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March 02, 2010
Social Investors Brainstorm Responses to Citizens United
    by Robert Kropp

Possible actions in response to the Supreme Court decision include voluntary disclosure of corporate political spending, regulatory action by the SEC, and Congressional legislation.

It may be difficult to identify an upside to the recent Supreme Court decision on the Citizens United case, which effectively eliminated most restraints on corporate political spending; but the activist response by many investors, and even some of the companies in which the investors hold ownership stakes, may be one such positive consequence.

The members of the Social Investment Forum (SIF) are no strangers to activism on behalf of responsible corporate governance, and last week many of them gathered to discuss possible actions to take in response to the decision. Following the discussion, spoke with Meg Voorhes, Deputy Director and Research Director at SIF, who said, “This is a major corporate governance issues, and shareholders have a legitimate interest in how companies spend money to influence elections. Is money being spent in the company’s best interests, or in the more narrow interests of management?”

Addressing the potential impact of corporate political spending across the portfolios of investors, Voorhes observed that spending by one company could lead to decreased returns in other areas of an investment portfolio.

Social investors are likely to involve themselves in addressing the potential impacts of political donations by companies by filing shareowner proposals on the issue. “SIF members are looking at revising the language of shareholder resolutions to reflect the implications of the Citizens United decision,” Voorhes said.

Another area in which investors are likely to make their voices be heard is in the call for passage of Congressional legislation. Forty-one business leaders recently sent letters to House and Senate leaders, urging them to pass the Fair Elections Now Act, which would enact a voluntary alternative system for the financing of federal elections by allowing candidates who turn down corporate contributions to receive public matching funds for money they raise in their own states. Signatories to the letter include Joe Keefe, President & CEO of Pax World Management and Timothy Smith, Senior Vice President of Walden Asset Management.

Both companies are SIF members, whose long histories of engagement with companies on environmental, social, and corporate governance (ESG) issues include the filing of shareowner proposals. Smith, in fact, was one of the speakers at last week’s SIF discussion, where he moderated an open forum in which attendees proposed various avenues for action on the issue.

Another possible legislative avenue is the Shareholder Protection Act of 2010, introduced by Representative Michael Capuano of Massachusetts, which would require public companies to seek shareowner approval of corporate political spending that exceeds $10,000.

A recent survey conducted by Greenberg Quinlan Rosner Research found that 62% of respondents support the Fair Elections Now Act, while 80% support shareowner approval of corporate political spending.

Agreeing that “Supporting public financing of elections” is important, Adam Kanzer, Managing Director and General Counsel of Domini Social Investments, told, “Investor support for the legislation will be important, and it might reduce pressure on companies to engage in political spending.”

“Some companies recognize that disclosure of political spending helps protect them from requests to engage in the process,” Kanzer continued.

An avenue for voluntary corporate disclosure of political spending already exists, and has met with some success already. The Center for Political Accountability (CPA), an initiative launched in 2003, seeks to bring transparency and accountability to corporate political spending. Thus far, 73 companies have voluntarily adopted the framework for political disclosure, including almost half of those listed on the S&P 100.

Following the Supreme Court decision on Citizens United, the CPA, along with the Council of Institutional Investors (CII) and nearly 50 institutional investors and shareowner advocacy groups, sent a letter to the chairs of 427 companies listed on the S&P 500, asking them to disclose all political contributions made with corporate funds and provide board oversight of corporate political donations.

Bruce Freed, President of the CPA, also spoke at the SIF discussion, where he spoke about the organization’s efforts to convince corporations to disclose their political contributions. talked with Freed afterward.

“We’re asking companies to adopt policies and procedures for disclosure of political spending, and rigorous board oversight of political spending,” Freed said. “We also ask companies to disclose their payments to trade associations.”

“There are potential consequences in the form of misalignment between companies and spending by trade associations such as the Chamber of Commerce,” Freed said. “We’re looking at disclosure for spending by trade associations, because companies can get tripped up by funding the campaigns of candidates whose positions are at odds with theirs.”

Asked about the potential for mandatory corporate disclosure, Freed said, “We’ll see what Congress does.”

“Corporate governance is an important incentive for companies to consider the risks of political spending,” he added.

Despite survey results indicating widespread public support for campaign finance legislation, it is difficult to be overly optimistic about this Congress taking decisive action on the issue in the short term. And although, as Kanzer told, “It’s hard to think of anything short of a Constitutional amendment that would really fix the problem,” that likelihood seems far more remote than even Congressional action on legislation.

Of the several responses discussed at the SIF meeting, the possibility of regulatory actions seems to hold out the best hope at present for beginning to limit corporate political spending and its social and governance effects. Kanzer is a member of the Investor Advisory Committee formed last June by the Securities and Exchange Commission (SEC) to give investors a greater voice in the Commission's work. Kanzer is also a member of the Committee’s Investor as Shareholder Subcommittee, where, Kanzer said, options for regulatory action by the Commission will be discussed.

Kanzer also presented at the SIF discussion. “It’s important to think about a whole range of options,” he told “But while focusing on what the SEC can do is not a simple process, it is less onerous than, say, an amendment to the Constitution.”

“Political accountability is a corporate governance issue that should be adopted by every company,” Kanzer continued. “I think we’ve reached the point where going from company to company should give way to standards of disclosure to be adopted by every company.”

“Such disclosure can help address some of the fallout from the decision,” Kanzer added. “We’re only in the early stages of thinking about what to ask the SEC to do, but the Subcommittee is going to reach out to investors to get a range of views.”

Regarding some of the options available, Kanzer said, “I don’t think the SEC can mandate board oversight of political spending, but it can require disclosure of whether board oversight has been adopted.”

Other options include increasing the frequency of corporate disclosure, especially during election cycles, and addressing the political spending by trade associations such as the Chamber of Commerce.

“We need to consider legislation requiring much more disclosure by the trade associations themselves,” Kanzer said.

Noting that every other email in his inbox seems to address the issue of corporate political spending, Kanzer said, “It seems there’s new energy among investors and shareholders around this issue. Anyone can see that political spending represents a real reputational risk for companies.”


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