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February 05, 2010
In Wake of Controversial Supreme Court Decision, Shareowner Activists Develop Plan for Corporate Disclosure of Political Spending
    by Robert Kropp

Asserting that excessive corporate political spending reduces shareowner value and weakens corporate governance, shareowner advocates call on corporations to adopt a framework for disclosure developed by the Center for Political Accountability.


Shareowner activists are wasting little time in responding to the Supreme Court’s recent decision removing limits on corporate political spending. An influential group of activists announced an action plan that will improve corporate disclosure of political spending, engage with the Securities and Exchange Commission (SEC) for rulemaking on corporate political spending, and ask Congress to consider legislation to ensure that political spending by corporations does not erode shareowner value and long-term corporate sustainability.

Last month’s Supreme Court ruling on Citizens United vs. Federal Election Commission effectively prevents the government from regulating corporate expenditures on election campaigns.

At a news event announcing the action plan, hosted yesterday by ShareOwners.org, Robert A.G. Monks, shareowner advocate, attorney, and founder of Lens Governance Advisors, said, “There’s good news and bad news. The bad news is the worst judicial decision since Dred Scott. The good news is that the Supreme Court has held that there is such a thing as corporate democracy.”

“By corporate democracy, presumably the Supreme Court means the rights of shareholders to vote and bring suits for breaches of fiduciary duty,” Monks continued. “In reality, shareholder rights are so limited as to be almost nonexistent.”

“A corporation is not a person,” Monks said. “The notion that a creature of legislation would be accorded comparable rights is grotesque and harmful.”

New York City Public Advocate Bill de Blasio, who is a trustee of the New York City Employees’ Retirement System (NYCERS), said, “Companies have already spent so much, even before the Supreme Court ruling, and despite studies that link high levels of corporate political spending with reduced shareholder value and decreased corporate governance.”

In a report issued yesterday by de Blasio, he pointed out that “Last year, New York City’s public pension funds filed shareholder resolutions requiring disclosure of political spending by twelve corporations in which they are invested.”

In response, three of the companies agreed to adopt policies to disclose political spending to investors. Even with the strict caps on corporate political spending that was still in place last year, corporate Political Action Committees (PACs), boards of directors, and management at the other nine corporations made political contributions totaling nearly $10 million.

Political contributions at four of the nine companies exceeded $1 million. One of the four companies was Bank of America, a recipient of $45 billion from taxpayers as provided for by the Troubled Asset Relief Program (TARP).

“What can happen as a result of the Supreme Court decision will not only warp the electoral process, but could lead to such counterproductive actions as lobbying to reduce regulatory oversight,” de Blasio said. “We have to move to a position of full disclosure of political spending.”

At the news event, Maureen Thompson, acting executive director of ShareOwners.org, said, “Corporate boards must be fully accountable about political spending.”

Referring to the strategy of engaging with companies to request disclosure of political spending, Thompson said, “Direct engagement with management of publicly traded companies is modeled on the work done by Bruce Freed at the Center for Political Accountability (CPA), and will in fact be led by the CPA.”

The CPA’s initiative was launched in 2003, and seeks to bring transparency and accountability to corporate political spending. Thus far, 70 companies have voluntarily adopted the framework for political disclosure, including almost half of those listed on the S&P 100.

Freed said, “In its decision, the Court affirmed the constitutionality of disclosure and the importance of it to the rights of shareholders. But the decision has a double-edged impact on companies as well. It removes all but a handful of restraints on political spending by companies, but it also exposes them to much greater pressure to spend politically, and makes that spending much riskier.”

Freed continued, “The decision places companies under immense pressure to use shareholder funds to support candidates, groups and causes whose positions and activities could end up threatening a company's reputation, bottom line and shareholder value.”

“This year, we are engaging with 80 companies to urge them to adopt political disclosure,” Freed said.

Freed also spoke about political spending by trade associations, which, he said, allowed companies to contribute to electoral campaigns without having to disclose their expenditures.

“Trade associations are secrecy incarnate, and the antithesis of accountability,” he said. As an example, he pointed to lobbying expenditures by the US Chamber of Commerce, which totaled $144 million last year, more than that of the National Committees of the two major political parties combined.

The policy of direct engagement with companies espoused by the group includes requests for disclosure of payments to trade associations and other tax-exempt organizations that are used for political purposes. In addition, it requests disclosure of a company’s policies and procedures for political contributions, and board oversight of the company’s political spending.

“It is critical to harness corporate governance at a time when the rules for companies and shareholders have changed dramatically overnight,” Freed said.

Other organizations that have joined with Shareowners.org in calling for corporate political spending reforms include Domini Social Investments, the Interfaith Center on Corporate Responsibility (ICCR), the Social Investment Forum (SIF), Calvert, Pax World Management, and Walden Asset Management.


 

 
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