Thank Shareholders for the Ever-Shrinking ALEC

October 1, 2014

Shareholders have been raising concerns about the American Legislative Exchange Council (ALEC) for years. Now CEOs are finally listening. Just this past week, the chairman of Google, Eric Schmidt, admitted giving money to ALEC was a mistake. This is quite the change of position from where he was just a few months ago.  

ALEC is a 501(c)(3) that, among other things, propagates legislation around the country. Corporations and ALEC members apparently -- it is not totally clear from the outside -- hash out proposals together and then ALEC’s elected members in state capitols introduce the model ALEC legislation. Some of these ALEC bills have become state laws.

Google is one of the latest companies to sever ties with ALEC. Signs of trouble were evident at Google’s shareholder meeting in May. The tape of the meeting is available on Youtube. In it you can see that some of the first issues raised from shareholders (starting at minutes 11:00 and at 1:10:10) were about Google’s political spending, its lobbying and its lack of transparency about political engagement for shareholders. Indeed, one shareholder specifically asked why Google, a company that champions transparency and wants action on issues like climate change, was still a member of groups like ALEC, which opposes both. Chairman Schmidt made a lame joke that “I thought the ALEC controversy was about Alec Baldwin.” Tensing up, Schmidt then said, “we need to be more transparent.”

Just four months later Google is pulling out of ALEC because of its position on climate change. When asked why, Schmidt now says, “Well, the company has a very strong view that we should make decisions in politics based on facts. What a shock. And the facts of climate change are not in question anymore. Everyone understands climate change is occurring. And the people who oppose it are really hurting our children and our grandchildren and making the world a much worse place. And so we should not be aligned with such people [as ALEC]. They're just literally lying.”

A harbinger of this corporate about-face on ALEC came at the start of the 2014 proxy season when advisory service Glass Lewis & Co put out a report entitled “Political Contributions.” Glass Lewis is in the business of advising shareholders on voting on company proxies. This report was a warning about the perils associated with corporate political spending including the reputational risks that companies face when they get entangled in political controversies.

One item that was a focal point in the Glass Lewis report was the death of the African American Florida teenager Trayvon Martin and how the stand your ground law that his killer George Zimmerman relied upon was based on model ALEC legislation. This raised the ire of some investors in companies that were members of ALEC. As the Glass Lewis report put it:

On July 19, 2012 a group of 40 investors sent letters to 49 companies regarding their membership in and support of ALEC and the Heartland Institute, a conservative public policy think tank that advocates free-market policies. The letter urged these companies to “reconsider the business rationale for continuing a relationship with both organizations.” As a result, several companies, including Amgen, Express Scripts and General Motors, quickly confirmed they would end their membership in ALEC.

From Glass Lewis’s perspective, this whole episode showed a real risk to shareholder value.

In the same week that Google severed ties with ALEC, so did Yahoo!, Yelp and Facebook. Also leaving ALEC in the last few years have been other household names like Microsoft, Kraft, Pepsi and Coca-Cola.

ALEC has alienated members over a host of increasingly aggressive legislative tactics from restrictive voter ID laws, to stand your ground laws, to attempts to gut state renewable energy standards. Over 90 companies have left the group in the past few years.

Despite the dramatic corporate exodus from ALEC, don’t count on ALEC, which started in 1973, slinking away anytime soon. State legislatures are still filled with current and ex-ALEC members. Flip through the webpages of state legislatures and you will find ALEC’s footprint everywhere. As just a few examples: in Wyoming you can see visits to ALEC’s conferences are on the official legislative calendar for several years in a row; and Louisiana’s official legislature page still links directly to ALEC.

Shareholders aren’t the only ones asking for their favorite firms to part company with ALEC, which charges up to $25,000 for corporate membership. But shareholders are an important part of the equation, especially since so many of the firms that finance ALEC are publicly traded—which means it’s partially shareholder money on the line.

The views expressed are the author's own and not necessarily those of the Brennan Center for Justice 

(Photo: Flickr)