Ramsay, Ian; Stapledon, Geoff; Vernon, Joel --- "Political Donations by Australian Companies" [2001] FedLawRw 9; (2001) 29(2) Federal Law Review 177
[1] Australian Democrats, Open the Books – Call for Political Donations Transparency, Press Release, No 00/19 (20 January 2000). See also 'The Invisible World of Political Donations', Australian Financial Review (Sydney), 20 April 2001, 1.
[2] Geoff Gallop, 'From Government in Business to Business in Government' (1997) 83 Canberra Bulletin of Public Affairs 81, 85:
[T]he development of a market for government functions creates a market for government favours. Influence has the potential to become a commodity in ways unknown to a more traditional balance between public and private sectors. The reason for this is simple – government contracts have become a major part of the balance sheets of many private [sector] corporations.
[3] Of principal interest are public companies – especially those with a widely held shareholder base. Most of these companies are listed on the stock exchange. The reason why widely held public companies are the focus of attention is that agency costs are much more likely to accompany the making of political donations by these companies compared to closely held companies (see Section III for discussion of agency costs). Nevertheless, for comparative purposes, this article examines data for both public and proprietary companies.
[4] Jill E Fisch, 'Questioning Philanthropy from a Corporate Governance Perspective' (1997) 41 New York Law School Law Review 1091, 1101-2.
[5] Ibid 1094, citing Nancy J Knauer, 'The Paradox of Corporate Giving: Tax Expenditures, the Nature of the Corporation, and the Social Construction of Charity' (1994) 44 DePaul Law Review 1, 4.
[6] Shelby D Green, 'Corporate Philanthropy and the Business Benefit: The Need for Clarity' (1990) 20 Golden Gate University Law Review 239, 240.
[7] Commission of Inquiry into Possible Illegal Activities and Associated Police Misconduct: Report (1989) 86.
[8] Gallop, above n 2.
[9] Ibid 81-2, referring to Royal Commission into Commercial Activities of Government and Other Matters: Report (1992).
[10] Ibid 83.
[11] Justin Fisher, 'Why Do Companies Make Donations to Political Parties?' (1994) 42 Political Studies 690.
[12] Neil Gunningham, 'Public Choice: The Economic Analysis of Public Law' [1992] FedLawRw 4; (1992) 21 Federal Law Review 117, 124.
[13] David Austen-Smith, 'Interest Groups: Money, Information, and Influence' in Dennis Mueller (ed), Perspectives on Public Choice (1997), 320.
[14] Hutton v West Cork Railway Co (1883) 23 Ch D 654 ('Hutton'). The case is discussed in Section III below.
[15] Faith Kahn, 'Pandora's Box: Managerial Discretion and the Problem of Corporate Philanthropy' (1997) 44 University of California of Los Angeles Law Review 579, 583-4, 602-3 and notes thereto, 604-5. See the discussion in Section III below.
[16] 'Report Urges Democratic Control of Company Political Donations' (1985) 6 Company Lawyer 196.
[17] Edmund Dell, Company Donations to Political Parties: A Suggested Code of Practice, cited in (1985) 6 Company Lawyer 196.
[18] Ibid; 'Political Donations' (editorial) (1985) 6(10) Business Law Review 269.
[19] Dell, above n 17.
[20] 'Political Donations' above n 18.
[21] Committee on Standards in Public Life (Lord Neill of Bladen, chair) (Neill Committee), The Funding of Political Parties in the United Kingdom, (1998) Cm 4057-I (Neill Report).
[22] Department of Trade and Industry, Political Donations by Companies: A Consultative Document (1999) (URN 99/757; http://www.dti.gov.uk/cld/condocs.htm), 3 (Foreword by Stephen Byers, Secretary of State for Trade and Industry).
[23] Ibid.
[24] Ibid para 1.2.
[25] Ibid paras 2.6, 3.7, 4.18; Neill Report, above n 21, Recommendation 34.
[26] Department of Trade and Industry, Political Donations by Companies: A Consultative Document (1999) (URN 99/757; "http://www.dti.gov.uk/cld/condocs.htm "), paras 2.6, 5.9.
[27] Ibid para 5.10.
[28] Neill Report, above n 21, para 6.29.
[29] Ibid para 6.35.
[30] For discussion of the history of the regulation of political campaign financing in Australia, see Deborah Cass and Sonia Burrows, 'Commonwealth Regulation of Campaign Finance – Public Funding, Disclosure and Expenditure Limits' [2000] SydLawRw 23; (2000) 22 Sydney Law Review 477.
[31] See, eg, Companies Act 1961 (Vic), s 19(a).
[32] The Bill will insert a new subdivision 30-DA in the Income Tax Assessment Act 1997 (Cth); the new s 30-243 will provide for the $1,500 deductibility limit. The current provisions dealing with deductibility of political donations are: Income Tax Assessment Act 1997 (Cth), s 30-15; Income Tax Assessment Act 1936 (Cth), ss 78(9) and (10).
[33] Taxation Laws Amendment (Political Donations) Bill 1999 – Explanatory Memorandum, paras 1.36, 1.38, 1.44. Interestingly, in the US deductions for political donations are no longer allowed. See Kahn, above n 15, 640-4, referring to the Revenue Reconciliation Act of 1993, which amended s 162(e) of the Internal Revenue Code to deny deductions:
With the exception of expenses attributable to lobbying local government, the Revenue Reconciliation Act of 1993 eliminated the deduction for expenses incurred in direct attempts to influence legislation, expenses attributable to communicating with high federal executive office personnel (whether or not in connection with specific legislation), trade association dues attributable to state and federal lobbying, and grass roots lobbying expenses.
Ibid, 644.
[34] JSCEM, The 1996 Federal Election: Report of the Inquiry into all Aspects of the Conduct of the 1996 Federal Election and Matters Related Thereto (1997).
[35] Ibid 103.
[36] 'Donations Law Needs Overhaul', Australian Financial Review, (Sydney), 6-7 February 1999, 20. See also Editorial, 'Tightening Up Donations', Australian Financial Review, (Sydney), 27 April 2001, 82.
[37] Australian Democrats, above n 1.
[38] Disclosure was made at a later stage, after an Electoral Commission audit: see below n 120.
[39] Bob Brown MP, Corporate Donations are a Cancer on Australian Politics, Press Release, 14 April 2000.
[40] Ibid.
[41] Adam Smith, The Wealth of Nations (1937) (first published, 1776) 699-700.
[42] Adolf E Berle Jr and Gardiner C Means, The Modern Corporation and Private Property (1932) 68.
[43] Daniel R Fischel, 'The Corporate Governance Movement' (1982) 35 Vanderbilt Law Review 1259, 1262-3.
[44] Kahn, above n 15, 610 (emphasis added).
[45] An interesting question, at least for American corporate governance scholars, is the extent to which agency costs arising in this area can be minimised in a jurisdiction whose statutory regime unreservedly confers on company controllers the power to make donations: '[i]n affording them full decisional authority in regard to corporate contributions, these laws have conferred extraordinary power and discretion on corporate managers': Kahn, ibid, 603-4 (notes omitted).
[46] See Section IIIE below.
[47] Federal Election Campaign Act of 1971, 2 USC 431-455 (1994). See Kahn, above n 15, notes 246-63 and accompanying text.
[48] Kahn, ibid, 642.
[49] Ibid 640-1.
[50] Fisch, above n 4, 1096, referring to Levine v Smith 591 A 2d 194, 207 (Del. 1991), and the US common law business judgment rule, which creates a presumption of validity for business decisions made by directors where they act without self-interest, on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.
[51] For an overview of the legal regulation of corporate charitable donations in the US, see R Franklin Balotti and James J Franks, 'Giving at the Office: A Reappraisal of Charitable Contributions by Corporations' (1999) 54 Business Lawyer 965.
[52] Rikki Abzug and Natalie Webb, 'Rational and Extra-Rational Motivations for Corporate Giving: Complementing Economic Theory with Organization Science' (1997) 41 New York Law School Law Review 1035, 1038-9.
[53] Hutton (1883) 23 Ch D 654, 671, 673.
[55] See K W Wedderburn, 'Ultra Vires or Directors' Bona Fides?' (1967) 30 Modern Law Review 566.
[56] See Corporations Act 2001 (Cth), ss 124, 125.
[57] Mike Adams and Philip Hardwick, 'An Analysis of Corporate Donations: United Kingdom Evidence' (1998) 35 Journal of Management Studies 641, 641-2, citing O Hart, 'An Economist's View of Fiduciary Duty'(Discussion Paper No 157, LSE Financial Markets Group, 1993) 16.
[58] Abzug and Webb, above n 52, 1041, citing Armen A Alchian and Reuben A Kessel, 'Competition, Monopoly and the Pursuit of Pecuniary Gain' in National Bureau of Economic Research, Aspects of Labor Economics (Conference Proceedings, 1962), 156.
[59] Ibid 1041-2, citing Charles T Clotfelter, Federal Tax Policy and Charitable Giving (1985), 184.
[60] The data examined in the study described later in this article do not enable any definite conclusions to be drawn. A more detailed study examining the most mobile directors amongst the most politically philanthropic companies would shed more light on this point. Directors who were constantly changing companies would be examined to see whether they took their 'giving-pattern' with them.
[61] Kahn, above n 15, 611 (notes omitted).
[62] Keech v Sandford (1726) Sel Cas Ch 61; Furs Ltd v Tomkies (1936) 54 CLR 583; Corporations Act, ss 182, 183.
[63] Department of Trade and Industry, above n 22, para 2.4.
[64] Kahn, above n 15, 629 (note 191).
[65] David L Engel, 'An Approach to Corporate Social Responsibility' (1979) 32 Stanford Law Review 1, 5-6.
[66] Kahn, above n 15, 627 (note 184); Company Law Review Steering Group, Modern Company Law for a Competitive Economy: The Strategic Framework (Consultation Document, 1999), ch 5.1.
[67] See, eg, E Merrick Dodd Jr, 'For Whom Are Corporate Managers Trustees?' (1932) 45 Harvard Law Review 1145; Lord Wedderburn of Charlton, 'The Social Responsibility of Companies' [1985] MelbULawRw 2; (1985) 15 Melbourne University Law Review 4.
[68] Adolf A Berle Jr, The Twentieth Century Capitalist Revolution (1954) 169.
[69] AP Smith Mfg Co v Barlow 98 A2d 581, 586 (1953); Theodora Holding Corp v Henderson 257 A2d 398, 404 (Del. Ch. 1969); Paramount Communications, Inc v Time Inc 571 A2d 1140 (Del. 1990).
[70] Abzug and Webb, above n 52, 1039.
[71] Kahn, above n 15, 629-30 (notes omitted). It has been argued that corporate charitable donations may reflect CSR on the part of companies yet this does not equate to viewing companies as citizens: Sally Wheeler, 'Inclusive Communities and Dialogical Stakeholders: A Methodology for an Authentic Corporate Citizenship' (1998) 9 Australian Journal of Corporate Law 1.
[72] Abzug and Webb, above n 52, 1039-40 (emphasis added) .
[73] Dwight F Burlingame, 'Empirical Research on Corporate Social Responsibility: What Does it Tell Us?' (1994) 4 Nonprofit Management & Leadership 473, 474, cited in Abzug and Webb, ibid, 1039 (note 19).
[74] Abzug and Webb, ibid, 1040.
[75] US managers who operate in a legal environment that has not abrogated the 'benefit-to-the-business' test will still enjoy the protection of the business judgment rule where, in making a donation, they acted on an informed basis, honestly, and in good faith, and the donation was a business decision in the best interests of the company.
[76] (1883) 23 Ch D 654, 671.
[77] [1962] Ch 927 (affirming Hutton).
[78] Ibid 963 (Plowman J). Later cases in some overseas jurisdictions have made some inroads into the general principles of Hutton and Parke. For example, in the Canadian case Teck Corporation Ltd v Millar (1973) 33 DLR (3d) 288, 314 Berger J said:
If today the directors of a company were to consider the interests of its employees no one would argue that in doing so they were not acting bona fide in the interests of the company itself. Similarly, if the directors were to consider the consequences to the community of any policy that the company intended to pursue, and were deflected in their commitment to that policy as a result, it could not be said that they had not considered bona fide the interests of the shareholders.
[79] Kahn, above n 15, 637 (notes omitted).
[80] Ibid, 663-4 (notes omitted).
[81] Abzug and Webb, above n 52, 1045.
[82] Adams and Hardwick, above n 57, 641, citing J J Siegfried, K M McElroy and D Biernot-Fawkes, 'The Management of Corporate Contributions' (1983) 5 Research in Corporate Performance and Policy 87, 87.
[83] Usha C V Haley, 'Corporate Contributions as Managerial Masques: Reframing Corporate Contributions as Strategies to Influence Society' (1991) 28 Journal of Management Studies 485, 487, 489.
[84] Ibid 501, citing J Cohn, The Conscience of the Corporations: Business and Urban Affairs. 1967-1970 (1971); F Fry and R J Hock 'Who Claims Corporate Responsibility? The Biggest and the Worst' (1976) 18 Business and Society Review 62; F K Levy and G M Shatto, 'Social Responsibility in Large Electric Utility Firms: The Case for Philanthropy' in L E Preston (ed), Research in Corporate Social Performance and Policy (1980).
[85] A Harris, 'Corporate Donations to Institutions – A Survey of Practice and Disclosure' (1980) 32 (April-June) Professional Administrator 97.
[86] Fisch, above n 4, 1097, citing James R Boatsman and Sanjay Gupta, 'Taxes and Corporate Charity: Empirical Evidence from Micro-Level Panel Data' (1996) 49 National Tax Journal 193.
[87] David Butler, The British General Election 1951 (1952), 34, cited in K D Ewing, 'Company Political Donations and the Ultra Vires Rule' (1984) 47 Law Quarterly Review 57, 70.
[88] If the party is already in government, the donation would not run as great a risk of leading to a breach of the rule in Hutton. This is because the donation may be designed to influence the government's approach to laws and issues affecting the company, and therefore could be 'profit-maximising'. However, a donation of this nature raises issues over and above corporate law.
[89] Ewing, above n 87, 71.
[90] See Section IIIA above.
[92] Corporations Act, s 195(1). The director may be present and vote if directors who do not have a material personal interest in the matter have passed a resolution that:
- identifies the director, the nature and extent of the director's interest in the matter and its relation to the affairs of the company; and
- states that those directors are satisfied that the interest should not disqualify the director from voting or being present: s 195(2).
[96] For additional analysis, see Simon Fisher, 'Corporations as Donors: A Legal Survey' in M McGregor-Lowndes, K Fletcher and S Sievers (eds), Legal Issues for Non-Profit Associations (1996), Ch 8.
[98] Corporations Act, ss 124, 125.
[99] As s 125(2) of the Corporations Act states, 'An act of [a] company is not invalid merely because it is contrary to or beyond the objects in the company's constitution'. Although the expression ultra vires is sometimes used in respect of acts of both individuals or corporations who act beyond their powers, in the context of corporate law, the expression should be used in the narrow sense of being confined to acts by a company with limited capacity beyond its corporate power. With the abolition of the doctrine of ultra vires in Australia, an act of a director in disregard of the interests of the company only affects the validity of the director's acts and does not affect the validity of the corporate action. Directors are under an obligation to ensure that company powers and funds are used only for company purposes: ANZ Executors and Trustee Co Ltd v Qintex Australia Ltd [1991] 2 Qd R 360.
[100] See eg, Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480; Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549; Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising and Addressing Co Pty Ltd [1975] HCA 49; (1975) 133 CLR 72.
[101] Corporations Act, ss 128, 129.
[102] The commentary on Simmonds v Heffer agrees that donations are more-appropriately challenged under heads of directors' duties, and not the doctrine of ultra vires: Ewing, above n 87, 69; Leon Cane, 'Ultra Vires and Political Donations' (1984) New Law Journal 749, 750.
[103] See Hutton (1883) 23 Ch D 654 and Corporations Act, s 181.
[104] Corporations Act, s 182. For a discussion of the legal duties owed by directors and other officers of companies see H A J Ford, R P Austin and I M Ramsay, Ford's Principles of Corporations Law (10th ed 2001), Chs 8 and 9.
[105] Australian Securities and Investments Commission Act 2001 (Cth), s 50; Corporations Act, ss 1317J(1), 1324.
[106] The company's right to bring legal proceedings in respect of a breach of fiduciary duty by a director or senior executive is an inherent general law power. In relation to a breach of one of the officers' duties in the Corporations Act (eg, s 181 or s 182), the company has power to apply for compensation under s 1317J(2), and would normally be entitled (as 'a person whose interests have been ... affected' by the breach) to apply for an injunction under s 1324.
[107] Corporations Act, Part 2F.1A. A shareholder may also be able to apply for an injunction under s 1324 if a board decision to make a political donation amounts to a breach of one or more of the statutory officers' duties. The approach of Young J in Mesenberg v Cord Industrial Recruiters Pty Ltd (1996) 19 ACSR 483 would preclude a shareholder applying for an injunction under s 1324 in respect of an alleged breach of a statutory officers' duty, but this approach was rejected by Einfeld J in Airpeak Pty Ltd v Jetstream Aircraft Ltd (1997) 27 ACSR 715.
[108] See, eg, Corporations Act, s 198A (a replaceable rule), and equivalent provisions in company constitutions; John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113.
[109] Ian M Ramsay, 'Corporate Governance, Shareholder Litigation and the Prospects for a Statutory Derivative Action' [1992] UNSWLawJl 7; (1992) 15 University of New South Wales Law Journal 149, 162-4.
[110] Corporations Act, s 237(2)(c).
[111] Together with a former member in limited circumstances, and also a person nominated by ASIC in certain circumstances: Corporations Act, s 234.
[112] G P Stapledon, 'Use of the Oppression Provision in Listed Companies in Australia and the United Kingdom' (1993) 67 Australian Law Journal 575. See also Ian M Ramsay, 'An Empirical Study of the Use of the Oppression Remedy' (1999) 27 Australian Business Law Review 23, for evidence that the oppression remedy is mostly used in relation to proprietary companies.
[113] Corporations Act, s 462(2)(c) and s 9 (definition of 'contributory').
[114] Commonwealth Electoral Act 1918, s 314AC.
[115] Commonwealth Electoral Act 1918, s 304.
[116] Commonwealth Electoral Act 1918, s 305B(3A). The precise requirement is as follows:
The return must also set out the relevant details of all gifts received by the person at any time, being gifts used to make gifts the whole or part of which were used to make gifts totalling $1,500 or more in a financial year to the same registered political party or the same State branch of a registered political party and the amount or value of each of which is equal to or exceeds $1,000.
[117] There are many registered parties going by the name 'Green' or some derivative of that word. We consolidated these parties under the 'Green' banner for convenience.
[118] 'Professional firms' were those donors that were found to be law firms, barristers' clerking offices and accounting firms.
[119] A broad definition of 'lobby group' was adopted because it was considered inappropriate to include some corporate donors in the corporate listings, if in substance the company was a lobby group. In general, lobby groups were those donors that were companies limited by guarantee, or bore the title 'Association', 'Club', 'Federation' or 'Group', but not trade unions.
[120] But note that the total for National Australia Bank would also have been over a million dollars if a disputed amount of $1 million had been counted in our study. The Liberal Party's return for 1996/97 did not show an amount for the transaction described below. However, in a letter to the Australian Electoral Commission, dated 30 July 1998, and on the Commission's public database, the Liberal Party requested that its 1996/97 return be amended to include a $1 million receipt from National Australia Bank. The letter explained: 'During the year ended 30 June 1997, as part of the Party's bank overdraft facilities with the National Australia Bank, a commercial bill of $1 million was credited to our bank account. This amount was not shown as a receipt in the Party's 1996/1997 Annual Return on the basis that it was a component of the overdraft. Overdrafts are not discloseable as receipts, but rather as debts if owed at year-end, and in our view, the same approach should apply to the commercial bill, particularly when it is part of an overall bank overdraft arrangement. This approach was verbally agreed with an officer of the Commission on 20 October 1997, prior to lodgement of the return, but subsequently reversed by another officer during the conduct of the audit.'
[121] As at 31 December 1998, the market capitalisation of companies listed on the ASX was $536.2 billion: Australian Stock Exchange, Fact Book 1999 (1999) 26.
[122] Adams and Hardwick, above n 57, 645, citing studies by R L Watts and J L Zimmerman, 'Towards a Positive Theory of the Determination of Accounting Standards' (1978) 53 Accounting Review 112-34; A Belkaoui and P G Karpik, 'Determinants of the Corporate Decision to Disclose Social Information' (1988) 2(1) Accounting, Auditing and Accountability Journal 36-44; and S A Lenway and K Rehbein, 'Leaders, Followers and Free Riders: An Empirical Test of Variation in Corporate Political Involvement' (1991) 34 Academy of Management Journal 893-905.
[123] Department of Trade and Industry, above n 26, para 4.1.
[124] Ibid.
[125] See Section IVA above.
[126] See, eg, Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil NL [1968] HCA 37; (1967) 121 CLR 483, 493.
[127] Department of Trade and Industry, above n 26, para 4.1.
[128] See Geof Stapledon, Sandy Easterbrook, Pru Bennett and Ian Ramsay, Proxy Voting in Australia's Largest Companies (Research Report, Centre for Corporate Law and Securities Regulation and Corporate Governance International, 2000).
[129] Neill Committee, above n 21.
[130] Department of Trade and Industry, above n 26.
[131] Australian Democrats, above n 1.
[132] See, eg, Pensions and Investments Research Consultants (PIRC), Trends in Political Donations and Shareholder Authorisation (PIRC, London, 1998).
[133] Department of Trade and Industry, above n 26, Foreword.
[134] Australian Democrats, above n 1.
[135] Neill Committee, above n 21, paras 4.44, 4.45, 6.34-6.37; Recommendation 34; Department of Trade and Industry, above n 26, ch 3, 4.
[136] We are not referring here to donations that are intended to influence a government tender, or in some other way confer a direct financial benefit on the company. Rather, we are referring to the presumably (hopefully) more common variety: where the board is supporting a particular political party due to a commonality of view over major long-term policy issues.
[137] Shareholders must be given adequate disclosure about matters on which they are asked to vote: Corporations Act, s 249L(b); Bulfin v Bebarfalds Ltd [1938] NSWStRp 28; (1938) 38 SR NSW 423, 440; Chequepoint Securities Ltd v Claremont Petroleum NL (1986) 11 ACLR 94, 96-7; Fraser v NRMA Holdings Ltd (1995) 15 ACSR 590.
[138] Corporations Act, s 250N.
[139] Political Parties, Elections and Referendums Act 2000 (UK), s 50.
[140] Australian Democrats, above n 1.
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