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December 09, 2004
Corporations Fight to Keep Political Contributions in the Closet
    by William Baue

The Center for Political Accountability expands its campaign by advancing shareowner resolutions asking companies to disclose political donations and to provide a business rationale for them.


While the Bipartisan Campaign Reform Act of 2002 prohibits companies from giving to political parties at the federal level, it is no secret that corporate political donations continue, as the law allows unlimited giving at the state and local level and to "527" political committees. What does remain secret is who and why--in other words, which executive okays the donation, and what business rationale it is based on. Absent this information, investors are hard-pressed to make heads or tails of how these soft money contributions enhance shareowner value, as opposed to advancing political or personal agendas of individual executives.

As for how much, finding this out requires scrutinizing disclosure documents state-by-state, city-by-city, and 527-by-527. All the while, this information sits consolidated in company records.

"Clearly, corporate contributions have a major impact on the political process," said Bruce Freed and John Richardson, co-directors of the Center for Political Accountability (CPA). "When companies make political gifts, shareholders need to know where that money is going, what the corporate purpose is, and who made the decisions."

"Shareholders need to monitor management to ensure that it is acting wholly in the company's interest and that it is not engaging in questionable activities or behavior that could hurt the company," they added.

Last proxy season, CPA filed a political contribution transparency resolution asking who, why, and how much at 28 companies. All 25 resolutions that went to vote surpassed the Securities and Exchange Commission (SEC) three percent threshold required for re-filing first-year resolutions, with Verizon (ticker: VZ) topping the list with 16 percent support from voting shareowners.

Heading into the 2005 proxy season, momentum for this campaign is building. According to Mr. Freed, the resolution is being filed at more than 30 companies by a much broader array of proponents, ranging from Domini Social Investments and Trillium Asset Management to the New York City Employees Retirement System (NYCERS).

Today, the Interfaith Center for Corporate Responsibility (ICCR) announced that it is adding to the list of resolution recipients three pharmaceutical companies: Eli Lilly (LLY), Johnson & Johnson (JNJ), and Wyeth (WYE). ICCR will re-file the resolution at three other pharmaceutical companies that received the resolution last year: Abbott Laboratories (ABT), Merck (MRK), and Bristol-Myers Squibb (BMY).

One pharmaceutical company not facing the resolution again this year is Pfizer (PFE), which agreed to disclose its political contributions down to the state level.

"They do not seem to have found compliance to be costly or administratively burdensome," said Caroline Williams, chief financial officer of resolution filer Nathan Cummings Foundation, referring to the corporate argument that disclosure represents an additional cost while providing no clear benefit to investors.

Interestingly, companies seem comfortable spending shareowner money on political contributions while specifically refusing to demonstrate any clear benefit to investors. Socially responsible investors argue that political contributions can expose shareowners to increased risk.

"The US Pharmaceuticals industry is an example of how political influence can go badly wrong: how companies influence the regulatory process has raised questions in the minds of doctors and patients about the safety of the products, and shareholders get caught in the backlash," said Karina Litvack, head of governance & Socially Responsible Investment at F&C (formerly ISIS) Asset Management.

Last week, F&C announced the launch of a new research program on the impact of corporate influence on the political agenda. The first phase of this project will culminate in May 2005, with the publication of a report entitled Political Donations and Lobbying: the ethics of influence.

CPA is working on its own set of reports, due out in January.

"We're focusing on corporate political contributions and the risks they may pose to shareholder value," Mr. Freed told SocialFunds.com. "We're also working with Common Cause to focus on how the big mutual fund families voted on our resolution last proxy season."

In other words, CPA is trying to leverage the new SEC regulation requiring increased transparency of mutual fund proxy voting to help effect increased transparency in corporate political giving.

 

 
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