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December 07, 2010
Handbook Guides Corporations on Disclosure of Political Activity
    by Robert Kropp talks with Bruce Freed, President of the Center for Political Accountability and co-author of the Handbook on Corporate Political Activity, about efforts to increase corporate disclosure of payments to trade associations.

As reported here on November 29, a coalition of investors has moved to make corporate payments to controversial trade associations such as the US Chamber of Commerce a central issue of the 2011 proxy season. The investors, whose lead sponsors include Walden Asset Management and Domini Social Investments, have submitted shareowner resolutions that challenge four companies, all of which are on the Board of the Chamber, to "review their policies and oversight of political expenditures, especially through trade associations."

"The resolution addressing membership in trade associations is based on our model resolution," Bruce Freed, President of the
Center for Political Accountability (CPA), told "The standard resolution is a CPA model resolution. We've been coordinating this effort for seven years."

To date, the CPA has persuaded 77 companies to commit to disclosure of political spending. Fifty-one of those companies are in the S&P 100. "Two-thirds of them disclose payments to trade associations" as well, Freed said.

As recently as 2004, only one public company had adopted policies that addressed disclosure of political spending.

"The Chamber was the most active of the trade associations in the last election," Freed said. "They were deeply involved in the campaign, and they were open about what their goals were."

He continued, "While the effort that is being mounted to pressure companies on their membership in the Chamber is extremely important, it is also important that more companies adopt political disclosure. That priority must remain."

Freed called attention to the recently published
Handbook on Corporate Political Activity, which he co-authored with members of The Conference Board, a business membership and research organization.

"That the Handbook comes from the nation's leading business research organization is extremely important," he said. "Within The Conference Board there is a commitment to pursue best practices and spread the word within the corporate community."

According to the Handbook, "Companies that adopt robust approval and oversight policies that cover the full range of corporate political activity and accountability are better positioned to avoid the serious financial, legal, and reputational risks associated with political spending while protecting shareholder value and promoting the company's best interests."

Referring to a
2006 survey in which "more than 90 percent of respondents backed more disclosure and 84 percent were in favor of board oversight of political spending," the Handbook further noted that "a growing number of leading institutional investors have been casting their proxies in favor of political disclosure resolutions."

"The average shareholder vote has gone from nine percent to 30% in seven years," Freed said, "But our effort all along has been to use the votes to enter into dialogue with companies and reach an agreement."

"By early next year, we expect to be engaging with 60 more companies on the issue," he continued. "This is a major concern of investors, an issue that investors are looking for companies to act on."

A primary concern of the Handbook is to provide examples of best practice in the crafting of policies addressing political spending by corporations. Advising that corporate boards act to ensure that that policies address "reputational risks, legal risks, and risks that their expenditures may not be aligned with company values or publicly stated policies and positions," it refers to the
policy of Avon, which discloses "the recipients and portion of Avon dues or payments used for political contributions and expenditures by U.S. trade associations and tax exempt groups of which Avon is a member."

The Handbook provides guidance for companies in the areas of assessing political accountability, establishing programs to manage and oversee political spending, and creating an ethical corporate culture.

Furthermore, the Handbook states, "Under the Foreign Corrupt Practices Act (FCPA), for example, a company is required to monitor the acts of its agents, consultants, and business partners."

Freed said, "The Foreign Corrupt Practices Act targets the use of corporate money overseas. It's a practice that companies should follow everywhere."

While Freed emphasized that "We had built a strong foundation before Citizens United"—the controversial Supreme Court decision that effectively eliminated most legal restraints on corporate political spending—the Handbook addresses the decision at length, and states, "Any corporation participating in political activity without a rigorous governance oversight process heightens its risk exposure."

Freed said, "What Citizens United has done is emphasize for companies that political spending poses an even greater risk, and they need to take steps to address that risk."

The Handbook refers also to legislative initiatives designed to pass into law mandates for disclosure of corporate political spending, such as the Democracy is Strengthened by Casting Light on Spending in Elections (DISCLOSE) Act, which passed in the House of Representatives but went nowhere in the Senate.

Freed said of the DISCLOSE Act, "I think it's dead. It was dead before the election, and it's even deader now. But with the legislative route closed off, the importance of the strategy we have been following, of engaging companies directly, is reinforced."

"If you're seeking to change corporate political behavior, then you need to work with the companies so that it becomes part of the corporate culture," he continued.

Referring to the Handbook, Freed said, "The Conference Board is already talking about a second edition."

Freed continued, "Next year, CPA will be coming out with an index that rates companies on their political disclosure and accountability. Initially, it will cover the S&P 100, and by 2012 will cover the S&P 500. The index will be based on the best practices of the Handbook, as well as other factors."

"The importance of the index is that it will pressure companies to adopt payments to trade associations as part of their disclosure," he said. "We want to bring all companies up to a uniform standard."


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