Note: This article has been updated with more current data on the number of companies that have adopted public disclosure.
As voters tune into the Republican presidential campaign’s big Super Tuesday primaries, concerns about adverse effects of corporate political spending are being reflected in an expanding universe of shareholder proposals that cover not only campaign-related spending, but proposals on lobbying disclosures as well.
This proxy season, investors have filed 109 proposals on political spending and disclosure—about double the number they filed in this arena three years ago, according to a new report, “Proxy Preview 2012,” produced by the organizations As You Sow, Sustainable Investments Institute (Si2), and Proxy Impact.
The bulk of the pending resolutions—a total of 47—ask that a company disclose on its website its policies and procedures regarding both direct and indirect political contributions, expenditures made with corporate funds, and an itemized account of such spending. Those proposals stem from the Center for Political Accountability (CPA), which, since 2003, has argued for the need to counter the potential risks of political spending with transparency and accountability to investors. To date, 88 public corporations have adopted political disclosure.
“You have a very pronounced trend toward adoption of board oversight and disclosure,” says Bruce Freed, president of the CPA. Companies recognize that “there is a risk associated with political spending.”
Another set of 40 resolutions center on lobbying and request disclosure of policies and procedures, payments, and “membership in and payments to any tax-exempt organization that writes and endorses model legislation,” the report states. The efforts on lobbying disclosure have been led by Walden Asset Management and the American Federation of State, County, and Municipal Employees. Last year, by comparison, there were only six votes on the subject.
Walden Asset Management’s Tim Smith says there is as much reputational risk associated with lobbying as with political spending. “We want companies to be clear and coherent to investors about what their priorities are.”
While groups such as the CPA have emphasized the possible downside of political spending for years, the recent upswing in these types of proposals also reflects the post-Citizens United climate and the sentiments of Occupy Wall Street, says Heidi Welsh, executive director of Si2. “To me, the lobbying proposals pick up what else is in the air,” she says.
As the public discourse surrounding corporate political spending has grown louder, the shareholder perspective has also factored in more prevalently. Last week, for example, Securities and Exchange commissioner Luis Aguilar made corporate political spending the focus of a speech, noting that shareholders “are often in the dark as to whether the companies they own, or contemplate owning, are making political expenditures.” He added that “investors are not receiving adequate disclosure, and as the investor’s advocate, the Commission should act swiftly to rectify the situation by requiring transparency.”
Some are skeptical about whether the SEC will be able to act on the issue. On the one hand, says Welsh, corporate political spending is “obviously a hot potato” during an election year; at the same time, the agency is mired in implementation of Dodd-Frank financial regulatory reform legislation. On the other hand, she says, the SEC is the government’s investor advocate. The agency might act more quickly depending on “how much support shareholder proposals in favor of disclosure get” this proxy season.
Meanwhile, Freed says that the CPA’s focus on bringing about transparency via corporate governance and the voluntary adoption of disclosure by companies is working. “The voluntary approach has led to the creation of standards and best practices,” he says.
In-house counsel have a responsibility to the board to “conduct a thorough review” of how companies spend corporate funds on politics, he says—including donations to trade associations, since those funds can be used for political purposes and have “reputational implications” for a company.
“There needs to be centralized record keeping for company payments to trade associations—and I know that’s not the case in every company,” Freed says. “It’s important that the folks at the top know how a company’s money is being used politically.”
See also: “SEC Commissioner Calls for Rule Requiring Disclosure of Political Spending,” CorpCounsel, February 2012.
