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August 30, 2011
Will Howard Schultz Reform Corporate Political Spending?
    by Robert Kropp

The Starbucks CEO has called on fellow executives to boycott personal contributions because of political gridlock in Washington, but will his campaign lead to greater scrutiny of corporate political spending?

The widely-publicized campaign to halt political donations, launched earlier this month by Starbucks CEO Howard Schultz, has brought considerable attention to an issue whose significance will only grow; the elections of 2012 will be the first for national office since the Supreme Court's controversial Citizens United decision last year.

In a letter sent to the CEOs of companies listed on the New York Stock Exchange (NYSE) and NASDAQ, Schultz deplored the partisan gridlock currently on display in Washington, and wrote, "We today pledge to withhold any further campaign contributions to the President and all members of Congress until a fair, bipartisan deal is reached that sets our nation on stronger long-term fiscal footing."

Schultz's campaign has thus far attracted the support of more than 100 CEOs.
Democracy 21, an advocacy group that promotes campaign financing reform, threw its support behind Schultz as well. Its President, Fred Wertheimer, wrote, "It is rare to have the CEO of one of the nation's leading corporations take a stand that implicitly if not explicitly challenges and raises concerns about the nation's campaign finance system."

And beneath a headline that shouted
Boycott Campaign Donations!, New York Times columnist Joe Nocera wrote of the plan, "It is hardheaded and practical, the kind of idea you would expect from a good businessman."

But in reality, how far does Schultz's call carry? It is important to note, first of all, that Schultz's campaign addresses the individual political donations of CEOs, and not corporate donations. In other words, contributions by people in the traditional sense, before the Supreme Court ruled in Citizens United that corporations are people too.

The degree to which Citizens United 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.

A model resolution created by the
Center for Political Accountability (CPA) served as the basis for the 32 proposals. CPA has successfully convinced 51 companies in the S&P 100, and 87 companies overall, to disclose their political expenditures.

A list of all the CEOs signing onto Schultz's pledge has not been released, but a partial list reveals that most of the companies there have not developed a policy on political spending that conforms with the template devised by CPA. Only Schultz and two retired PepsiCo CEOs manage, or have managed, corporations that are included in CPA's
list of companies that "have agreed to disclose and require board oversight of their political spending with corporate funds."

All the resolutions submitted this proxy season emphasized the importance of board oversight of corporate political spending. Engagement by the
Nathan Cummings Foundation, for instance, led News Corp. to adopt a policy of disclosure of the media company's political donations.

In response to reports that Rupert Murdoch described a corporate donation on behalf of the candidacy of a former Fox News commentator as resulting from his personal friendship, Lance Lindblom, President and CEO of the Nathan Cummings Foundation, told, "Murdoch said the contributions were made because change was needed in Washington. But that is not a decision for him to make. That may be a decision for shareholders to make, but not the CEO of a corporation."

For whatever reason, Schultz chose to address his letter to fellow CEOs, and not to members of corporate boards of directors, who in fact should oversee political spending by companies, according to CPA and increasing numbers of shareowners.

Another issue ignored by Schultz in his appeal is the role of trade associations such as the US Chamber of Commerce in pouring money into political campaigns. Following Citizens United, the Chamber reportedly set aside $75 million to influence the mid-term elections of 2010. One can only imagine the war chest the Chamber is amassing for 2012, as it maneuvers to oust members of Congress who voted in favor of health care reform and who might be inclined to finally act meaningfully on climate change.

The model resolution created by CPA specifically addresses the issue of payments by corporations to trade associations. A resolution submitted at IBM, for example, stated, "IBM…has clear policies prohibiting political spending, but does not challenge the Chamber on its partisan political activities. These inconsistencies could be harmful to IBM's reputation."

Reading the policies of PepsiCo and Starbucks on corporate political spending, one finds markedly different approaches to the issue of payments to trade associations. The policy of Starbucks simply states that it will disclose "payments to trade associations where we are members at $50,000 per year or more, and the portions of these payments that are used for lobbying purposes."

PepsiCo, on the other hand, makes no mention of a minimum threshold for disclosure of payments to trade associations, and further states, "We require any trade association to obtain specific consent from PepsiCo to use PepsiCo's dues or similar funds for funding of exceptional political expenditures beyond regular dues and business matters."

"PepsiCo will further specifically direct each of its material trade associations…not to apply PepsiCo dues to any political event, organization or election activity without a specific approval from PepsiCo," the policy continued. Starbuck's policy makes no mention of such limitations on the use of its payments by trade associations.

It is worth revisiting the observation of Wertheimer of Democracy 21, that Schultz's campaign "implicitly if not explicitly challenges and raises concerns about the nation's campaign finance system." By calling on wealthy corporate managers to reconsider their political spending in response to a limited issue, Schultz has nevertheless brought increased attention to the role of corporate money in the political system following Citizens United.

In October, CPA and the Wharton School's Zicklin Center for Business Ethics Research will release the Corporate Political Disclosure and Accountability Index. The Index "opens a window on the political priorities and expenditures of the country's largest businesses and allows shareholders and the public to better assess how companies are using the freedom to spend in elections."

"Our Index will provide investors with a means of evaluating whether their company's policies and practices invoke transparency or meaningful accountability," Bruce Freed, CPA president, stated. "It will also help companies assess the extent to which they're following best practices for political disclosure and accountability." In the wake of Schultz's high-profile campaign, the policy of Starbucks is likely to receive added scrutiny.


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