Nonprofits are true powerbrokers

By Declan McCullagh
Staff Writer, CNET News.com
March 28, 2006 4:00 AM PST

When Jack Valenti was at the helm of the Motion Picture Association of America, his $1.5 million annual salary easily topped that of Microsoft CEO Steve Ballmer.

Ed Black, the president of the Computer and Communications Industry Association, boasted a $980,000 salary in 2004. That's more than Cisco Systems Chief Executive John Chambers or Dell CEO Kevin Rollins made last year, if bonuses aren't counted.

As technology companies and their political rivals vie for more influence in Washington, nonprofit groups and trade associations are benefiting handsomely from the expanding war chests. A CNET News.com analysis of 47 organizations active in technology policy and legislation shows that, in total, they have assets of about $1.1 billion, annual revenue of $573 million and an average executive director salary of $332,665.

At the high end, Cary Sherman, president of the Recording Industry Association of America, took home a paycheck of $1 million in 2003. Douglas Lowenstein, head of the Entertainment Software Association, claimed $620,250, and Robert Holleyman, president of the Business Software Alliance, received $452,670.

"They try to get a seat at a lot of tables to have a dialogue, and they do spend money," Jerry Berman, president of the Center for Democracy and Technology, said about tech company spending.

It's well-known that after landmark events like the Microsoft antitrust trial--and, to a lesser extent, the Communications Decency Act, Y2K liability caps and encryption export limits--technology companies sought to change their relationship with Washington agencies and bureaucrats. (A News.com analysis published Monday shows that spending on lobbyists by large tech firms has more than doubled between 1998 and 2004.) But what's harder to track is the increase in money that flows to trade associations and nonprofit organizations.

"Can (tech companies) try to buy you? Maybe they'd love to. But we try to resist that, in terms of a diversity of funding, and we make it quite clear."
Jerry Berman, president, Center for Democracy and Technology

Because of a loophole in federal law, nonprofit groups that receive corporate contributions are not legally required to disclose the identities of their funders. Not only do the corporations receive tax breaks, but the recipients also routinely use the money to pay lawyers to testify before Congress, draft legislation and meet privately with government officials--activities that might be viewed as lobbying if done directly by a company.

A nonprofit group "should have policies not to take money from corporate interests that could overly serve to influence their stance on the issues," said Daniel Borochoff, president of the American Institute of Philanthropy, a charity watchdog organization. "Just as health groups tend to not want to take money from the cigarette companies--though of course some do."

Nobody expects trade associations organized under section 501c6 of the tax code to do anything other than represent the interests of their member companies. But 501c3 groups are supposed to represent the public interest, and donations to them are completely tax-deductible for that reason. (Trade association dues are tax-deductible if not used for lobbying.)

"Can they try to buy you?"
The complex nature of nonprofit groups is illustrated by the work of the Center for Democracy and Technology, which describes itself a nonprofit organization that "works to promote democratic values" such as privacy online.

A review of the Washington group's finances shows that it is bankrolled by tech companies, many of which have faced legal action over their own privacy practices. Corporations such as Microsoft, DoubleClick, Acxiom and LexisNexis accounted for 53 percent of the CDT's income in 2004, discounting a one-time reimbursement for legal fees. Charitable foundations make up the rest of its $3 million annual budget.

The center adopts positions that tend to benefit its funders. It sued Utah and Pennsylvania to overturn pornography laws opposed by the most of the Internet industry. The group has also backed concepts like P3P, a self-regulatory approach that the Internet industry used to avoid new privacy laws but was opposed by nonprofit privacy organizations that do not rely on corporate funding.

The Justice Department once argued in court documents that technology corporations "funneled money through" CDT to fund litigation. In another sign of close ties with the industry, Alan Davidson, the center's former associate director, was hired by Google last year as a staff lobbyist.

"Corporations support organizations because they think they'll get something out of it. One of the great virtues of not getting much corporate money is that you don't hear (demands) very often."
David Boaz, executive vice president, Cato Institute

Berman, CDT's president, with a 2004 salary of $223,111, acknowledges that his group's positions benefit his funders but says his organization does not modify its positions after receiving a check. "Can they try to buy you?" Berman asked. "Maybe they'd love to. But we try to resist that, in terms of a diversity of funding, and we make it quite clear."

Microsoft initially opposed some forms of Internet privacy legislation that the center did support, he says. "Now they're in favor of privacy legislation--who influenced whom?"

Berman previously was the policy director for the nonprofit Electronic Frontier Foundation when it moved from its original home of Cambridge, Mass., to a Washington office in the downtown corridor known for its preponderance of corporate lobbyists. His work there illustrated the importance of nonprofit groups in influencing policy decisions.

When the FBI was pressing for the Communications Assistance for Law Enforcement Act (CALEA) in 1994, most privacy groups, such as the American Civil Liberties Union and the Electronic Privacy Information Center, remained steadfastly opposed to the measure. CALEA requires telecommunications companies to design their networks to be explicitly wiretap-friendly.

Berman, a longtime Washington hand, eventually let EFF endorse what he described as a compromise proposal that was more privacy-sensitive. A number of procedural safeguards were added that seek to minimize the threats to privacy, security and innovation, Berman told a House panel in September 1994.

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