The relationship between corporate America and Washington D.C. has always been a topic of debate in the U.S. – and in recent years, we’ve seen the conversation center around issues from adjusting tax rates to working together in the fight against COVID-19. A recent Forbes piece on corporate lobbying points to the old adage – “If you are not at the table, you’re on the menu” – impressing the important role companies can play in influencing legislation on economic and social issues, something the American public also confirmed in our latest survey. Survey research continues to confirm that Americans are increasingly looking to CEOs to be societal leaders, and they trust business more and more to address the big issues, from inequality to climate change.
Yet the question between companies’ leadership overall, and their engagement with government and government-adjacent organizations, remains blurry. Trade associations, also known as industry associations, are an integral part of the corporate lobbying conversation. A trade association is an organization founded and funded by businesses, typically grouped by industry, for the purpose of collaboration, lobbying, education, and advertising, as well as to promote the group’s views to government entities. Trade associations are uniquely positioned to exert political influence with in-depth policy knowledge, political connections, and the influence of a large corporate membership. We know that companies rely heavily on trade associations to advance their priorities, and yet trade associations can advance issues that may be antithetical to their stated stakeholder-capitalism priorities.
Funded mostly by corporate membership fees and non-deductible contributions from their members, trade associations can use this funding for general lobbying-related expenses. Companies also have the ability to pay the trade association in the form of a non-deductible contribution to direct a lobby campaign in their interest. The strength of trade associations should not be underestimated, as their support for or opposition to policy issues is closely followed.
Currently, there is no mandate for companies to disclose their trade association memberships, or for the trade associations to disclose their members, so JUST Capital decided to look at the state of disclosure, as transparency on this issue provides stakeholders with another tool to understand if companies are following through on or possibly undermining their ESG commitments through the trade associations’ approach.
When looking at the 928 publicly traded companies from our 2021 Rankings, we find that 58.3% do not disclose any of their trade association memberships. Of the 41.7% of companies that do disclose trade association memberships, the vast majority provide general disclosures – an acknowledgement of their memberships – but not necessarily an exhaustive list with specific details. Only 46.7% of the companies that disclose these general memberships also make mention of their monetary contributions and just 4.9% explicitly state that they’ve disclosed a full – rather than selected – list of trade association affiliations, in addition to their monetary disclosure.
Controlling for industry and revenue, we find that all three levels of disclosure mentioned above correlate strongly with a higher level of performance in JUST Capital’s annual Rankings across each of the five stakeholder groups – workers, customers, communities, shareholders, and the environment. Accordingly, companies that score higher in JUST Capital’s overall Rankings tend to disclose more than their peers.
When collecting this data, we found that these disclosures are often tucked inside governance documents on investor sites or on a hard-to-find public policy/engagement webpage, making the disclosures generally less accessible. The ways that these disclosures are ultimately displayed also varied greatly. For example, Intel has a separate section in their Corporate Responsibility Report Builder with the option to download a list of the company’s political contributions, trade association memberships, and associated membership dues. Aggregating this disclosure along with Intel’s other ESG disclosures shows its commitment to transparency on this as an ESG-related issue. BlackRock’s disclosure specifically notes that these memberships are periodically reviewed to ensure they align with BlackRock’s views on material public policy issues. A robust monetary disclosure from Tractor Supply breaks out what portion of monetary contributions went to lobbying.
As stakeholders continue to expect greater transparency, this is an area that companies may want to review to better understand their approach to government relations alongside their overall approach to supporting their stakeholders. Companies can ensure alignment with their membership to these organizations and all of their viewpoints before contributing to them. In addition, the American public and investors will want to know whether companies are taking one step forward or two steps back through their trade association memberships, or if they are walking the walk in every aspect possible.
The data and analysis in this piece were collected and run in December 2020.