A top Wall Street executive has asked his colleagues around the industry to agree to eliminate most political contributions, a move that would make permanent a temporary ban now in effect at many municipal bond firms.
Frank G. Zarb, vice chairman and group chief executive at Primerica Corp., the holding company for Smith Barney Shearson Inc., said in a letter dated Oct. 5 that "a central tenet" of the industry's position on campaign contributions should be "that no contribution may be given if it even gives the appearance of attempting to influence the selection of an underwriter."
The letter, obtained by The Bond Buyer, was mailed to chief executives at the major municipal market underwriting firms in preparation for an Oct. 18 meeting in Washington, D.C. The proposal will be discussed by Zarb, other chief executives in the municipal business, and Arthur Levitt, chairman of the Securities and Exchange Commission.
Along with the letter, Zarb mailed a 13-page document detailing his proposed ban on political contributions. The document included a statement of principle and a sample of what the policy would call for.
In the letter that accompanied the document, Zarb said: "The materials make it clear that since it is difficult to imagine any circumstances where a political contribution given or organized by a firm or by an organized group of its employees, would not give the appearance of attempting to so influence, the effect is that contributions by a firm or an organized group of its employees would always be presumed to be prohibited, with a process in place to handle the rare exception on a case-by-case basis."
The letter says contributions by individual employees "should be considered on a case-by-case basis." But unlike firm or group contributions, under the proposal the industry will not automatically consider individual contributions as prohibited.
The letter notes, however, that the "test" for individual contributions would be the same as for group gifts: "Would the contribution give the appearance of attempting to so influence the selection of underwriters?"
Zarb's proposal would make permanent a recent proposal by the Public Securities Association, calling on market executives to enact a moratorium on political contributions to state and local officials.
But several market officials said the plan did not go far enough by allowing individuals to give contributions under the guise that they are not trying to influence underwriter selections. In fact, several top industry executives said the PSA's recommended moratorium was in response to Zarb's proposal, which they said could be circumvented.
Under the Zarb proposal, the municipal executive would have to judge the seniority and the duties of the contributor.
"The closer the proximity to the municipal finance business of the contributor, the stronger the likelihood that the contribution would be subject to an appearance of attempting to influence a selection process, and accordingly, the more likely that such a contribution would be prohibited," the letter says.