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.
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
"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).
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).
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
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.