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November 14, 2011
Corporate Political Spending: More Disclosure but a Billion Dollars Spent in 2010
    by Robert Kropp

The IRRC Institute confirms that more boards oversee political expenditures but that more money is being spent as well.


The Supreme Court's Citizens United decision last year galvanized shareowners and corporate governance advocates. As a result, disclosure and board oversight of corporate political spending is on the increase; the Center for Political Accountability (CPA) has succeeded in convincing more than half of the largest companies in the US to adopt transparent policies, and recently published an Index ranking companies on disclosure and board oversight.

Also, influential academics and institutional investors have petitioned the Securities and Exchange Commission (SEC) to mandate disclosure of corporate political spending, and a group of Senate Democrats have introduced a con stitutional amendment requiring disclosure.

But has all this activity, however successful, led to a decrease in political spending by companies? Apparently not, according to a recent report commissioned by the IRRC Institute (IRRCi) and conducted by the Sustainable Investments Institute (Si2).

The report confirms that more large companies are indeed disclosing their policies on the issue, and that board oversight of political spending is increasingly common. As recently as 2005, only two companies reported board oversight of political spending; now, according to the report, 31% of S&P 500 boards "have formal, explicit corporate governance responsibilities to review…corporate political spending."

However, political spending by corporations is still increasing. In 2010, $1.1 billion from the corporate treasuries of S&P 500 companies was spent on efforts to influence the political process. Companies in the more regulated utilities and health care sectors spent the most.

Most of the funds—$979 million, or 87%—went to lobbying, and the report noted that 80% of S&P 500 companies engage in lobbying.
However, only 13 companies "provide easily accessible information for their investors and other interested parties on how much they spend," and two-thirds fail to mention lobbying at all when they disclose their spending practices.

Furthermore, companies with board oversight of political spending actually spent 30% more than companies without an explicit board oversight policy.

"While many people assume that strong disclosure and governance practices will reduce corporate political spending, the data show that's far from a foregone conclusion," Jon Lukomnik, executive director of IRRCi, said. "Indeed, on a revenue-adjusted basis, companies with greater board involvement in the process actually spend more."

In what could be construed as a warning to the overwhelming majority of large companies that do not discuss their lobbying activities, the report states, "Investor activists increasingly want more information about company lobbying, and the 2012 proxy season is likely to see a big jump in shareholder proposals on the subject."

Another area of growing concern to investors is payments to trade associations such as the US Chamber of Commerce, which filed a brief in the Citizens United case opposing disclosure and amassed a war chest of $75 million to spend in last year's midterm elections. One of the seven key indicators in CPA's new Index is disclosure of payments to trade associations and other tax-exempt groups used for political purposes.

Thanks in large part to CPA's efforts on behalf of the issue, half of the largest companies listed in the S&P 100 now have policies of disclosure on indirect political spending through trade associations and other nonprofit groups. However, less than 20% of the remaining companies in the S&P 500 have such a policy.

And when it comes to 501(c)4 organizations—so-called "social welfare organizations," which, according to the Center for Public Integrity, "are taking in and spending tens of millions of dollars and reporting only a fraction of it to the FEC (Federal Election Commission) as political activity"—disclosure is even worse. Only 26 companies in the S&P 500 mention 501(c)4 organizations in their policies.

In one of the more telling observations of the report, 57 companies now state that they will not make political contributions, an increase from just 40 in 2010. However, such a ban "does not necessarily mean shareholder money does not make its way into political campaigns," the report states. "Just 17 of the companies with apparent spending bans in the entire index actually spent no money on campaigns or lobbying." Another 57 companies without disclosed bans on political spending did not engage in the practice.

"It's a complicated landscape," Heidi Welsh, the report's lead author and Si2 executive director, acknowledged. "Two-thirds of the companies that appear to spend from their treasuries don't report to investors, and nobody is breaking out how much may have gone to political campaigns."

Neither IRRCi nor Si2 has taken a position on the issue of corporate political spending itself; neither, for that matter, has CPA. But it is worth noting that companies in the financial industry, which successfully agitated for deregulation and then proceeded to cause the financial crisis, remain among the least transparent on political spending, according to the report.

Wri ting in the Huffington Post, Jack Ucciferri of Harrington Investments stated, "Public corporations are vast, ungainly amalgamations of people and institutions. And their political influence is eating away at the fabric of our Republic with increasingly greedy mouthfuls."

Ucciferri wrote in support of the Shareholder Protection Act , which would require corporate disclosure of political contributions as well as prior shareowner approval of the amount companies budget to politics.

However, as Sa nford Lewis wrote earlier this year, "One serious limitation of seeking a shareholder vote is that a majority of institutional investors typically support whatever the management of a company thinks is appropriate." Lewis suggested that requiring approval of 75% of shareowners could protect the rights of dissenting shareowners and offer more meaningful limitations of political spending by corporations.

 

 
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