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August 26, 2010
Political Contributions by Target and Best Buy Lead to Shareowner Action
    by Robert Kropp

Companies' support for opponent of gay rights undermines their policies on diversity and threatens reputational risk in the form of consumer backlash.

Ever since the Supreme Court decision in January on the Citizens United case threatened to throw open the floodgates of corporate political spending, shareowner activists and other concerned parties have stepped up their advocacy for disclosure by companies of the practice. A measure suggested by the Court itself in its decision, in fact, was for shareowners to exert pressure on companies to disclose their political donations.

It seems unlikely that advocates for disclosure will receive much help anytime soon from the US Senate, where the DISCLOSE Act, sponsored by Senator Charles Schumer of New York, failed by a three-vote margin in July to receive the 60 votes needed to end debate and move to passage of the bill. Since then, President Obama has called for reconsideration of the bill, and Senate Majority Leader Harry Reid has indicated that he will bring the bill to the Senate floor for a vote.

Also in July, the House of Representatives passed the Shareholder Protection Act, which would amend the Securities Exchange Act to require prior shareowner approval of engagement in political speech by companies.

Aside from the potentially damaging impact of unfettered corporate spending on the conduct of fair elections, the risk to companies themselves was highlighted last week when investors filed shareowner resolutions at Target and Best Buy. The resolutions called attention to the discrepancy between the companies' public support for Lesbian, Gay, Bisexual, and Transgender (LGBT) employees, and their contributions to the gubernatorial campaign in Minnesota of Republican candidate Tom Emmer.

According to a press release by the three investment firms—Calvert Group, Walden Asset Management, and Trillium Asset Management—Emmer opposes same-sex marriage, "led an effort to deny LGBT couples full parental rights in Minnesota," and "made a contribution to a Christian hard rock ministry that praised Muslim countries that execute their citizens for homosexuality."

As a result of Target's $150,000 donation to MN Forward, a business group that backs Emmer, calls for a consumer boycott of the retailer have spread rapidly, an indication of the risks companies might take on when they decide to exploit the Citizens United decision and engage in political spending.

In the aftermath of the uproar over Target's donation, abortion opponents and other supporters of Emmer have asked a federal judge to rule that Minnesota's disclosure requirements amount to a ban on free speech. spoke with Stu Dalheim, Director of Shareholder Advocacy at Calvert, about the shareowner initiative and the implications for companies of the negative publicity surrounding the actions of Target and Best Buy.

"Generally, Target has set a positive example, especially in their support of LGBT employees," Dalheim said. Noting corporate policies that include affinity groups for LGBT employees, supplier diversity programs, leadership training for women and minorities, a diversity council with CEO-level involvement, and executive compensation that is tied to performance, he continued, "That's why it was so surprising to see their support of a candidate who is so opposed to rights for the LGBT community."

"Best Buy also has strong policies on the LGBT community," he added.

Asked about the companies' policies on political spending, Dalheim said, "Both companies say they have policies consistent with their business interests, but the evidence suggests that they don't have a strong governance framework to implement those policies."

policy on political contributions states, "Target contributes to political candidates, caucuses and causes in a bipartisan manner."

"Before any contribution is made, we determine that it is consistent with our business interests and, under the circumstances, is an appropriate means of advancing our public policy position," the policy continues. "To ensure compliance, all corporate contributions are reviewed and approved in advance by Target's vice president of Government Affairs."

Dalheim said, "For consumer companies, reputational and brand risks are usually more pronounced. There's also the credibility of the company, and what this does to employee morale. It raises questions about the companies' commitment to these issues."

The shareowner resolutions filed with Target and Best Buy requests board-level reviews of their political spending activities, including the impact of the activities on reputation, disclosure of contributions to candidates and support for state-level initiatives, and contributions to trade associations.

"Disclosure of political spending is a basic ask of the investor coalition working with the
Center for Political Accountability (CPA), and includes contributions to candidates themselves as well as to trade associations that use membership fees for political purposes," Dalheim said.

With the 2010 proxy season almost a year away, both Target and Best Buy have more than enough time to engage with shareowner activists and achieve a successful resolution of the issue. In fact, Dalheim said, "We haven't heard from Target yet, but we expect to talk to Best Buy soon."

Asked to describe the desired outcome of successful engagement, Dalheim said, "We'd like to have conversations with people in the company in charge of making political contributions, leading to guidelines to political contributions being put in place."

He added, "The CPA provides guidelines for best practice and an effective governance framework."

According to the CPA, corporate disclosure and board oversight of political spending "is fast becoming a basic corporate governance standard." Thus far, the CPA has convinced 50 companies in the S&P 100, and 76 companies overall, to adopt polices that improve disclosure and oversight of their political spending.

In conclusion, Dalheim said, "We want to make sure that other companies understand the risks associated with political spending, especially with an election coming up and in the context of the Citizens United decision."


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