Which companies disclose information on their political donations? When do they do it and where? How do they justify them? And why is it important for democracy to have companies make their political donations known to the public? Dr. Edward Tello, from Monash University (Monash Business School), along with Associate Professor James Hazelton and Dr. Shane Vincent Leong, from Macquarie University, provides a detailed analysis of political donation reporting by companies in Australia and its implications for democracy.

Accounting Democracy: Why we need companies to disclose their political donations by CoBS Editor Céline Sophie Lüdtke and Edward Tello. Related research: Australian corporate political donation disclosures – Frequency, quality, and characteristics associated with disclosing companies, Edward Tello, James Hazelton and Shane Vincent Leong, Accounting, Auditing & Accountability Journal, Vol. 32, No. 2 (2019).

Yes, Minister is a 1980s TV show that you, especially if from the UK, have most probably heard of. It is about the newly appointed Minister for Administrative Affairs, Jim Hacker, trying to push forward his policies, and his Permanent Secretary, Sir Humphrey Appleby, trying to maintain the status quo. In one poignant episode, Hacker supports a policy which would ultimately lead to a decrease in revenue for some universities. Appleby, an alumna of the prestigious fictional Baillie College, which would primarily be affected, invites him to one of its renowned dinner parties. Here it is insinuated, that Hacker could potentially receive an honorary doctorate and would be privy to more dinner party invitations. Since Hacker does not want to sever this relationship, he finds an exception in his policy for Baillie College.

Of course, this is a TV show from the UK and more than that, it is over 40 years old. However, the general idea behind it, particularly this episode, is still relevant in modern times – in Australia and worldwide. In the course of the TV show, Appleby and Hacker rarely faced consequences, nor did the organisations they dealt with since little of these relationships was made public.

In modern-day Australia, parties have to report the donations they receive to the Australian Electoral Commission (AEC), which compiles donations in its database that is publicly available. However, companies are not required to disclose political party donations in their company reports. This lack of transparency on the companies’ part has implications for democracy – an issue which Dr. Edward Tello et al. have analysed in their research: Why should corporate political donations be disclosed in company reports? And, going one step further, why companies choose (or not) to provide this information.

Accounting and Donations: Location, location, location

In general, even if donations are not intended to be an outright bribe, the mere existence of a receiver-donor relationship is connected to certain expectations. Indeed, many experts argue that some donors lobby.

Although not all companies have an involvement in the political process, and others donate for altruistic reasons, some might pose a threat to the political process. The latter have both the motive and the means: Firstly, they are oftentimes the first ones to be affected by changes in government policy and regulations and thus have the greatest interest in influencing politics in their favour. Secondly, companies possess the resources to hire a highly qualified lobbying team and make their opinions heard. This is why companies’ interests are disproportionately reflected in contemporary politics.

While this background would provide a strong argument to ban corporate political donations altogether, parties rely on them to operate. Therefore, finding guidelines for transparency is crucial for a healthy democracy.

As such, having a full disclosure in company reports would benefit stakeholders (including shareholders and society at large) locally and globally. After all, shareholders are also citizens and by this definition have the right to know how their money is used in the society they live in. On the opposite side of the spectrum, there is a risk that managers may use donations to advance their managerial interests which might come at the expense of society goals. Lastly, disclosure in company reports would help close loopholes in current reporting systems and include donations made to countries with limited disclosure laws and weak democracies.

Business and Politics: Two things that should not go together?

Companies being involved in politics is a relatively new phenomenon. Indeed, until the 1970s it was virtually non-existent. Whenever government regulations led to an increase in production costs, companies could simply increase prices to recoup the loss. However, as competition increased, and this practice was no longer possible, companies started lobbying for their interests in politics.

In an idealistic world, there are two mechanisms constraining company power: Regulations and the Kantian idea that companies act for stakeholder benefit. However, as we see more rapid technological innovation, regulations struggle to keep up with these changes. And, even more detrimental to the idea of regulations, is that they are influenced by the very entities they are trying to regulate.

To contribute to the conversation on accountability, transparency, and democracy, but also to paint a more complete picture of sustainability reporting, Dr. Tello, Hazelton, and Leong analyse the quality and extent of current voluntary disclosures in company reports. They acquired a list of donor companies from the AEC database, then investigated the reports of the donating companies. Later, they categorised the information disclosed and also analysed the details provided on donations in the related company reports. Lastly, after analysing the content, they drew conclusions on the methods of justification the companies used. Indeed, here the researchers seek to enhance the policy for disclosing political donations – a key means of managing the threat to democracy.

Accounting Democracy: What is the current situation?

Tello and his co-researchers found that companies donate significantly less during non-federal election years. During this time, however, the most significant number of donors came from the financial and insurance industry. This can be linked to the size of the industry itself, the financial and insurance industry – the largest – also gave the largest number of donations. Interestingly, many companies also chose to donate to several political parties at once.

In general, any kind of company reporting was low – between 21 and 31% – and from those, only 20% disclosed political donations in any form. Very often, companies choose not to discuss the amount donated at all and only make vague references to the practice of political donations. 

Reading between the lines

Tello et al. further draw on the idea of legitimacy in their research: For a company to experience long-term growth, it indeed requires society’s acceptance of its role and activities, as it is acting and affecting society itself. In a sense, a “social contract” exists between the company and society. So, what happens when a company seemingly “breaks” this contract? Or in the framework of corporate political donations, how do companies – if at all – justify and present them in their company reports?

Using the results of an Australian survey conducted in 2014 and claims made by Evans et al., the researchers argued that there is a legitimacy gap in relation to this topic and society expectations. Then, the researchers used O’Donovan’s legitimacy matrix, which includes four potential tactics, to classify their findings. According to the matrix, companies can respond to a perceived threat to their legitimacy by either:

• completely overlooking the issue
• attempting to modify the social norms and values that have resulted in the criticism
• changing the perception of the company, and
• conforming to follow the public’s values.

Dr. Tello, Hazelton, and Leong discovered that many companies rationalize their political donations by citing community or corporate interests. They claim to help with public policy development or to establish relationships. And in general, companies prioritize justifying political donations to shareholders, with society being only a secondary concern.

After categorizing companies’ motivations, Dr. Tello et al. found that those who justified used different justifications. However, the researchers found that the great majority tend to avoid the problem altogether by either not disclosing any donations at all, or only making vague references to them in reports. Only a few companies try to alter the perceptions of society in their reports, and even fewer announced in their reports that they stopped political donations. None of the companies reviewed tried to change the values of society. However, they also used very factual statements about their donating activities in their reports.

So how can we account for democracy?

At the moment, companies only disclose their political donations arbitrarily, if at all. Even in cases where reporting is done, it is often biased in an effort to justify these donations in the first place. This being said, disclosure regulations differ in different countries, with the USA and the UK having the more advanced ones.

In Australia, there have been parliamentary enquiries on political donations at state level and federal level, although there is more that can be done. As a first step in the right direction, companies should be obliged to have at least some minimal disclosures on their political donation activities in their company reports. These would include the number of donations made in each region, the existence and details of a donation policy as well as the purpose of the donations. Furthermore, companies should refer to the AEC’s (government) database which lists their donations.

In the 1980s, we did not have mobile phones, nor did we have the internet. A lot has changed, and our world has experienced rapid innovation. It should be an easy feat to implement the solutions to an issue criticized in a 40-year-old TV show – as Tello and his colleagues suggest. In the end, is democracy for sale as Peter Geoghegan argues in his book or not? This issue is debatable.

Useful links:

• Link up with Dr. Edward Tello on LinkedIn
• Browse Edward Tello’s academic page at Monash
• Read a related article: Saints or Sinners? Politically connected auditors and their audit quality
• Discover Monash Business School, Australia, and apply to one of the Monash MBAs.

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