Investing “Smart” in ALEC

Todd is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Most of you have probably never heard of ALEC (  I know I hadn’t until a recent news item popped into my personal radar screen – the news that as of Wednesday, April 4, 2012, Coca-Cola (NYSE: KO) had publicly withdrawn its support for the organization.  ALEC stands for “American Legislative Exchange Council,” and the organization functions as a coalition of state legislators and private sector members promoting pro-business legislation under the banner of “Limited Government, Free Markets, and Federalism.”  For a publicly held company, the obvious benefit of a membership in ALEC is direct involvement in crafting legislation that affects your business model.  So when a corporate monster like Coca-Cola decides to pull the plug, it is prudent to consider what prompted that decision.

Coca-Cola is not the first company to decide that a membership in ALEC is no longer beneficial to their mission.  PepsiCo (NYSE: PEP) quietly ended its 10-year membership back in January, a move that was not widely known until it was announced on NPR in a piece covering the latest move by Coca-Cola.  In both cases the motivation appears to be due, at least in part, to pressure from civil rights and citizen advocate groups upset over ALEC’s role in promoting such decidedly non-business related matters as new restrictions on voter registration/identification (alleged to unfairly target minority voters), which have raced through state legislatures following the widespread Republican electoral victories in 2010. 

As the curtain is drawn on ALEC’s agenda, the organization’s involvement in creating model legislation for “Stand Your Ground” laws raises additional concern, particularly considering such laws being put squarely in the spotlight following the killing of Trayvon Martin in Sanford, Fla., by an armed member of his own neighborhood watch.  Coca-Cola, for one, appears to have chosen to avoid the public relations difficulties that could arise from an undesirable association with ALEC initiatives that have no bearing on the company’s business model.  Coca-Cola Co. spokeswoman Diana Garza Ciarlante put it plainly, "Our involvement with ALEC was focused on efforts to oppose discriminatory food and beverage taxes, not on issues that have no direct bearing on our business.  We have a longstanding policy of not taking positions on issues that don't have a direct bearing on our company or on our industry."

Whatever feelings one might have regarding “Stand Your Ground” and other potentially controversial items on ALEC’s legislative agenda, ownership of stock in any of ALEC’s member organizations represents a tacit (if unintentional) endorsement of those policies.  Therefore, the question for investors becomes one of identifying the risks associated with companies that don’t share Coca-Cola’s discretion.  Understanding that companies act in the interest of their bottom line (and, hence, their value to investors), one wonders what function ALEC membership serves if a company like Coca-Cola no longer finds them a compatible partner.    ALEC’s Private Enterprise Board and corporate membership are populated with some of the most popular and attractive stocks available to the individual investor, companies including GlaxoSmithKline (NYSE: GSK), Johnson & Johnson (NYSE: JNJ), Kraft Foods, Inc. (NASDAQ: KRFT), Pfizer Inc. (NYSE: PFE), AT&T (NYSE: T), UPS (NYSE: UPS)Wal-Mart Stores (NYSE: WMT) and ExxonMobil (NYSE: XOM), among others.

In the spirit of due diligence, it falls upon the individual investor to consider what ALEC represents, and whether or not corporate alliance with that organization’s goals square with the principles that guide their personal investing strategy.

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