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December 14, 2010
Silence of Chamber Board Members Is a Failure of Corporate Governance
    by Robert Kropp talks with Tim Smith of Walden Asset Management about investor engagements with companies that sit on the Board of the US Chamber of Commerce.

Money speaks loudest on Capitol Hill, of course, and in that respect the US Chamber of Commerce enjoyed a most successful mid-term election season in 2010. The controversial trade association set aside $75 million to defeat candidates that had voted in favor of health care reform or otherwise espoused policies at odds with its agenda, and no doubt contributed greatly to the Republican majority that now controls the House of Representatives.

"Unfortunately, Citizens United has opened the door for significant money to go into the political process," Tim Smith, Senior Vice President of Walden Asset Management, told, referring to the Supreme Court decision that effectively eliminated most legal restraints on corporate political spending.

For the 100 or so companies that sit on the Board of the Chamber, however, the Chamber's outsized influence on the political process represents, as Smith describes it, a "disconnect" between their own stated commitments to sustainability and the Chamber's opposition to a sustainability agenda.

"What we find at present is a failure of governance," Smith said.

Last month, a coalition of investors led by Walden and
Domini Social Investments took up the issue of corporate payments to trade associations like the Chamber, challenging companies that sit on the Board to "review their policies and oversight of political expenditures, especially through trade associations."

The resolution requests that companies disclose "direct and indirect expenditures supporting or opposing candidates," including payments made to trade associations such as the Chamber.

"The shareholder action goes back to the work the
Center for Political Accountability (CPA) and investors have been doing for quite a few years now," Smith told "Explicit in all of the shareholder resolutions has been what the companies have been contributing directly and through third parties."

Even before its expenditures during the recent elections, "The Chamber had raised $80 million to defeat health care reform," Smith said.

In August, Smith sent letters to 35 companies that sit on the Chamber's Board, noting that "the Chamber is obstructing progress as it speaks out and lobbies against positive policy solutions addressing climate change." The letter continued, "We believe that companies with a record of proactively addressing climate change while simultaneously serving on the Chamber’s Board of Directors suffer from an internal contradiction that creates reputational risk," and asked companies to either withdraw from the Board or "distance (themselves) from the Chamber's antagonistic actions on climate change."

"A new initiative that the Chamber is taking on is regulation," Smith told, referring to its lawsuit challenging the authority of the Environmental Protection Agency (EPA) to issue regulations relating to climate change. "The fact that they’re putting their head of lobbying as leader of that department is important."

"The Chamber says it acts on behalf of business," Smith continued, "But does so in ways that undercut some corporate policies on ESG (environmental, social, and corporate governance) issues."

According to the Chamber, "Directors determine the US Chamber's policy positions on business issues and advise the US Chamber on appropriate strategies…Directors help implement and promote US Chamber policies and objectives."

"What the Chamber says about the role of the Board is telling," Smith said. "It says the Board is a decision-making entity, so companies on the Board are accountable for what the Chamber is doing. We as investors are acting to hold them accountable for the Chamber's actions."

"We're calling on companies that sit on the Board to act as responsible and informed Board members, just as their Boards of directors would act to govern their companies properly," Smith continued. "They do a disservice to their companies that proclaim a commitment to sustainability by allowing the Chamber to move ahead on undercutting the sustainability agenda."

"We've had meetings with a number of companies already, with more to come," Smith said. "There's a common response we hear from many companies. Just because we're a member of a trade association, or serve on a Board, doesn't mean that it speaks for us. We say in response, How do we know that? You don't declare that the Chamber doesn't speak for you on these issues. None of you are challenging the Chamber on these issues."

Furthermore, Smith continued, "Some companies have received a second resolution, on corporate governance accountability, because their role on the Board caused investors to scrutinize their governance more carefully."

"All these companies get a failing grade," he said.

"Board members need to know what the Chamber is doing in their name on regulatory issues," Smith continued.

Referring to the widely publicized defections from the Chamber over climate change last year, Smith observed, "The Chamber wields a lot of power, and Mr. Donohue savagely attacked the companies that withdrew last year." Tom Donohue is the CEO of the Chamber.

Asked to describe a positive outcome of the engagement by investors with Board members, Smith said, "I expect that some companies will begin to take this disconnect more seriously. They're going to assess what their role as a Chamber board member is. I also think some companies will publicly state that the Chamber does not speak for them on these issues."

"The option for some would be to withdraw from the board, as Nike did last year," Smith said. "But if they are going to stay on the board, they cannot be passive and compliant board members who basically serve at the behest of Mr. Donohue."

"There are plans to expand the engagement with companies that serve on the board," he concluded.


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