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April 16, 2012
Investors Take on ALEC in Aftermath of Trayvon Martin Killing
    by Robert Kropp

Tim Smith of Walden Asset Management writes to investors, stating that corporations associated with the American Legislative Exchange Council face reputational risks and should review their funding of the controversial organization.

The reputational risks associated with corporate lobbying expenditures have been highlighted in the weeks since the 17-year old Trayvon Martin was fatally shot in Sanford, Florida. The killing of the African-American teenager by George Zimmerman led to a nationwide eruption of outrage over the so-called Stand Your Ground Law, which allows the use of deadly force when an individual perceives a need to act in self-defense.

Much of the first wave of outrage was directed at the Sanford Police Department, which declined to charge Zimmerman in Martin's death, despite the fact that Zimmerman was armed and was following Martin against the advice of the 911 operator. Attention since then has turned to the Stand Your Ground Law itself, which has been enacted by dozens of state legislatures in recent years.

Many of the laws are based on model legislation prepared by the American Legislative Exchange Council (ALEC), an organization largely funded by corporations that with the help of Republican state legislators has written some 800 state laws that its allies in state legislatures then bring to votes. According to Lisa Graves, Executive Director of the Center for Media and Democracy (CMD), the bills "target legal rules that reach into almost every area of American life: worker and consumer rights, education, the rights of Americans injured or killed by corporations, taxes, health care, immigration, and the quality of the air we breathe and the water we drink."

The backlash has led numerous major corporations to reconsider their ties to ALEC, and since the killing of Martin at least ten have severed their ties to the organization. While the companies that have left ALEC thus far have been conspicuously quiet about their reasons for doing so, that they chose to leave after widely publicized outrage over Martin's killing speaks volumes in itself.

Investors have long recognized the dangers to their portfolios when companies are faced with reputational risks. After the Supreme Court's Citizens United decision in 2010 opened the floodgates of corporate political spending, Target and Best Buy faced consumer boycotts for their support of a gubernatorial candidate in Minnesota who opposed gay rights.

Trillium Asset Management and Green Century Capital Management filed a shareowner resolution at Target this year, requesting that the company refrain from political spending. "Corporate political contributions can backfire on a corporation's reputation and bottom line," the resolution states. "In 2010, Target Corporation experienced such risks directly after it received unwanted attention, consumer boycotts, and protests for its support of a controversial candidate."

Furthermore, noting that "Corporate lobbying exceeds other political expenditures by a 9-to-1 ratio," 40 investors have filed resolutions with 40 corporations, requesting that they disclose all lobbying payments at federal and state levels, and provide board oversight of political expenditures.

The investors also requested that companies disclose their membership "in any tax exempt organization that writes and endorses model legislation." Emphasizing the reputational risk of corporate association with ALEC, Tim Smith, Senior Vice President of Walden Asset Management, recently wrote a memo to investors which stated, "In the last month the shareholder case for disclosure of membership in and payments to organizations that write model legislation became even more convincing with the huge controversy surrounding ALEC, which provides a forum for companies and legislators to draft and promote model legislation."

"Nearly 1,000 ALEC model bills are introduced in state legislatures every year," the memo continued. "Many companies that joined and/or supported ALEC have stated they did so to focus on issues that are central to that company's business (e.g. a tax issue or insurance issue), and not to promote dozens of controversial social issues."

"Because of membership and generous payments to ALEC, a company can be perceived as participating in decisions and supporting the agenda of ALEC in its flow of model legislation. 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 corporate exodus from ALEC is reminiscent of the defection from the US Chamber of Commerce by companies such as Apple and Nike in 2009, when the discrepancy between the companies' positions on climate change legislation and the Chamber's profligate spending against such legislation became too big to ignore. Chamber President Thomas Donohue responded to Apple's departure in a letter which stated, "It is unfortunate that your company didn't take the time to understand the chamber's position on climate and forfeited the opportunity to advance a 21st century approach to climate change."

That the high-profile defections did little to curb the Chamber's controversial positions became evident after the Citizens United decision, when the trade organization earmarked $75 million to defeat candidates supportive of climate change and health care reform legislation.

Thus far, it appears that ALEC is undaunted by widespread negative publicity as well. In a statement, Executive Director Ron Scheberle said, "We find ourselves the focus of a well-funded, expertly coordinated intimidation campaign."

"This is an all-out intimidation campaign designed to promote government-based solutions rather than the free-market principles that we have seen work," Scheberle stated.

The statements by Scheberle make no effort to explain how Stand Your Ground and Voter ID laws support free market principles.


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