Corporate political activities and the bottom line: A Deakin Business School event

Alfred Deakin Professor Ferdinand Gul, who has held key academic and business consulting positions within Australia and Asia including as a consultant on corporate governance reform to the Hong Kong Special Administrative Region Government, will tell an audience of practitioners, students and academics that after analysing Australian political donation results the evidence is mixed.

Professor Gul said that while many companies within the corporate sector regularly lobbied governments, made or gave political contributions, it was difficult to judge the impact of these activities in influencing finance, financial reporting, and auditing.

“In some cases, the evidence shows that firms involved in political investments or political contributions actually don’t do that well because the managers are trying to hide their activities and hoping to get some protection,” Professor Gul said.

“Meanwhile, other firms that are making political contributions are not doing too badly in terms of their profits, earnings management and audit fees. Interestingly, auditors were perceiving these firms that had political contributions as being less risky.”

Professor Gul’s presentation will draw upon the works of American political scientist Francis Fukuyama and theories of political economy to discuss the role of corporate political activity – political contributions or investments, lobbying, and political connections – in Australia and around the world.

He will link corporate political activity with Fukuyama’s theory that emphasises three pillars critical for a well-functioning nation state and explain how these factors combine to reveal the early signs of political decay and re-patrimonialism.

“Fukuyama argues that there are three pillars of institutions that are critical for a well-functioning modern state,” Professor Gul said.

“The modern state or governments are the first pillar. The rule of law – the idea that nobody is above the law – is the second pillar and liberal democracy – governments being held to account by the population that elects them – is the third pillar.

“Australia, Denmark, the US, Norway, Sweden, and Britain are just a few examples of modern states that have all three pillars in place.

“I argue that corporate political activity has a significant effect on these three pillars. For example, if politicians are accepting what amounts to bribes from the corporate sector through contributions, this is an early sign of political decay and re-patrimonialism and we need to fight that.”

“In the United States, for example, lobbying and political contributions are commonplace and the democratic system doesn’t seem to be really working and Fukuyama argues that a degree of political decay is setting in.

“This could be exacerbated now that we have President-elect Trump waiting in the wings, with the issue of big shareholders in companies becoming involved in the political sector – like we have seen in Australia with Clive Palmer – likely to contribute to the decay.”

Closer to home, Professor Gul warned that political contributions and an emerging issue, money laundering, could see Australia slide into re-patrimonialism.

“There are no rules regarding political contributions and there also seems to be quite a bit of corruption around as evidenced by several cases. The Australian government certainly needs to look at the rules around political contributions a little more closely,” Professor Gul said.

“We also need to start addressing how dictators from small countries around the world are using Australia, particularly Queensland, for money laundering purposes.

“Right now, we have an opportunity to learn from the experiences of Malaysia, where allegations of corruption and money laundering by senior politicians are rife. Questions have been raised about large sums of money flowing into the personal accounts of various ministers and politicians.”

Professor Gul’s presentation, Corporate Political Activities and Corporate Financial Outcomes: Australian and International Evidence, will be held at Deakin University’s Melbourne City Centre campus on Monday 14 November. It is sponsored by the ACCA and the Chartered Accountants Australia and New Zealand.