Political Donations by Australian Companies
| Author | Joel Vernon,Ian Ramsay,Geof Stapledon |
| DOI | 10.22145/flr.29.2.3 |
| Published date | 01 June 2001 |
| Date | 01 June 2001 |
| Subject Matter | Article |
POLITICAL DONATIONS BY AUSTRALIAN COMPANIES
IAN RAMSAY,* GEOF STAPLEDON,** JOEL VERNON***
I. INTRODUCTION
The subject of corporate political donations is highly topical in several countries. The
Australian Democrats have called for greater disclosure of donations made by
companies to political parties, and for the introduction of a shareholder-approval rule
where the donor is a public company. According to Democrat Senator Andrew
Murray, 'ever since the first political donation changed hands, money has been used to
influence electoral outcomes and the process of government'.1
The problems potentially associated with political donations are probably as old
as democracy itself. Where the institution of democracy is coupled with and gives its
imprimatur to relatively free market economics, the market for votes takes on
characteristics not unlike those of the markets for goods and services.2 Free commerce
and free elections give rise to the possibility of political exploitation and manipulation.
Where political power depends on commercial attractiveness, commercial interests can
be advanced by contributing funds to those political interests which promise the best
commercial returns. Consequently, allegations of wealthy citizens – corporate or
otherwise – buying political influence are not uncommon where their capacity to
donate to political parties (and the parties' correspondent capacity to accept) is
relatively unhindered.
_____________________________________________________________________________________
*Harold Ford Professor of Commercial Law; Director, Centre for Corporate Law and
Securities Regulation, The University of Melbourne.
** Associate Professor and Reader, Law School, The University of Melbourne; Deputy
Director, Centre for Corporate Law and Securities Regulation; Principal, Institutional
Analysis.
*** Research Associate, Centre for Corporate Law and Securities Regulation, The University of
Melbourne; Associate to the Honourable Justice Mandie, Supreme Court of Victoria.
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.
180 Federal Law Review Volume 29
____________________________________________________________________________________
This article examines donations to political parties made by companies.3 While
donations by individuals are also worthy of analysis, the tendency for commercial
power to vest increasingly in corporations highlights the importance of an analysis
from a corporate perspective.
In a competitive environment, companies can be expected jealously to guard their
spending. Consequently, it is not unreasonable to suspect that, when companies make
donations (political or otherwise), they do so for reasons other than mere generosity.4
As Fisch has asked: 'if corporations exist to maximise profits, and donations reduce
profits, why do corporations donate mone y to charity?'5 Green has similarly asked:
[W]hy do these non-human entities – business corporations – give to charity and how can
such philanthropy be reconciled with the most basic aspect of a business corporation, ie:
the object of making money for its investors?6
While both political donations and charitable donations are worthy of analysis,
political donations present interesting issues of corporate governance, which justify
distinguishing them. Whereas charitable donations might, at best, only indirectly
benefit the donor, the political donation is likely to confer a more direct benefit
because, in Australia, political parties form governments which can then, colloquially
speaking, return the favour. The Fitzgerald Inquiry into corruption in Queensland in
the 1980s noted that:
Practices which were adopted with respect to donations included a propensity to accept
large sums in cash, not infrequently from those who had benefited, or hoped to benefit
from dealings with the Government… [T]here were other occasions when persons or
organizations engaged in business with the Government or seeking business from it,
made substantial donations to its political party.7
A link between corporate donations and political leverage has also been suggested
by Gallop,8 who surmises that the underlying political economy determines the size
and nature of corporate political donations. Citing the example of the Labor
Government in Western Australia in the 1980s, and commencing with the proposition
that that Government saw its role as one of supp ort for business, Gallop inferred that
_____________________________________________________________________________________
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.
2001 Political Donations by Australian Companies 181
____________________________________________________________________________________
the Government had overplayed its hand in developing structures to promote
business. What became known as 'WA Inc'
took the Government into the world of business and commerce and led to the emergence
of important relationships between particular entrepreneurs and the Government. …[A]
type of system emerged in which support and money passed from the Government to
business and, at the same time, healthy donations found their way into the coffers of the
ALP. …What proved to be controversial and debatable about this system was the
interpenetration of private and public interests. As the two sectors became linked, it was
inevitable that questions would be asked about conflicts of interest and the potential for
corruption, of process if not of persons.9
In the 1990s, according to Gallop, the political landscape changed in response to
the risks posed by the 1980s style of government. It seems that during the 1990s there
was a change in perspective as government sought to distance itself as much as
possible from business by privatising government business enterprises and
contracting-out services. But similar problems emerged:
[N]ew and powerful partnerships develop between government and business. Failure of
government to renew contracts can become fatal and support from government,
including ministers, becomes crucial. Although the theory has government in charge, the
practice may very well see governments adjusting and responding to the needs of its
private contractors, some of whom may be party benefactors.10
When companies make political donations they may expect to receive a
sympathetic hearing on issues affecting them from the leaders of the political party and
would hope for favourable treatment.11 Public choice theory may provide insights into
not only such arguments but also the issue of corporate political donations more
generally. Public choice theory views government and law-making as part of a market:
On the demand side, legal rules are the outcome of political struggle among special
interest groups to redistribute wealth in their favour, while on the supply side, they
reflect the effort of politicians to maximise the political support they receive from interest
groups' constituencies. That is, laws are supplied to those interest groups (or coalitions)
that out-bid rivals for favourable legislation…On the supply side, the fee may take the
form of campaign contributions.12
However, there are limits on the extent to which political influence can be
purchased. Legislative decision-making is majoritarian and, in addition, 'there is as yet
no consensus on the appropriate model of h ow money maps into votes'.13
This article begins by examining some of the more recent and topical responses to
the phenomenon of corporate political donations. It then examines the motivations
which apparently underpin corporate giving. While this is largely informed by
American literature on charitable donations, some peculiarly Australian differences are
_____________________________________________________________________________________
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) 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.
Get this document and AI-powered insights with a free trial of vLex and Vincent AI
Get Started for FreeStart Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
