Tobacco-Maker Lorillard Among Companies Whose Lobby Pays Off for Investors

Tobacco-maker Lorillard Inc. (LO), facing the prospect that the government might ban its top product, made a bet on Washington lobbying that paid off for shareholders.
The Greensboro, North-Carolina-based company spent $900,000 in its efforts to sway regulators and lawmakers. When an advisory panel to the U.S. Food and Drug Administration in March stopped short of recommending an outright ban on menthol cigarettes, which make up 90 percent Lorillard’s sales, the stock price surged.

The benefit to the maker of Newport cigarettes will likely last a couple more years, according to Strategas Research Partners. The New York-based institutional broker dealer says that shares of companies that spend on lobbying rise more than the broader market.
The 50 companies with the most intense lobbying efforts have outperformed the Standard & Poor’s 500 Index an average 12.4 percent each year since 2002, according to Strategas. Daniel Clifton, the company’s head of policy research, said the company measures lobbying intensity by comparing what the company spends to its size. He declined to give the exact formula because Strategas has a proprietary lobbying index.
“There’s a reason that corporations invest in lobbying Congress: They see a return, and it’s good for their bottom line,” says Mary Boyle, vice president of communications at Common Cause, a Washington-based advocacy group that tracks money in politics.
Playing Offense
Legislation and regulation play a huge role in the success of a company, Clifton says. Corporations use lobbying to play offense and try to secure changes in laws that will help them, and defense, to prevent damage from new proposals.
Lorillard is trying to prevent the FDA from banning menthol flavoring in cigarettes. The company’s Newport brand of menthols generated 90 percent of its revenue last year. Lorillard paid the lobbying firm Dickstein Shapiro $900,000 in this year’s first quarter, about half of what it spent on lobbying in all of 2010, according to the Center for Responsive Politics.
That put it at the top of the Strategas lobbying index for the quarter, which ended March 31. The investment firm includes the 50 companies with the most intense lobbying and updates the list each quarter when new lobbying disclosures are released. At the end of each year, the list is frozen and that index remains in place for two more years. Strategas right now has indexes for 2009, 2010 and 2011.