Pulling back the curtain on political donations

In the wake of the Citizens United decision, which opened the doors even wider to unfettered political contributions by corporations and the well-heeled, we have seen increasing calls for more transparency and accountability in the elections funding system. Justice Anthony Kennedy gave voice to such concerns in his Citizens United dissent, stressing that “prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions.”

A few weeks ago, former SEC Commissioners Bevis Longstreth, William Donaldson, and Arthur Levitt send a letter to current SEC Chair Mary Jo White demanding that the SEC begin proceedings on political spending rulemaking, which has been stalled for nearly four years since a group of leading law professors submitted a formal petition seeking mandatory disclosure of political spending by public companies. That petition received a record 1.2 million public written comments of support, indicating that citizens, and many shareholders, desire more transparency on this issue.

In their letter, the three former SEC Commissioners assert that “the Commission’s inaction is inexplicable, . . . (flying) in the face of the primary mission of the Commission, which has since 1934 been the protection of investors.”  Political donations by corporations pose at least two risks for owners: they are an expense that does not improve financial performance (or does so by spurring favors that are likely not in the greater public interest), and in today’s climate of increased scrutiny of corporate social responsibility, political donations represent an abandonment of the fiduciary role of managing the risk and reputation of companies.

In May, nearly 80 philanthropic organizations—including Ford Foundation, Rockefeller Brothers Fund, and Carnegie Corporation of New York—also formally urged the SEC to require companies to disclose their political spending, citing the need to directly monitor “spending on independent expenditures, electioneering communications, and donations to outside groups for political purposes, i.e. super PACs and politically active trade associations.”

Currently, just over 100 public companies voluntary disclose their contributions. At its recent shareholder meeting, and as a result of pressure by shareholders, Wal-Mart said it will start disclosing what it spends on lobbying on a state-by-state basis, becoming the first company in the Dow Jones Industrial Average to provide such level of expenditure detail. However, expenditures to national trade associations, PACs, or non-profits that draft model legislation are not included in Wal-Mart’s new policy.

Since 2010, shareholders have filed hundreds of resolutions with dozens of companies targeting political spending disclosure. This year, corporate disclosure resolutions account for more than a quarter of all social and environmental issue proposals submitted. Shareholder support for such resolutions continues to rise, with average votes in favor averaging about 30% this year (which is considered an extremely good showing; most shareholders vote with management by default on their proxies). Six companies—Dean Foods, Eastman Chemical, H&R Block, Marathon Oil, U.S. Steel, and Valero Energy—recently agreed to adopt political spending disclosure policies as a direct response to shareholder engagement, and more are in process. Shareholders prefer to engage companies in such dialogues, resulting in voluntary political disclosure rather than filing resolutions; resolutions are typically the result of management’s failure to even consider such transparency.

About half of the largest 300 companies in the U.S. currently have some degree of board oversight of corporate political spending, according to the Center for Public Accountability’s Zicklin Index, which benchmarks companies according to their disclosure and accountability policies. We’re very encouraged to see responsible shareholders of all stripes—individual, institutional, and philanthropic—putting the pressure on corporate boards to assess the business case for making political contributions.

This article first appeared in the Summer 2015 edition of the Natural Investment News

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Michael Kramer

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