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Thank Shareholders for the Ever-Shrinking ALEC

Some of America’s largest companies have exited the powerful pro-free market group under pressure from shareholders.

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)