February 17, 2005
Deafening Silence: Corporate Political Contribution Non-Disclosure Impacts Shareowner Value
by William Baue
A Center for Political Accountability report documents corporate secrecy on political donations,
and a Common Cause report reveals how mutual funds fail to support contribution transparency.
Sometimes absence speaks louder than presence, to paraphrase novelist Toni Morrison discussing the
role of Blacks in American literature. And sometimes an appendix speaks louder than the report to
which it is annexed. Such is the case on both counts for two related reports on corporate
political contributions released by the Center for Political Accountability (CPA) and Common Cause earlier this week.
appendix to the CPA report presents a table
rating companies' political contribution transparency in three areas: disclosure of political
contributions, of executives who made the decisions, and of business rationales for donations. All
three boxes next to all but two of the 120 large capitalization companies are stark blank--almost
none of the companies disclose anything about their political contributions
voluntarily, and the law does not require them to. Pfizer (ticker: PFE) discloses political
contributions, while Morgan Stanley (MS) discloses donations as well as
which executives who make donations decisions.
The second table appended to the Common
Cause report lists how the ten largest fund families' biggest domestic large-cap
mutual funds voted in 2004 on a shareowner resolution asking some 25 companies to disclose their
political contributions, decision-makers, and business rationales. Again, the silence is
deafening: the "voted for the resolution" column is completely empty.
Cause report advances a new trend to assess how mutual funds vote on shareowner resolutions, now
that the US Securities and Exchange Commission (SEC) requires disclosure of such votes to allow
fund investors to determine if fund votes align with shareowner interests. And both reports argue
persuasively that corporate political contribution secrecy is decidedly not in shareowners'
best interest--on the contrary, it puts shareowner value at risk.
The CPA report, entitled
The Green Canary, posits that corporate political donation disclosure can act like a canary
in a mine (dubbed "the canary effect"), with excessive contributions (compared to peers) signaling
"The birds warned of potentially fatal concentrations of gas in the
mine shafts," state lead authors Bruce Freed and John Richardson, CPA co-directors. "In the case of
shareholders, disclosing political contributions can alert them to possible problems in management
performance or behavior and problems with a company's business strategy that would otherwise be
"A close review of a company's contributions also can raise questions about
whether the contributions are aligned with the company's real interests or whether they are being
made for unrelated purposes that could have negative consequences for the company," it adds.
To illustrate this point, the report presents five detailed case studies of companies such as
Enron and Worldcom that relied excessively on political contributions (instead of solid
fundamentals) to advance their business strategies. And it conducts very close reviews of
120 other companies' political contributions and policies through two assessment tools CPA
developed: the CPA Rating (including the Contribution Transparency Rating referenced above) and the
Comparative Giving Assessment (CGA).
These reviews reveal that two companies--Time Warner
(">TWX) and ExxonMobil (XOM)--disclose their
contribution policies, require prior approval of contributions by superiors, and have
executive-level and board oversight over political giving, though they do not disclose donations.
On the other hand, two companies-- BP (BP) and Southern Company (SO)--seem to
contravene their policies against making contributions, as CPA found evidence in IRS filings of
recent political contributions by both companies. Finally, CPA found that 40 percent of the 120
companies reviewed made contributions substantially greater than their industry peers, signaling
potential "canary effects."
The Common Cause report (entitled Mutual Protection)
implicitly asks why in the world mutual funds would vote against the shareowner resolution calling
for political contribution disclosure, given that non-disclosure can impact shareowner value (think
Enron and WorldCom). The report also documents the impact mutual fund voting can have on
shareowner resolution results.
"As a group, the top 10 mutual fund companies control
between 4.3 and 19.8 percent of the total outstanding shares at each of the companies that voted on
the resolution in 2004," states report author Susannah Goodman. "This equity ownership could have
translated into influence . . . [b]ased on current mutual fund family holdings, their support for
the political disclosure resolutions in 2004 would have pushed the percent of votes cast in support
of the proposal to 25 percent or higher at 11 of the 25 companies facing the resolution."
While many observers frame shareowner resolutions as needing a majority vote to "win," the
reality is that companies are not obligated to abide by resolutions, but the will of a quarter to a
third of shareowners often compels companies to comply. This proxy season, more than 30 companies
face the resolution, and the big mutual funds have an even greater stake of ownership compared to
"The top 30 mutual fund companies by asset size own between 12.1 and 34.2
percent of the outstanding stock of companies that are expected to face the disclosure resolution
in2005," states Ms. Goodman. "In fact, at 23 of the more than 30 companies at which the proposals
are expected to be submitted, the funds control more than 20 percent of the outstanding shares."
This issue is not isolated to the US. The United Nations Global Compact and AccountAbility, a UK-based assurance
organization promoting corporate accountability, have launched a "responsible lobbying" project
that seeks to identify the limits of legitimate corporate influence over political decision-making.
Meanwhile Amsterdam-based anti-lobbying campaign group Corporate Europe Observatory (CEO) is promoting corporate transparency in the
European political process by writing to European Commission President Josť Manuel Barroso
and other EC representatives.