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July 31, 2012

Companies Challenged over Membership in ALEC and Heartland Institute
    by Robert Kropp

Walden Asset Management spearheads a letter-writing campaign by shareowners urging corporations tor review their memberships in the controversial organizations.

SocialFunds.com -- Following the US Supreme Court's Citizens United decision in January, 2010, the years-long campaign by investors to pressure corporations to disclose their direct political contributions was expanded to include payments to activist trade associations like the US Chamber of Commerce. Sustainable investors and other governance advocates recognized that inconsistencies between a company's stated position on sustainability issues and the lobbying activities of trade associations left it exposed to reputational and business risks.

Following a number of highly publicized incidents, investor concerns have now widened to include corporate membership in partisan organizations and think tanks. In letters sent to 49 companies that are members of the American Legislative Exchange Council (ALEC) and/or the Heartland Institute, Tim Smith, Senior Vice President and Director of ESG Shareholder Engagement for Walden Asset Management, urged the companies "to examine safeguards and processes in place to ensure that membership in and support for organizations that influence public policy do not undermine" their reputations.

The letter was signed by 41 investors with approximately $25 billion in assets under management.

ALEC gained significant notoriety earlier this year, following the fatal shooting in Florida of 17-year old Trayvon Martin. Authorities cited the state's so-called Stand Your Ground Law as the reason why it delayed charging George Zimmerman in Martin's death.

ALEC, an organization largely funded by corporations, has, with the help of Republican state legislators, written some 800 state laws that its allies in state legislatures then brought to votes. It has provided model legislation for the enactment by many states of Stand Your Ground laws.

Following the controversy over Martin's death, more than 30 corporations withdrew from ALEC membership. In April, Smith of Walden wrote a memo to fellow investors, stating, "Support for ALEC clearly presents reputational risks for any member companies and one where investors would urge a company to do a review of the value of this membership and funding."

The path to notoriety taken by the Heartland Institute was if anything even more conspicuous than ALEC's. As Smith wrote in a recent Walden newsletter, "The caption on a billboard greeting Chicago drivers in early May featured Ted Kaczynski, the infamous Unabomber, saying: 'I still believe in global warming. Do you?'" Heartland, which created the billboard, further planned "to similarly compare believers in climate change to mass murderer Charles Manson, Fidel Castro, and even Osama bin Laden," Smith continued.

A number of companies quickly withdrew from their relationships with Heartland. "But," Smith wrote, "Heartland’s billboard fiasco illuminates a larger issue—the responsibility of companies to carefully scrutinize their support of trade associations, think tanks, and other organizations that are significantly involved in influencing public policy through research, lobbying, and publicity."

A letter to one of the 49 companies stated, "Corporate reputation is an important component of shareholder value. According to a Conference Board study, companies with a high reputation rank perform better financially than lower ranked companies."

The investors urged the companies to assess inconsistencies between their policies and those of the organizations they fund, and determine if relationships with such organizations present reputational risks.

"We believe such a review will show that the company's relationship with ALEC and Heartland presents significant reputational and business risk that merits the Board’s focused attention and action," one letter stated.

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