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August 04, 2011
Corporate Political Spending Will be a Major Issue in 2012
    by Robert Kropp

In the wake of successful shareowner votes during the 2011 proxy season, the Center for Political Accountability and The Conference Board collaborate on initiatives to increase transparency and board oversight of the practice.


The degree to which the Supreme Court's Citizens United decision of January 2010 has galvanized activist shareowners was made clear this past proxy season, when resolutions addressing political spending and disclosure were included on the ballots of 32 companies. Vote totals for eight of the resolutions exceeded 40%, and an additional 14 resolutions gained more than 30% of shareowner support. At Sprint Nextel, a majority of shareowners approved the resolution.

Much of the effort on behalf of increased corporate transparency has been spearheaded by the Center for Political Accountability (CPA), whose model resolution formed the basis for the 32 proposals. CPA has successfully convinced 51 companies in the S&P 100, and more than 80 companies overall, to disclose their political expenditures. In many cases, companies have also agreed to disclose payments to trade associations such as the US Chamber of Commerce, whose expenditures to influence political elections regularly amount to many millions of dollars.

Bruce Freed, president of CPA, told SocialFunds.com, "Companies need to recognize that there is strong investor support for disclosure and board oversight, and that there is investor concern about the risks related to political spending and how companies are handling those risks."

"Citizens United has made the issue of independent expenditures, either directly or indirectly, an important one for companies," Freed continued. "They're being queried by investors on what their policies and practices are: whether they engage in independent expenditures directly or through third parties like trade associations."

With national elections occurring next year, the issue of political expenditures by companies will only grow in importance. CPA and investors are already hard at work preparing efforts to engage on behalf of improved corporate transparency, Freed told SocialFunds.com.

"We're heavily involved in planning for the 2012 proxy season," he said. "There will be a significant number of companies engaged, as there is even greater interest in the issue because nothing will be done on legislative and regulatory fronts. Shareholder engagement is really the only route to bringing this before companies and achieving change."

Last year, CPA co-authored with
The Conference Board, an independent business membership and research association, a Handbook on Corporate Political Activity.

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."

"Any corporation participating in political activity without a rigorous governance oversight process heightens its risk exposure," the Handbook continues.


The Conference Board has also recently established a committee of Fortune 500 companies "to develop a set of 'prevailing practices' that take into consideration the risks and opportunities of political-spending decisions," according to a
press release.

Members of the Committee on Corporate Political Spending include Campbell Soup, Exelon, Merck, Microsoft, Pfizer, and Prudential Financial, each of which, CPA
stated, "Has acknowledged the importance of disclosure of corporate political spending and taken a public stand in support of transparency and accountability."

Freed, who will chair an expert advisory panel for the Committee, said, "It's for companies to have a platform to address issues of how to manage their political spending, and how to deal with disclosure and board oversight. It's an interesting panel because it's much more company-driven. You have a group of companies that are committed to disclosure and accountability that have come together to address it."

Dan Bross of Microsoft stated, "This Committee is committed to advancing a thoughtful dialogue and demonstrating, through best practice sharing, the opportunities corporations have to enhance their commitment to corporate governance while fulfilling their responsibilities for protecting shareholder value."

In addition to submitting a report on corporate political spending, the Committee will maintain a
website where resources on the issues can be accessed.

CPA is currently developing an Index which will rank companies in the S&P 100 according to the quality of their political disclosure. Freed said, "The Index is a reminder to companies that there is intense interest in how they manage their political spending."

"The indicators on the Index include whether companies engage in independent expenditures, whether they have a policy, and whether they disclose their expenditures," he continued. "We've done preliminary scoring of companies and sent them out to companies. They've been responding, and we've been having calls with upwards of 30 companies about their scores. It's been an extremely important process, and companies are taking the Index seriously."

Given the impressive shareowner votes on the issue in 2011, as well as the ongoing activities of CPA and The Conference Board, it would appear that a unique set of stakeholders is preparing to address the issues associated with corporate political spending in meaningful ways in advance of next year's national elections. However, Freed warned, not all industry sectors are responding with sufficient commitment.

"There are companies that are resistant," he said. "We're finding real resistance in the financial services sector. Wells Fargo has adopted political disclosure, but the others—Citi, JPMorgan Chase, Bank of America, and Goldman Sachs—are weak in this area."

"It's important that these companies do not continue to ignore the wishes of their investors," Freed concluded.

 

 
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