Being politically correct

Then along came 'corporate governance', soon to be followed by its close cousin, 'corporate social responsibility'. These trends - well, dogmas to some - meant that political donations became politically incorrect; not illegal, of course, but somewhere on the path to corruption. Making political donations was not something that a quoted company could be proud of, not something it would want to talk about. It was hardly a PR opportunity, unlike - of course - its giving to charity and its scrupulously recorded care for the environment. Thus, in the 2000s, political donations by UK quoted companies faded pretty well to nothing.

Which might be just as well because, according to a paper produced by two academics*, companies that make political donations don't appear to enhance shareholder value. Rather, say the academics, such donations reflect 'agency problems'. That's jargon for saying that the balance of power has swung too far in favour of the bosses and away from the outside shareholders; or, as the academics add, political donations "are higher for firms with poor internal corporate governance and strong managerial entrenchment".

Granted, in this study, 'shareholder value' tells us nothing about the performance of a company's shares. The study does not attempt to link making political donations to share price movements. Rather, the academics take five measures of weak corporate governance - such as limitations to shareholders' rights, the make-up of the board and whether there is a 'poison pill' in place - and see whether these correlate with a company's propensity to make political donations.

In their sample of 2,026 companies worldwide, some of which made in aggregate 3,226 political donations in the 10 years 2004-13, they find that there is such a link. In particular, companies with a poison pill - a form of takeover defence - on average made political donations that were 3 per cent higher than those without.

That's hardly a huge difference, which helps to illustrate the point that it is not only in the UK that political donations are off limits. It's true for much of the world, with the US and Brazil as notable exceptions. The amount of political donations made each year averaged out at just $294,000 (£238,000), which was a tiny 0.003 per cent of the average sales of all political donors. By contrast, charitable donations averaged $28.4m a year, which was almost 0.2 per cent of the sales of charity givers.

Detailed data for the UK reflects - maybe even magnifies - the global trend. What's interesting is not which companies have made political donations, but the fact that almost no quoted companies have done so. Our tables, which are compiled using returns made to the UK's Electoral Commission, show that among the top 15 corporate donors for both 2015 and 2016 only one quoted company shows. That is stockbroker Shore Capital (SGR), which gave £92,500 to the Tories in 2016.

Quite likely, Shore would drop into the academics' definition of companies whose corporate governance suffers from what's labelled 'management entrenchment'. That's because Shore is effectively an owner-managed company. Its biggest shareholder - with 41 per cent of the equity - is Howard Shore, who is also the founder and the executive chairman.

The only other quoted company that made political donations - both in 2015 and 2016 - was property investor Panther Securities (PNS), whose corporate governance is much like Shore Capital's. Panther, whose shares are traded on the Alternative Investment Market, is controlled by the Perloff family, who own 47 per cent of the equity. Chairman Andrew Perloff combines that role with chief executive.

However, one clear difference with Shore Capital is that Panther's donations were to the UK Independence Party. Despite the modest amount - £25,000 in both years - Mr Perloff hoped that his company's "last-minute donation (in 2016) helped to get the message across, producing one of the most dramatic results our voting system has seen in many years"; or at least that's what he said of last June's referendum result in Panther's latest results.

In fact, as Table 1 shows, Ukip was not short of corporate support and what it lacked in the quantity of donors it made up for in the size of their gifts.

In 2015 it received the two fattest corporate contributions. There was £1m from the owner of the Daily Express and the Daily Star, Northern & Shell, which is controlled by Richard Desmond, and £500,000 from Growth Financial Services, a company controlled by Christopher Mills, who is the boss of fund manager Harwood Capital. Harwood's chief mandate is to run North Atlantic Smaller Companies (NAS), a £370m investment trust managed by Mr Mills. Despite its name, the investment trust is chiefly an investor in UK companies, although latterly it has gone long on US Treasury bills. Its biggest holdings are in housebuilder MJ Gleeson (GLE), where Mr Mills is a non-executive director, and Oryx International (OIG), a closed-end fund run by Mr Mills whose biggest investments are similar to North Atlantic's.

A year later, in 2016, Mr Mills' Growth Financial Services became Ukip's biggest corporate donor. Its £359,000 of gifts was slightly more than the £345,500 given to the Conservatives by companies connected to Sir Henry Angest. Most of that money came from Flowidea, a private company, but at least £60,500 came from Arbuthnot Banking (ARBB), a boutique merchant bank where Sir Henry is the chairman and chief executive. In 2015 companies connected to Sir Henry had been almost as generous. They gave £296,500, of which £68,000 came from Arbuthnot.

After that, the direct links to UK-based quoted companies seem to run out. True, there are still some interesting connections, but they are more of the 'well-fancy-that' variety. Who would imagine, for example, that in 2016 a company quoted on the Korea Exchange would be the biggest donor to the newly formed Women's Equality Party with contributions worth £111,630? Yet that role was fulfilled by Cheil Europe, whose advertising help was worth that. The company is part of Cheil Worldwide (KRX:030000), which is in the Samsung stable of companies.

Also incongruous was the £100,000 donation made - via a private company - by Indiabulls (BSE:532544), a Mumbai-based property developer run by Sameer Gehlaut, who claims to be India's youngest self-made billionaire. Ditto the £8,400 gift made by Scottish Power to the Labour party. It's not just that Labour no longer has influence in Scotland, but for more than 10 years the vertically integrated electricity company has been owned by Spanish utility firm Iberdrola (BMAD:IBE), whose shares are quoted on the Madrid exchange.

Some quoted company links are even more slender. Selfridges Retail has been a consistent cash supporter of the Conservatives. It is controlled by Galen Weston, whose family has major corporate interests in Canada, via George Weston (TSX:WN), and in the UK via Associated British Foods (ABF). Yet Mr Weston himself has no direct links to ABF, which is run by a nephew, George Weston, a great grandson of the Weston after whom the Canadian company takes its name.

And we establish a link with Domino's Pizza (DOM) chiefly to give the Liberal Democrats a mention. In 2015 it received £200,000 from Brompton Capital, a private company run by Rumi Verjee. Lord Verjee made his first chunk of big money in the 1980s when he bought the UK franchising rights to Domino's, which he sold in 1989.

It is also interesting to see how the bosses - past and present - of UK quoted companies figure in a personal capacity. Almost without saying, top of the list and out of sight is David Sainsbury, the former finance director and chairman of the family grocery firm. In 2016, he split his donations between Labour, for whom he was a government minister, and the Lib Dems because he did not like Labour's lukewarm support for the referendum's 'remain' ticket.

Of those business chiefs who gave money other than their inheritance, Sir Simon Robertson, who must go under the heading of 'City grandee', was most generous. Sir Simon, now 76, has quit active involvement in listed companies. As has Trevor Chinn, who turned Lex Service into RAC before heading into private equity; interesting that Mr Chinn should give his own money to Labour.

Maybe it's unusual that a City fund manager should give money to the Green Party. Then again, the donor in question, Matthew Oakeshott, who is a director of the Value and Income Trust (VIN), has sprayed around donations to both Lib Dems and Labour in the past. Not so Peter Cruddas, founder and chief executive of spread betting firm CMC Capital Markets (CMCX). He is a serial donor to the Conservatives, and former party treasurer; 2016's contribution was par for course. Elsewhere, Charles Wigoder, executive chairman of Telecom Plus (TEP) and son of a Liberal politician, figures as a donor to the Tories, as does Ayman Asfari, the chief executive of oil services supplier Petrofac (PFC). As you would expect, almost exclusively, business chiefs give to the Conservatives, the lords - Sainsbury, Oakeshott and David Alliance of retailer N Brown (BWNG) - are honourable exceptions.

*Corporate donations and shareholder value; Hao Ling (Singapore Management University) and Luc Renneboog (Tilburg University)