Rating the Quality of Information

3.1 Transparency is Increasingly Accepted

Perhaps the most striking finding from ourresearch is that approximately 50% (51) ofthe world’s largest multinational companiesare providing at least some degree oftransparency around lobbying activity. And for those companies in our sample thatproduce a CR report, this figure rises to60%.

These findings can be interpreted in twoways. On the one hand, they suggest thatthere has been substantial progress sincethe 2000 publication of Politics andPersuasion — when we found no more thana small number of companies publishinginformation on their lobbying. On the otherhand, with the variable quality of reportingamong current disclosers and with 49% ofcompanies not providing any meaningfulinformation, there is still clearly a long way to go.

Leaders

Although no company’s approach tolobbying was rated as integrated, eightcompanies were considered to haveprovided systematic information:

— BASF— BP— Chevron— Dow— Ford— General Motors— GlaxoSmithKline— HP

Several of these companies are consideredto be among the best corporate reportersmore broadly, with BP, Ford, GM and HP, for example, all appearing in the top 50 ofthe SustainAbility/UNEP/S&P 2004 rankingof corporate responsibility reports.29 Asindicated earlier, however, good reportingdoes not necessarily translate into goodsocial or environmental performance.

Also notable are some of the companiesthat appear in our lowest category whichfailed to provide any information on theirlobbying activities. Among these arecompanies like Deutsche Bank, HSBC, Intel and Novartis, which are otherwiseregarded as having good reputations forcorporate responsibility.30

3.2 Key Drivers

The key drivers for the enhancedtransparency we are seeing around lobbyingare likely to be multi-faceted and includean increased focus on this agenda fromNGOs, investors and other stakeholders (seeSection 1.3), enhanced risk management bycompanies (see Section 4.2) and newlegislative initiatives. For example, in theirresponses to this and other researchprojects, companies have pointed to thegrowing access the public has toinformation as a result of freedom ofinformation legislation. Efficiency gainsmay also be a driver as transparency aidsinternal processes, joining-up thinking andavoiding duplication and contradiction.31

10 Influencing PowerResults and Findings

Results and Findings

3.0

Overall Assessment

Figure 3.1

Developing

Systematic

Integrated

Basic

None

Proportion of companies in S&P Global 100receiving each of our five ratings

Figure 3.2

IntegratedNo companies recieved this rating

SystematicBASF Germany MaterialsBP Great Britain EnergyChevron USA EnergyDow USA MaterialsFord USA Consumer DiscretionaryGeneral Motors USA Consumer DiscretionaryGlaxoSmithKline Great Britain Health CareHP USA Information Technology

DevelopingAltria USA Consumer StaplesAstraZeneca Great Britain Health CareDiageo Great Britain Consumer StaplesMicrosoft USA Information TechnologyPfizer USA Health CarePhilips Netherlands Consumer DiscretionaryRoyal Dutch / Shell Netherlands EnergySwiss Re Switzerland FinancialsTime Warner USA Consumer DiscretionaryTotal France Energy

BasicAlcan Canada MaterialsBarclays Great Britain FinancialsBayer Germany MaterialsBBVA Spain FinancialsBHP Billiton Australia MaterialsBristol-Myers Squibb USA Health CareCitigroup USA FinancialsCoca Cola USA Consumer StaplesColgate-Palmolive USA Consumer StaplesCredit Suisse Switzerland FinancialsDaimlerChrysler Germany Consumer DiscretionaryDell USA Information TechnologyDeutsche Telekom Germany TelecommunicationsDuPont USA MaterialsExxonMobil USA EnergyFortis Belgium FinancialsFrance Telecom France TelecommunicationsIBM USA Information TechnologyING Netherlands FinancialsJohnson & Johnson USA Health CareMcDonald's USA Consumer DiscretionaryMerck USA Health CareMorgan Stanley USA FinancialsNestle Switzerland Consumer StaplesNokia Finland Information TechnologyProcter & Gamble USA Consumer StaplesRepsol Spain EnergySuez France UtilitiesTexas Instruments USA Information TechnologyToyota Japan Consumer DiscretionaryUnilever Netherlands Consumer StaplesUnited Technologies USA IndustrialsVolkswagen Germany Consumer Discretionary

Company Country Sector Company Country Sector

Results

None3M USA IndustrialsABN Amro Netherlands FinancialsAegon Netherlands FinancialsAlcatel France Information TechnologyAllianz Germany FinancialsAmerican Int’l. Group USA FinancialsAssicurazioni Generali Italy FinancialsAT&T USA TelecommunicationsAXA France FinancialsBanco Santander Spain FinancialsBNP Paribas France FinancialsBridgestone Japan Consumer DiscretionaryCanon Japan Information TechnologyCarrefour France Consumer StaplesDeutsche Bank Germany FinancialsE.On Germany UtilitiesEMC USA Information TechnologyEricsson Sweden Information TechnologyFujifilm Japan Consumer DiscretionaryGeneral Electric USA IndustrialsGillette USA Consumer StaplesHitachi Japan Information TechnologyHonda Japan Consumer DiscretionaryHSBC Great Britain FinancialsIntel USA Information TechnologyIto-Yokado Japan Consumer StaplesJPMorgan Chase USA FinancialsKimberly-Clark USA Consumer StaplesL'Oreal France Consumer StaplesLucent Technologies USA Information TechnologyMatsushita Electric Japan Consumer DiscretionaryMitsubishi Tokyo FG Japan FinancialsNews Corporation USA Consumer DiscretionaryNissan Japan Consumer DiscretionaryNortel Networks Canada Information TechnologyNovartis Switzerland Health CarePepsiCo USA Consumer StaplesReuters Great Britain Consumer DiscretionarySamsung Korea Information TechnologySanofi-Aventis France Health CareSiemens Germany IndustrialsSony Japan Consumer DiscretionaryTelefonica Spain TelecommunicationsToshiba Japan Information TechnologyTyco USA IndustrialsUBS Switzerland FinancialsVivendi Universal France Consumer DiscretionaryVodafone Great Britain TelecommunicationsWal-Mart USA Consumer Staples

11Influencing PowerResults and Findings

12

Quality of Information

Figure 3.4

0 20 40 60 80 100% 10 30 50 70 90

UK

Netherlands

USA

Switzerland

Europe

Germany

France

Japan

Ratings by Country

Developing Systematic IntegratedBasicNone

The graph shows the percentage ofcompanies from each country or regionwhich received each of our five ratings.The figures on the left show thenumber of companies in each countryin the S&P Global 100.

To make the statistics more meaningful,only countries which have at least fivecompanies present in the index areincluded in this graph — leaving outAustralia, Belgium, Canada, Finland, Italy,Korea, Spain and Sweden.

8

6

38

5

46

9

10

12

Number ofCompanies

Country

Quality of Information

6

6

8

17

16

14

2

5

21

5

Ratings by Sector 32

Figure 3.3

0 20 40 60 80 100% 10 30 50 70 90

The graph shows the percentage ofcompanies in each sector which receivedeach of our five ratings.

The figures on the left show thenumber of companies in each sector inthe S&P Global 100.

Energy

Materials

Healthcare

Consumer Discretionary

Information Technology

Consumer Staples

Utilities

Telecommunications Services

Financials

Industrials

Number ofCompanies

Sector

Developing Systematic IntegratedBasicNone

Influencing PowerResults and Findings

It is striking, though, that nearly all of ourtop scorers are from sectors such as Energy,Materials and Health Care, which haveheavy direct social and environmentalimpacts. This finding is perhaps not toosurprising, given that these sectors receivea significant amount of scrutiny from NGOs,socially responsible investors andgovernments, and so are more likely to havethe issue on their radar screen. It is alsolikely that companies with heavy social andenvironmental impacts are more proactivein addressing government in efforts toensure policy frameworks are congruentwith their business needs.

Conversely, in our analysis, companies inthe Financials and TelecommunicationsServices which, until recently, have beenconsidered low impact sectors, receive someof the lowest average ratings. In the otherlow scoring sector, Industrials, companiestend to have a high impact but low brandprofile. Nevertheless, NGOs have launchedpowerful campaigns on these sectors inrecent years. Finance, in particular, hascome under great scrutiny — given thesignificance of the sector’s indirect socialand environmental impacts.33 Thesecampaigns, and others focused on sectorslike the Media, are beginning to cross overto public policy issues,34 which may lead toincreased disclosure from these sectors.

For some companies, however, the driversmay be more complex. Diageo, for example,reports on the work it has been doing withNGOs, think-tanks and others to support UKgovernment efforts to address alcoholmisuse. BASF reports in some detail on itscontribution to the public debate onnanotechnology. Both of these issues arecontroversial, with opinions polarised as towhat government intervention — if any —should take place.

Regional Differences

There also appear to be some regionaldifferences in the way in which companiesare responding to demands for greatertransparency, though in general thedifferences are less pronounced than whenlooking across industry sectors. Of the 15countries that are represented in the S&PGlobal 100, the UK ranks highest onaverage, followed by the Netherlands andthe US. The only region to fall well behindthe others was Japan where of the 12companies in the survey only one, Toyota,made any reference to the issue oflobbying.

Analysing differing national approaches tolobbying is beyond the scope of thisresearch, although there are likely to be anumber of factors at play. The UK, forexample, has established a strong positionon CR issues more broadly, and NGOs havebeen particularly focused on this aspect ofcorporate behaviour (see Panel 3.1). The UShas perhaps the most open legal andcultural framework for lobbying as well asstrict freedom of information legislation,and so it is therefore perhaps not surprisingthat US companies score relatively highly.

France scores the lowest of the Europeancountries. It may be that corruptionscandals involving companies andgovernment during the Mitterand era in the1990s has led companies to adopt a lowerprofile. The low level of transparency inJapan may in turn be linked either to widerdifficulties in reporting on non-technicalissues 35 or indeed may simply be aconsequence of different interpretations ofwhat lobbying means in Japan.

13Influencing PowerResults and Findings

UK Perspective

While our benchmark focuses oncompanies in the S&P Global 100, otherefforts have focused more specifically onindividual countries. In the UK, forexample, WWF supported by NGOsincluding Amnesty International, Friendsof the Earth, Greenpeace and Oxfam wroteto the FTSE 100 group of companies inApril 2005 asking them to report back onprogress against the recommendations ofthe 2003 Green Alliance report The PrivateLife of Public Affairs. This represented afollow-up to an initial letter sent by theGreen Alliance in 2004, invitingcompanies to engage with this debate andadopt the report’s recommendations.

Responses were received from 22companies in all — twice as many as in2004. Some responses from companieslike BAA, BP, Diageo, HBOS, Marks &Spencer, Tesco and Vodafone indicated adegree of sophistication in considering theissue. Others, however, focused on CRmore broadly without addressing thespecific question of lobbying — suggestingthey either misunderstood the issue or hadlittle to say to it. Some of the specificresponses included:

— A thoughtful contribution from Marks & Spencer, which provideddetails on the company’s submissions tothe UK government on REACH and theUK Sustainable Development strategy.These submissions included a call for astrong Central Chemical Agency and ahigh profile, robust government-ledbenchmarking of the sustainabledevelopment performance of eachindustrial sector.

— Companies such as Reckitt Benckisertaking the more traditional line that‘companies can address improvementsin sustainability performance withoutthe need for public policy changes’.

— A significant variation in the way in which companies acknowledgedmaterial issues. HBOS explains why itsfocus on social issues like financialinclusion and literacy is appropriategiven its business. BAE, in contrast,highlights its joint lobbying policy withtrade unions which focuses on jobprotection. However, the companyneglects to mention lobbying efforts toweaken controls on bribery andcorruption by the UK’s export creditagency. 36

Panel 3.1

It is striking that nearly all of our top scorersare from sectors such as Energy, Materialsand Health Care, which have heavy directsocial and environmental impacts.

3.3 Disconnects

Although transparency has received asignificant boost through the latest reportsand websites, our research showed somemajor disconnects between a company’slobbying and its broader values andprinciples. This gap is an enduing concern —raised by several reviewers of the report(see Panel 3.3) as well as others like KofiAnnan. As the UN secretary general has putit: ‘Business must restrain itself from takingaway by its lobbying activities, what itoffers through corporate responsibility andphilanthropy.’ 39 Specific examples ofdisconnects include:

— BP was a signatory to the Corporate Leaders Group on Climate Changeletter to the UK prime minister but wassubsequently alleged to have beenlobbying in the US against SenatorBingaman’s proposal for compulsorylimits on carbon dioxide emissions.40

— GlaxoSmithKline, which reports on the excellent work it is doing on accesspolicies for essential drugs, is a majormember of the industry associationPhRMA. The association is regularlycriticised by HIV/AIDS policy experts, forexample, for its lobbying position onintellectual property rights.

— Ford and General Motors have high levels of transparency and a growingsophistication in their treatment of thisagenda, but were criticised for lobbyingagainst attempts to control greenhousegas emissions from the auto-sector,including through their involvement inthe Alliance of AutomobileManufacturers.

Indeed, a source of ongoing concern arounddisconnects relates to company support forindustry associations or other externalaffiliations. Opinion is polarised as to theextent that associations are on the onehand simply an efficient way for companiesto lobby on collective goals versus being ameans of influencing government in wayswhich contradict stated values, withoutexposing the company brand.

Some cases have been documented wherecompanies express concern thatorganisations they support have beenlobbying in contradiction to their statedinterests. Union Pacific, for example, whichhas a policy on non-discrimination basedon sexual orientation, donated money toAmericans for a Republican Majority (ARM).ARM in turn funded groups that activelyopposed gay rights — and which thecompany states it would not havesupported.41

Some companies have taken steps toaddress the issue of disconnects. Forexample, Dow describes an ‘advocacyreview screen’ to test its lobbying againstCR policies and commitments. Chevronacknowledges the need to demonstrate how lobbying aligns with social andenvironmental responsibility. However,neither company provides substantialinformation or discusses the practicalitiesof achieving alignment in any depth.

3.4 What Gets Covered and Why

The process used for managing anddirecting corporate lobbying activities is anarea that very few companies communicateclearly.42 Even companies such asAstraZeneca and Pfizer, which provideimpressive levels of detail on specific policypositions, neglect to supply any insight intowhy these issues were chosen or howpositions were developed. Whether this isbecause companies consider their approachto be proprietary, or because there is anuncomfortable ‘gap’ in their corporategovernance processes, is not clear.

14 Influencing PowerResults and Findings

On Money in Politics in the US

Political donations by corporations is oneaspect of public policy activity — and is ofparticular importance in the US, where ithas been the subject of considerablescrutiny and reform. In November 2002,the US Congress enacted legislation (theMcCain-Feingold Act) that prohibitsnational political parties from solicitingand receiving ‘soft money’ 37 contributions.

As a result, since 2002 soft money hasoften been channelled into organisationswhich have no direct legal link to politicalparties themselves. These include tradeassociations and non-profit issueadvocacy organisations known as ‘527organisations’ (after the tax code sectionregulating them). The 527s have becomean important political force and wereespecially prevalent during the lastelection cycle both on the left(‘MoveOn.org’) and right (‘Swift BoatVeterans for Truth’).

527s may not directly advocate theelection or defeat of any federalcandidate, although they may supportother political activities, including issueadvocacy. As 527s are not electionassociations, they are not regulated by theFederal Elections Commission and onlyreport income to the Internal RevenueService, a much less detailed and rigorousprocedure. Although 527s existed before2002, more and more corporate money isnow channelled in this way.

In our benchmark we found six companiespublished their corporate politicalpayments: Bristol-Myers Squibb, Dow,GlaxoSmithKline, HP, Morgan Stanleyand Pfizer — although the parameters ofwhat they disclose vary. Only MorganStanley and Pfizer disclose soft moneypayments to 527s through their reports orwebsites.

Other forms of corporate money in politicsreceive still less scrutiny. For example, nocompanies in our sample disclose in theirreport or website the amount paid tolobbyists. Yet the amounts are staggering.In 2004, alone, the collective invoices ofWashington lobbyists were likely to haveexceeded $3 billion 38 (see Section 1.2).

Panel 3.2

15

Some companies do allude to the systemsand structures that lie behind theirapproach:

— Chevron, ExxonMobil, Ford, Johnson & Johnson and Texas Instruments allreport that their lobbying is governed bya board-level committee, but providelittle additional detail on how thisoperates.

— Other companies like General Electricprefer to describe a more generalphilosophy underlying their approach to the issues without actually describingthe specific governance process.43

— Only a handful, including BP, address both.

Materiality

Companies have often rebuffed previousefforts to encourage the opening of theirlobbying to public scrutiny, not leastbecause of the bureaucratic burden ofproviding this transparency. As Shell arguedin its thoughtful response to the GreenAlliance publication: 44 ‘[We] are not surethat minuting all dialogue and opinions ona website would take us much furtherforward.’

In the year since this exchange, the conceptof materiality (see Panel 3.4) has becomeincreasingly central to company approachesto CR. As part of their efforts to rationaliseand prioritise, companies are focusing onidentifying, managing and reporting on asmaller set of issues that are material totheir business and to key stakeholders.

This approach is also relevant to lobbying,although so far most companies fail toprovide any rationale for the selection ofpolicy issues they report on. HP, however,provides more context than most, explicitlyidentifying four major issues material to itsbusiness including: access to markets, e-commerce, electronics recycling andcompetitiveness, and providing policypositions for all four.

Influencing PowerResults and Findings

Society as Judge

The draft of this report was reviewed byroughly 20 CR experts from academia,business, government and civil society.One concern raised by several reviewerswas that the picture we paint is too ‘rosy’.Some pointed out that we focus only onthe largest companies. Others noted ourranking is based on published information,which by definition is selective. A thirdgroup highlighted disconnects stemmingfrom the role of industry associations. We acknowledge these limitations (seeSection 2.3).

Interestingly, some of the most forcefulconcerns came from commentators frombusiness (although admittedly from theCR arena). Many felt that the companiesthat received high ratings in our analysisdid not merit this ranking. For example,Chevron’s role in the Extractive IndustriesTransparency Initiative, Ford’s lobbying onclimate change, BP’s activities in hostgovernment agreements for the BTCPipeline project and Total’s continuedactivities in Burma were all seen as majorissues that potentially invalidated ourresults. Two of our reviewers, one frombusiness and one from the investmentcommunity, helped articulate their reasonsfor this unease:

— ’I find my position hard, if not impossible, to prove but my instinct andgeneral knowledge of the corporateworld tells me that at very best nosingle company deserves to be ratedabove developing.’

— ’Some of these companies have leadership roles in industry associations,which can set up a structural tensionbetween those in the company who aretrying to uphold the principles you’veunderscored, and the often conflictingprinciples of protecting industry againstperceived threats from groups likeNGOs. I’m not so sure disconnects stemfrom lack of communication so much asinconsistency or competing objectives.’

We also grappled with similar concerns.Yet we concluded that our focus should beon assessing whether companies aretransparent, focus on material issues andmake the link between their policypositions and their values and principles.With this information, we believe societycan make a judgement about theresponsibility of a company’s lobbyingactivities.

Defining Materiality

Understanding what constitutes ‘material’social and environmental issues for aparticular company has emerged as amajor challenge in corporateresponsibility.

In very simple terms, a material issue isone that is important — one which couldaffect perceptions about a company andany decisions taken (whether by investors,employees, neighbours, NGOs or otherstakeholders) as a result.45 Defining thethreshold of what is or is not material,however, is no obvious task. What ismaterial varies between and even withinindustries based on the (ever-changing)context in which a company operates —and is usually only easily identified inhindsight.

Nonetheless some basic parameters havebeen developed to help companies identifymaterial issues. AccountAbility, forexample, has argued that in order todetermine the materiality of particularissues, five tests can be applied.46 Theseinclude considering whether issues areassociated with:

— significant direct short-term financial impacts

— specific policy positions that the company has developed

— what peer companies have deemed as material

— stakeholder behaviour and concerns

— societal ‘norms’ that are developing either through regulation (current andpredicted), investment practices orinternational developments.

Panel 3.3

Panel 3.4

Developing Countries

Several companies claim that behind thescenes lobbying is more effective when itremains behind the scenes, often citingexamples from developing countries.Certainly we would agree there are specificopportunities for business to engage withgovernments on sensitive issues (e.g. bettergovernance), where transparency couldhave unintended negative consequences.However, in general, and given thesignificant presence of the S&P Global 100countries in these countries, it is strikinghow little disclosure there is of governmentlobbying in the developing world.

Of the companies that do report in thisarea, the vast majority are in the extractivessector. For example:

— BP, Chevron and Total all mention their roles in areas such as human rights andrevenue transparency in developingcountries.

— Total describes its approach in Burma, while Chevron comments on publicpolicy activity in Vietnam, South Africaand Kenya.

— The most coverage by far, however, is given to China, with six companiesdiscussing their roles in helping thegovernment develop effective approachesto issues ranging from intellectualproperty rights (Philips) to sustainablemobility (Ford).

International Initiatives

Another area which is mentioned by severalcompanies but hardly discussed in anydetail relates to company influence overpolicies or standards of bodies operatinginternationally. Such initiatives include theWorld Bank’s Extractive Industries Reviewor the development of a UN human rightsstandard for companies.48

Companies that do discuss theirinvolvement in such initiatives include:

— Barclays, which lists its involvement in the Business Leaders Initiative onHuman Rights and the draft UN Norms.

— Citigroup, which references its support of the 2005 UN International Year of Microcredit initiative, serving asAdvisory Committee Chair.

— GlaxoSmithKline, which mentions its support for TRIPS and the BiodiversityConvention.

— Philips, which is one of the few companies to make an explicit linkbetween the relative lack ofsupranational regulations and its activerole in bodies such as the United NationsEnvironment Programme (UNEP).

3.5 A Common Approach

Unlike other areas of reporting, wherepatterns of good practice took many yearsto crystallise, companies with the topratings in this assessment appear to beadopting broadly similar approaches todisclosure of lobbying. Key elements of thiscommon approach include:

— Providing a general commentary on the legitimacy of lobbying and other businessperspectives on key legislative issues.Many companies (for example Bayer,Chevron, DaimlerChrysler and ExxonMobil) point to their ‘fundamental rightand responsibility to participate in thepolitical process’ and highlight theirefforts to support ‘technically andfinancially sound, appropriate andeffective’ regulation — or words to thiseffect.

16 Influencing PowerResults and Findings

Public Policy in China

The use of the S&P Global 100 as theuniverse of companies for the studymeans that companies from many regions,particularly developing countries, were notincluded. However, it may be that theapproach to lobbying and disclosure ofpublic policy positions differs significantlyin different operating environments.

For example, attitudes to the regulation ofenvironmental issues may be different inChina. At least, this is the finding of arecent report by WWF,47 which suggeststhat compared with the west there is astronger focus by Chinese companies onthe regulatory rather than the voluntaryframework.

The report, which studied responses to aquestionnaire from over 60 Chinesecompanies, found that 85% think thatthere should be stronger rules onenvironmental transparency andmonitoring, with 13% indicating that theywere actively advocating stricterstandards.

WWF found that the concern that othercompanies are breaking existing rules andcompeting unfairly was an importantdriver for this position — with leadershipcompanies seeking better lawenforcement. In addition, companiesrecognised that the reputation of Chinesebusiness as a whole is damaged by poorperformance.

Panel 3.5

— Publishing a clear policy prohibiting political contributions. Almost one-quarter of the companies we reviewedmade statements banning the practice,although exceptions are often allowedwith senior approval, and ‘soft money’donations are rarely discussed (see Panel3.2). Royal Dutch / Shell seems to takethe toughest stance, banning politicalpayments and explicitly relating them tobribery and corruption.

— Providing a listing of affiliations with business groups focused on corporateresponsibility such as BSR, CSR Europeor the WBCSD. Note that few companiesalso disclose affiliations with industryassociations, a point we come back to inthe recommendations.

— Publishing detailed policy positions on specific legislative initiatives confrontingthe company or industry such as tradeand market access (for example Ford andHP) or climate change and the KyotoProtocol (many companies includingDuPont and Swiss Re).

The consistency of this approach acrossdifferent companies and industry sectors islikely to be a consequence of the way inwhich the agenda has been driven (seeSection 3.2). Given that much of the energyfor greater consistency and transparencyhas come from external pressure, it isperhaps not surprising that responses areoften defensive in tone, with companiesaffirming their right to lobby andhighlighting their membership affiliationsas evidence of their commitment to theagenda. This is a point we pick up again inSection 4.

3.6 Recommendations

In spite of continued concerns aboutcorporate lobbying, it is clear thattransparency has improved markedly in thelast few years. Nonetheless, we believethere are steps companies can and shouldtake to help foster trust and minimise therisks in this area by creating greatertransparency and consistency in theirlobbying. Figure 3.5 outlines specificrecommendations linked to our analysis ofcompanies’ current approaches.

Other Actors

While our focus in this report has been oncompanies, responsibility for fostering amore open and accountable approach topublic policy clearly does not lie solely withthe corporate sector. Other actors includingtrade associations and government havecritical roles and responsibilities. Indeed,several of our reviewers commented thatlobbying transparency by business shouldbe matched by government transparencyregarding who they’ve been lobbied by.NGOs involved in public policy advocacy,too, need to improve their accountability inthis area. We have not, however, addressedthese groups directly in our research andrefer readers to companion publications. 49

17Influencing PowerResults and Findings

What Would Integrated Look Like?

None of the companies we benchmarkedreceived our top rating of integrated.However, if such a company were to exist,it would likely report on an approach thatincludes the following elements:

Corporate governance and materiality— There is a clear philosophy and

structure to the role and objectives ofcompany lobbying including recognitionand explanation of the link betweenoverall company principles and the roleof lobbying.

— ‘Material’ issues are identified through a systematic and transparent processthat considers the risks andopportunities deriving from the policyframework, and which involves dialoguewith stakeholders.

— The focus is on public policy activitybroadly defined, including softer formsof influence, efforts beyond homemarkets and policy at the global level.

— Responsible lobbying is an explicit part of corporate business principles and/orspecific CR policies.

Transparency— Companies understand and explain the

relationship between core principles, CR objectives and their sector-specificregulatory framework.

— Policy positions on material issues are made publicly available, linked toformal submissions to governmentcommittees, senior managementstatements on the issue, support forpolicy research on the agenda, etc.

Consistency— Membership of industry associations

is disclosed, with an explanation ofwhere the company differs fromassociation positions on material issues.

— Company works with other civil society groups on advocacy aroundshared public policy goals.

— Where a company encounters proposed legislation in line with its principles but where lobbies against it are basedon the design of specific tools orframeworks, the company’s positionincludes recommended adaptationsto allow the underlying objective to be met.

Panel 3.6

In spite of continued concerns aboutcorporate lobbying, it is clear thattransparency has improved markedly in the last few years.

Figure 3.5

Recommendations

Encourage greatertransparency acrossindustry moregenerally

Leading companies,working with tradeassociations, shouldencourage andenable peers tobecome moretransparentincluding by:

helping to establishindustry-specificbest practiceframeworks fortransparency;

supporting tradeassociations andpublic affairsconsultanciesin agreeing andimplementingminimum standardsaround transparencyin lobbying.

Review potentialinternal andexternalinconsistencies

Understand companypositions andmembershipsinternally – andassess political andreputational risksarising from them.

Communicatepositions, makingthe link from overallcompany principlesto specific CRobjectives to lobby-ing in alignmentwith theseobjectives.

Monitor and reporton alignment oflobbying throughoutthe organisation.

Work to ensureconsistency withexternal affiliationsand where positionsdiffer, ensure thatthese differencesare clearlycommunicated.

Focus on thoseissues that arematerial to yourbusiness andstakeholders

Identify and explainmaterial policypositions based oncompany’sunderstanding of thepolicy frameworkand societalexpectations ofsector.

Ensure that thissystem takes intoaccount lobbyingrelated to developingcountries andinternationalinitiatives.

Explain this processand actively reporton how lobbyingon these issues isaligned withbusiness valuesand principles.

Work withpeers to developand improvestandardisedapproaches totransparency

Support processesthat are alreadybeing developed tofoster a ‘standard’approach toreporting (e.g.AccountAbility /UN Global CompactInitiative,50 GRI,etc.)

Balance theseattempts to fosterstandardisation withcreative approachesto enhancedtransparency.

Disclose affiliationswith industryassociations of alltypes – not justthose focused onCR and sustainabledevelopment.

Move towards anintegrated approachto lobbying asdescribed in Panel3.6, addressingissues of consistencyand materiality.

Conclusions

Recommendations

1

Transparencyis increasinglyacceptedA significant numberof large companiesnow acknowledgethe need to respondto stakeholderconcerns aboutlobbying.

As expectationschange, work tounderstand thebusiness drivers forresponsible lobbying

Review lobbyingpractices in thecontext of rapidchange, includinggreater transparencydriven by legislationand an increasingfocus on lobbying byinvestors, NGOs, themedia and civilsociety – especiallycompanies in sectorsthat have onlyrecently come underscrutiny (e.g. finance,telecommunicationsand media).

Explore new ways torespond to changingexpectations by, forexample, agreeingpolicy impactreviews with otherstakeholder groupsand working toachieve sharedpolicy positions.

2

Key driversSeveral drivers are inplay including publicpressure andlegislation.

3

DisconnectsPublic perceptionof significantdisconnects isnot addressed indisclosure and/ormanagementapproach.

4

What gets coveredand whyThere is a lackof attention toidentifying andaddressing materialissues.

5

A commonapproachPatterns areemerging in theway that companiesreport on lobbyingalthough these areprimarily defensivein nature.

18 Influencing PowerResults and Findings

19Influencing PowerWhere Next?

4.1 Creating Competitive Advantages

Our research has shown that significantnumbers of companies have responded tothe challenge from NGOs, investors andothers to be more transparent with regardto lobbying activities. It seems thatcompanies are developing a betterunderstanding of the dimensions of thisagenda that contribute to business risk, andhow to manage these issues throughgreater transparency and consistency.

However, as described in Section 3.5, evenwhen transparency is introduced, lobbyingstill tends to focus on defending existingmarkets. The problem, we would argue, isthat still too few companies seem toconsider how CR and related policyactivities can support core businessstrategies.

We’ve talked about the need for greatertransparency in the relations betweenbusiness and government in order to rebuildtrust in both institutions. Greatertransparency around lobbying may also bein the direct interests of shareholders. TheCenter for Political Accountability cites theexamples of Enron and WorldCom, makingthe case that like the canaries that wereonce sent into mines to check air quality,lobbying budgets can indicate managementquality and business strategy. Wherelobbying expenditures are significantlygreater than the industry average, as wasthe case for Enron and WorldCom, it cansuggest a lack of solid businessfundamentals.51

However, transparency alone is unlikely todeliver societal trust. Business needs tocontribute and to be seen to contribute tothe strong and effective rules andregulations required for the functioning offree global markets.

This is particularly true in sectors where thegrowing burden and complexity ofregulation requires business involvement inhelping design more efficient and effectivepublic policy tools.

Lack of progress will likely mean thatbusiness faces a further weakening of trustand ever-growing suspicion over its role inpolicy formation, as well as ongoingdemands to contribute directly to social andenvironmental solutions. As the New YorkTimes’ Thomas Friedman argues, no one inthe US has more interest in lobbying infavour of some form of national healthcoverage than General Motors, which isbeing strangled by its health care costs.52

Strong and effective government policy willhelp ensure that ultimate responsibility forsocial and environmental solutions liesfirmly with governments, not business.

In adopting leadership positions, companiesalso associate their brands with progressivestances and generate reputation benefits.As a result, companies may find greateropportunity to work with government andcivil society in crafting policy tools thatmeet shared objectives, are consistent and— crucially important for many companies— provide a solid basis for long-termplanning and investment.

4.2 Third Generation Lobbying

As noted, the emerging pattern of lobbyingdisclosure is primarily defensive in nature.Most of the companies in our survey whichhave made progress on transparency arepursuing what we would describe as a‘second generation’ 53 approach to lobbying(see Figure 4.1).

Where Next?

4.0

Lobbying

State of CR

Role of Lobbying

Three Generations of Corporate Responsibility and Lobbying

Figure 4.1

First Generation

‘CR as PR’

Links betweenlobbying and CRare rejected

Second Generation

CR as a way ofmanaging reputationor operational risk

Transparencyand consistencysupported primarilyas part ofreputational riskmanagement

Third Generation

CR as strategicdifferentiator

Lobbying as anopportunity to drivestronger social andenvironmental policyin support of corebusiness

20 Influencing PowerResults and Findings

Here, lobbying transparency is relativelyhigh but the focus appears to be riskmanagement and mitigation, especially indefending controversial policy positions,such as ExxonMobil on climate change orPfizer on direct to consumer advertising.

In contrast, companies exercising leadershipcan switch into a third generation modethat sees CR as a strategic differentiatorand recognises the potential for publicpolicy to drive higher standards in supportof business activities and wider social andenvironmental objectives. While this modelis a simplification of a complex reality, withmost companies taking differentapproaches at different times, it illustratesan increasingly strategic approach to theinterface between CR and public policyactivity.

A small group of companies in our surveyshow elements of a third generationapproach. For example:

— Ford and GM publicise their support for market incentives for fuel-efficientvehicles.

— IBM and Philips both mention their support for waste recycling.

— Companies including Swiss Reand United Technologies all mentiontheir support for regulatory frameworkson climate change.

Another interesting example from beyondour benchmark is the Corporate LeadersGroup on Climate Change. This group,composed of leading businesses operatingin the UK including ABN Amro, BP, HSBCand Royal Dutch / Shell, argues thatgovernment needs to do more to create anenabling framework for business to addressclimate change.

In a letter to UK Prime Minister Tony Blair,the business leaders call for a strong policyframework that creates a long-term valuefor carbon emissions reductions andconsistently supports and incentivises thedevelopment of new technologies. Withoutsuch a framework, the business leadersargue, it will not be possible to deliver thestep-change in the development of lowcarbon goods and services that is required. 54

Other companies outside the S&P Global100 that are developing a third generationapproach include:

— the UK retailer Marks & Spencer, which was actively involved in the debate onthe REACH proposals in Europe, in orderto ensure that the consumer perspectiveis reflected.

— Nike, which has been outspoken in supporting NGO efforts to ensurelegislation in the EU and US to shelterthe fragile apparel industries in severaldeveloping countries from the initialimpacts created by the end of the multi-fibre agreement.

— CFS in the UK, which flags lobbying as a critical issue in its 2003 SustainabilityReport, aligning its activity behind itsbusiness values and lobbying for highersocial and environmental standards. Forexample, it has worked with the COREcampaign, a coalition of NGOs, toadvocate mandatory ethical andenvironmental reporting in the UK, andhas called for the establishment of keyperformance indicators as the basis ofmateriality questions in the UK’sOperating Financial Review (OFR).

Figure 4.2 illustrates the two differentmind-sets that characterise first generationlobbying and the emerging third generationmodel.

4.3 Final Word

For many of the world’s largest companies,lobbying activities are now acknowledgedto form part of the CR agenda. For the vastmajority of these, the principles at stake areprimarily around the conduct of theirlobbying — being transparent about policypositions and influence and working toensure that these are consistent with corevalues and principles. We recognise thatthis is already a considerable challenge forcompanies, requiring significant changes inthe way lobbying is understood andmanaged, and we hope ourrecommendations are useful to thosebusinesses that have embarked on this road.

For most the wider issue of content — whatthe company is actually advocating, andhow these positions are developed —remains off-limits. However, we areconvinced not only that this will have tochange if corporate responsibility is tomake a meaningful contribution toaddressing society’s major challenges, butalso that it is in the long-term interests ofbusiness to adopt this wider view.

Companies exercising leadership can switch into a third generation mode thatsees CR as a strategic differentiator.

Figure 4.2

First Generation

Defend Existing Markets

FollowingRespond to proposedregulations or policy changes

DefensiveDefend the status quo

ObscuredKeep company name and brandout of policy limelight, throughnon-disclosure, use of industryassociations, ambiguouslanguage

ClosedDebate public policy safelybehind closed company doors,or in industry fora

NarrowUse participation in publicpolicy process to pursueexclusively company-specificobjectives

Making the Leap from First Generation to Third Generation Lobbying

Third Generation

Enable New Markets

LeadingRaise the standards for theindustry

StrategicAssess opportunities wherepublic policy in support of CRcan act as a market enabler

TransparentActively identify clearlyarticulated public policypositions with companybrand and values

OpenInvite external stakeholdersinto policy discussions andcollaborate on commonobjectives

BroadAct as corporate citizenwhen participating in multi-stakeholder public affairsdialogue

Examples

Corporate Leaders Group’sstatement encouraging theUK government to maintainits leadership on climatechange

Marks & Spencer’s vocalbacking for REACH legislationand its support for theelimination of harmfulchemicals from consumerproducts

CFS’s clear flagging oflobbying in its 2003Sustainability Report,aligning its activity behindits business values, linkedto the company’s brand

Lafarge’s positioning onlobbying including involvingstakeholders in policydiscussions and publicisingstakeholder perspectives onits website

Shell’s sharing of theoutcomes of its scenarioswork as a neutral inputinto government policydiscussions

Lobbying

Mission

Features

21Influencing PowerResults and Findings

22 Influencing Power

Endnotes

1 Andrew Revkin, ‘Former Bush Aide Who Edited Reports is Hired by Exxon’, New York Times, 15 June 2005.

2 Katherine Griffiths, ‘BP Shows Two Faces as it Fights US Bill to Cut CO2 Emissions’,Independent, 12 June 2005.

3 Throughout this report we use corporate responsibility or CR to refer to a businessapproach embodying open andtransparent business practices, ethicalbehaviour, respect for stakeholders and acommitment to add economic, social andenvironmental value. Other terms such ascorporate social responsibility orsustainability are used by others in thissense.

4 Reporting rates in small- and medium-sized companies are typically much lowerthan in the largest multinationals.

5 See SustainAbility and UN Global Compact, Gearing Up: From CorporateResponsibility to Good Governance andScalable Solutions, 2004, for a morecomplete discussion of progress on CRand the gaps that need to be addressed ifthe world is to make significant progresson global challenges. The reporthighlights the need for business to helpevolve new policy frameworks — which inturn requires greater transparency andexternal engagement.

6 Corporate Leaders Group on Climate Change, letter to UK Prime Minister TonyBlair, 27 May 2005.www3.cpi.cam.ac.uk/images/stories/downloads/clg%20letter.pdf

7 Seb Beloe (SustainAbility) and Jules Peck (now with WWF but in 2000 working forGPC), co-authors of this report, were alsoco-authors of Politics and Persuasion(SustainAbility and GPC, Politics andPersuasion: Corporate Influence onSustainable Development Policy, 2000).

8 The Center for Political Accountability has produced a benchmark of corporateapproaches, but focused primarily onpolitical contributions: Center forPolitical Accountability, The GreenCanary: Alerting Shareholders andProtecting their Investments, 2005.

9 See, for example, Mark Goyder, ‘Why the Business of Business is Morethan Business’, Ethical Corporation, 21 June 2005.

10 Revkin (2005).11 For example, ‘Edelman Fifth Annual Trust

Barometer, Summary of Findings’, 9 January 2004 and Globescan and WorldEconomic Forum, ‘Global Survey onTrust’, 2004.www.edelman.co.kr/people/ez2000/system/db/edeldata/upload/8/1074046712/edelman_2004_trust_barometer_findings.pdf

12 According to the Center for Responsive Politics, quoted in Bara Vaida, ‘SpillingCorporate Secrets’, Congress Daily, 27April 2005.

13 Amanda Griscom Little, ‘Foreign Corporations Spend Big to Influence US Environmental Law’, Grist Magazine,3 June 2005.

14 Siim Kallas, ‘The Need for a European Transparency Initiative’, speech to theEuropean Foundation for Management,Nottingham Business School, 3 March2005.

15 www.corporateeurope.org16 In addition to Greenpeace, this project

was also supported by the BusinessCouncil for Sustainable Energy, Forum forthe Future, SustainAbility and WWF-UK.

17 Simon Caulkin and Joanna Collins with WWF et al., The Private Life of PublicAffairs, Green Alliance, 2003.

18 International Chemicals Secretariat for WWF, Cry Wolf: Predicted Costs byIndustry in the Face of New Regulations,April 2004.

19 Deborah Doane, From Red Tape to Road Signs: Redefining Regulation and itsPurpose, CORE Coalition, 2004.

20 Roger Cowe and Jonathon Porritt, Government’s Business: EnablingCorporate Responsibility, Forum for theFuture, 2002.

21 www.jembendell.com/lw2002/autumn6.htmlwww.jembendell.com/lw2003/summer3.html

22 David Lascelles, The Ethics of Influence: Political Donations and Lobbying,Institute of Business Ethics, 2005.

23 Kallas (2005).24 www.corporateeurope.org/alter-eu.html25 Figures from the Center for Public

Integrity, based on Senate Office ofPublic Records filings which includefigures dating back to 1998.www.publicintegrity.org/lobby/top.aspx?act=topcompanies andhttp://sopr.senate.gov/

26 To be eligible for inclusion on the S&P Global 100, a company must be amember of the S&P Global 1200, have aminimum float-adjusted market cap ofUS$5 billion and derive a substantialportion of its operating income, assetsand employees from multiple countries.www2.standardandpoors.com/servlet/Satellite?pagename=sp/Page/IndicesIndexPg&r=1&l=EN&b=4&s=6&ig=48&i=140&xcd=GBL100

27 As new CR reports are released regularly, it was necessary to set a cut-off date forreport collection. This was 1 May 2005.We are, however, aware that some CRreports which cover lobbying to somedegree have been released since thisdate, such as those from GE andVodafone.

28 This methodology has been developed over the course of a decade ofbenchmarking environmental and CRreports, and has been used most recentlyin the 2004 analysis of reporting,SustainAbility, UNEP and Standard &Poors, Risk & Opportunity: Best Practice inNon-Financial Reporting, 2004.www.sustainability.com/insight/research-article.asp?id=247

29 SustainAbility, UNEP and Standard & Poors (2004).

30 For example, these companies are all members of the Dow Jones SustainabilityWorld Index as of September 2004.

31 Lascelles (2005).32 The sector groupings here are those

used in the S&P Global 100.33 Media is another sector with enormous

indirect impacts. Of four mediacompanies in our benchmark, TimeWarner was the only one to have anyinformation on lobbying. See also point 7 of the Media Manifesto inSustainAbility/WWF, Through The LookingGlass: Corporate Responsibility in theMedia and Entertainment Sector, 2004.www.wwf.org.uk/filelibrary/pdf/looking_glass_0105.pdf

23Influencing Power

34 See, for example, Commitment 6 of the Collevecchio Declaration, signed by over100 NGOs in early 2003 and DennisPamlin (ed.), Sustainability at the Speedof Light: Opportunities and Challenges forTomorrow’s Society, WWF Sweden, 2002.www.wwf.org.uk/filelibrary/pdf/collevecchio_dec_0105.pdf

35 In research on corporate reporting it was found that Japanese companies tend to score poorly on social issues. See SustainAbility, UNEP and Standard &Poors (2004).

36 In December 2004, The Corner House began legal proceedings against the UKgovernment on the basis that the ExportCredits Guarantee Department (ECGD)had significantly weakened anti-corruption rules as a result of lobbying by companies such as Airbus, BAESystems and Rolls-Royce. The claim was that the failure to consult otherinterested organisations was a breach of basic public law standards of fairnessand the ECGD's own consultation policy.The government settled out of court,agreeing to a full public consultation on its anti-corruption rules.

37 Soft money involves providing support for political candidates through meansother than direct donations including, forexample, donations to independentpolitical committees such as 527organisations.

38 Center for Public Integrity. www.publicintegrity.org

39 ‘Preliminary Report on the Global Compact Leaders Summit’, UN GlobalCompact Office, 2 July 2004.www.unglobalcompact.org

40 Katherine Griffiths (2005). 41 Center for Political Accountability (2005).42 This point was also powerfully

underscored at the launch of a report bythe Institute of Business Ethics which,according to the sponsor of the report,found ‘surprisingly few companies withpolicies or codes of conduct for theirlobbying activities’, Lascelles (2005).

43 This information was published in GE’s 2005 Citizenship Report, published inMay 2005, and therefore was notincluded in the benchmark assessment.

44 Caulkin and Collins (2003).45 SustainAbility, UNEP and Standard &

Poors (2004).46 Simon Zadek and Mira Merme,

Redefining Materiality: Practice andPublic Policy for Effective CorporateReporting, AccountAbility, 2003.

47 Peng Lei, Baijin Long and Dennis Pamlin, Chinese Companies in the 21st Century:Helping or Destroying the Planet?Corporate Social Responsibility andBeyond, WWF, April 2005.

48 The United Nations Norms on the Responsibilities of TransnationalCorporations and Other BusinessEnterprises with Regard to HumanRights. www1.umn.edu/humanrts/links/norms-aug2003.html

49 See, for example, Caulkin and Collins (2003) for recommendations forgovernment and trade associations, andSustainAbility, UN Global Compact andUNEP, The 21st Century NGO: In theMarket for Change, 2003, forrecommendations on NGO accountability.

50 AccountAbility and UN Global Compact, Responsible Lobbying, forthcoming(September 2005).

51 Center for Political Accountability (2005).52 Thomas L. Friedman, ‘CEO’s MIA’,

New York Times, 25 May 2005.53 The terms first, second and third

generation CR are adaptations of thethree generations of corporatecitizenship discussed by Simon Zadek inThird Generation Corporate Citizenship:Public Policy and Business in Society,Foreign Policy Centre, 2001. A similarconcept is presented by MichaelSkapinker in his article ‘Nike Ushers in aNew Age of Corporate Responsibility’,Financial Times, 20 April 2005.

54 The other signatories were AWG, BAA, Cisco Systems, F&C Asset Management,John Lewis Partnership, Johnson Matthey,Scottish Power, Standard Chartered Bankand Sun Microsystems.

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