Long before Dallas-based AT&T found itself in the crosshairs for hiring President Donald Trump's personal attorney Michael Cohen, some of the telecom giant's shareholders sent up a warning: Secrecy surrounding how it spends money in Washington could put the company's reputation at risk.

For five years, a group of shareholders has pushed AT&T to disclose how much it funds industry groups and tax-exempt organizations that engage in political activities.

AT&T is not unique. Increasingly, companies are facing pressure from shareholders to reveal how they spend money to influence legislation in Washington. But those concerns took on new relevancy at AT&T last month, when it became public that the company paid $600,000 to Cohen to advise on various matters, including its pending merger with Time Warner.

While AT&T says Cohen did no lobbying, the payments caused the company embarrassment, as it came to light that Cohen also made payments to Stormy Daniels, a porn actress who alleges she had an affair with Trump. AT&T CEO Randall Stephenson sent an apology to all employees, calling the hire of Cohen "a big mistake" and saying the head of its lobbying group in Washington would leave the company: "In this instance, our Washington, D.C., team's vetting process clearly failed, and I take responsibility for that," he wrote.

Asset management firm Dana Investment Advisors was among the shareholder groups who unsuccessfully pressed for a resolution at the recent AT&T annual meeting that calls for a new annual report that lists AT&T’s affiliation and payments to trade groups and politically active tax-exempt organizations. Though the resolution would not have applied to the Cohen payment, the shareholders say the incident highlighted why companies that are not open about their spending in Washington are courting danger.

"Shareholders have a right to know what these millions and millions of lobbying dollars are being spent on," said Ann Roberts, a Dallas-based analyst for Dana Investment Advisors.

And as for Cohen, she said, “this just validated our case for transparency.”

AT&T has not said what changes, if any, it will make to how its lobbying team does business. The company declined to comment on its search for the group’s new permanent leader. For now, the group is reporting to AT&T’s general counsel David McAtee.

Army of lobbyists

AT&T is one the nation's biggest spenders when it comes to lobbying. The company spent nearly $17 million last year on federal lobbying, ranking ninth among all groups, according to data from the Center for Responsive Politics. Among corporations, it was outspent by only Blue Cross Blue Shield and Alphabet, the parent company of Google. That sum does not include AT&T's lobbying efforts on the state or local levels or other types of political spending, such as donations to campaigns of political candidates or contracts with advisers, such as the one it had with Cohen.

AT&T has a team of more than 100 lobbyists, the vast majority of whom have previously worked for the government.

As a telecom, AT&T is a highly regulated company with matters that often go before the Federal Communications Commission and Justice Department. They range from the sale of spectrum to the approval of its pending acquisition of Time Warner, a deal that’s valued at nearly $109 billion including debt.

After Trump was elected, AT&T said in a statement released in May that it turned to Cohen and a number of other consultants “to provide insights into the new administration.”

Cohen, a longtime fixer for Trump, has become ensnared by the investigation of special counsel Robert Mueller into possible Russian interference in the presidential election. His office was raided by the FBI in April. AT&T said it got a call in the fall from the special counsel's office regarding its payments to Cohen.

Watchdog worries

Cohen is not a registered lobbyist, but some advocacy groups have challenged that. A watchdog group, Public Citizen, filed complaints with Congress and the Justice Department saying the New York attorney broke the law by not registering as a lobbyist before accepting payments from AT&T and other companies.

AT&T releases a political engagement report each year that lists the federal and state candidates, political action committees and political party committees that the company funded and the amount of its contributions. Like other companies, it is required by law to file federal lobbying reports with the U.S. House and Senate.

But some aspects of its lobbying are difficult to track, and other spending cannot be tracked at all. The money it spends on state lobbying is dispersed across state websites. And some of the money it spends — which is given to trade groups and 501(c)(4)s, tax-exempt social welfare organizations that can participate in political activities like lobbying or writing model legislation, is untraceable.

AT&T does not share the names of trade groups and tax-exempt groups that receive its money, aside from a few industry associations that it lists in its annual report. The U.S. Chamber of Commerce, for example, which AT&T reportedly belongs to, spent more than $82 million on federal lobbying in 2017, according to the Center for Responsive Politics — more money than any other group or corporation.

Roberts, the analyst for Dana Investment Advisors who introduced the resolution about lobbying disclosure in April, called the money that goes to trade groups “the major veil of secrecy.”

Those gaps have prompted activist shareholders to call for more transparency. AT&T shareholders have voted on a nearly identical proxy resolution at the annual meeting since 2014. The measure calls for an annual report with details about AT&T’s lobbying payments, its membership and payments to any groups, such as trade associations or tax-exempt organizations, and its decision-making process and oversight of those expenditures.

The lobbying proposal earned the recommendation of International Shareholders Services, a global firm that advises asset managers, hedge funds and other shareholders about how to vote on proxies at annual shareholder meetings.

About 34 percent of shareholders voted in favor of the proposal at AT&T’s annual shareholder meeting in April. The news of Cohen’s contract broke less than two weeks later.

AT&T encouraged shareholders to vote against the proposal. It said the company complies with the law and “is committed to adhering to the highest ethical standards when engaging in any political activities.” And it said putting together additional reports wouldn’t be a good use of company resources.

Blackrock and Vanguard Group, two of the top shareholders for AT&T, have voted against the lobbying disclosure proposal.

Shareholders filed a similar proposal with nearly 50 companies this proxy season, according to Walden Asset Management, which filed or co-filed about a dozen of them. Walden manages investment portfolios of foundations, religious groups, not-for-profits and pension funds.

Shareholder votes are not legally binding, but they can send a signal to companies and in some cases, prompt them to make changes, said Timothy Smith, director of shareholder engagement for Walden. And he said it’s in the interest of the company to be proactive.

“Lobbying and political spending can end up being highly controversial and hurt the company’s reputation,” he said. He pointed to the words of AT&T’s own CEO. In the mid-May letter to employees, Stephenson said AT&T’s “reputation had been damaged” because of its affiliation with Cohen.

For example, the majority of shareholders for Irving-based Exxon Mobil voted for a proposal at the 2017 annual meeting that called on the oil giant to publish an annual assessment of how climate change policies and tech advancements could hit its bottom line.

After the landmark shareholder vote, Exxon agreed to report the risks climate change posed to its business. Other energy companies began making similar disclosures — even without a proxy fight.

Transparency benefits

Each year, the Washington-based Center for Political Accountability and the Wharton School at University of Pennsylvania put together a report that ranks political disclosures among the S&P 500.

Nanya Springer, a vice president for programs at the Center for Political Accountability, said she’s seen more companies volunteering details about payments to trade associations and trying to control how the groups use their funds, such as restricting their use for lobbying or toward political campaigns.

More than 20 percent of the S&P 500 — 110 companies — publicly disclose the names and amounts they give trade associations, according to their annual report. And about 15 percent — 77 companies — publicly disclose the names and amounts they give 501(c)(4) groups.

Several dozen companies, including Boeing, HP, Cisco Systems and IBM, have restricted membership to the groups or don’t allow the groups to use their money for electoral spending.

“Before it was something they [companies] didn’t think about,” she said. “But nowadays, you can’t say keeping this secret is a common practice or a best practice. There is clearly a move toward transparency.”

This spring, Houston-based energy company ConocoPhillips agreed to release more information about its lobbying activities, including sharing the names of trade groups that received $50,000 or more of funding. The decision prompted Walden to withdraw a shareholder resolution.

In some cases, AT&T and other companies are paying thousands of dollars to companies that lobby for positions that are contrary to their own.

Smith of Walden points to AT&T's membership in the U.S. Chamber of Commerce, which has criticized steps to address climate change and its membership in the Business Roundtable, which has lobbied to limit investors' rights to file shareholder resolutions. AT&T is also reportedly a member of the American Legislative Exchange Council, a right-leaning organization backed by the Koch brothers, that's promoted "Stand Your Ground" laws and bills to weaken labor unions, tighten voter identification rules and repeal state renewable energy standards.

Dozens of companies, including Google, Coca-Cola, eBay, AOL and T-Mobile, have left ALEC because of its public policy positions.

AT&T says it doesn’t always agree with the positions of the groups it belongs to, but Walden said the company should explain why those affiliations are worth the investment and reputational risk.

Smith said it’s difficult to predict whether the Cohen news will become a catalyst or a distant memory by next spring's annual meeting. But he said Walden plans to put forward the proxy resolution about lobbying disclosures again.

“These are sometimes the tipping points that make institutional investors who’ve said for a few years ‘Gee, I’m not interested' think again,” he said.