January 27, 2012
Shareowners File 40 Resolutions on Lobbying Expenditures by Corporations
by Robert Kropp
Walden Asset Management leads a coalition of investors calling on companies to disclose both direct
lobbying expenditures and indirect funding of lobbying through trade associations.
Spearheaded by the work of the Center for Political Accountability (CPA),
sustainable investors and governance advocates have, in the two years since the Supreme Court's
Citizens United decision, met with considerable success in pressuring corporations to disclose
their political spending activities.
CPA has thus far convinced more than half the
companies listed in the S&P 100 to adopt policies of disclosure and board oversight of corporate
political spending. And during the 2011 proxy season, 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.
However, as a report
published in November by the IRRC Institute
(IRRCi) and the Sustainable Investments
Institute (Si2) points out, corporate money is still flowing into the electoral process.
More than $1 billion, in fact, was spent by corporations in 2010 on efforts to influence the
political process. And while investor have made inroads in their efforts on behalf of disclosure,
most of the fundsó$979 million, or 87%ówent to lobbying, according to the report. The report also
noted that 80% of S&P 500 companies engage in lobbying.
The report stated, "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."
The report's forecast
of increased shareowner engagement on the issue of lobbying expenditures turns out to have been
correct. Last week, a coalition of 40 institutional investors called on 40 corporations to report
on lobbying expenditures. The resolutions filed by the investors also call for disclosure of
indirect funding of lobbying through trade associations.
In 2010, the investors pointed
out, the US Chamber of Commerce spent more than $132 million on lobbying, more than any other
organization. However, only 14% of S&P 500 companies disclose the portion of their trade
association dues used to fund lobbying. The IRRCi study found that 64% of companies in the S&P 500
make no mention of lobbying activities, and only 13 S&P 500 companies provide investors with
information on how much they spend on lobbying.
"It is important that our company's
lobbying positions, as well as processes to influence public policy, are transparent," a sample
resolution stated. "Public opinion is skeptical of corporate influence on Congress and public
policy and questionable lobbying activity may pose risks to our company's reputation when
controversial positions are embraced."
The resolution requests that companies disclose
policies and procedures governing lobbying, including lobbying done on the company's behalf by
trade associations; payments used for direct lobbying as well as grassroots lobbying
communications; membership in and payments to any tax-exempt organization that writes and endorses
model legislation; and decision-making processes and oversight by management and the boards of
As an example of corporate lobbying designed to weaken shareowner rights, the
investors pointed to the participation of Chesapeake Energy in drafting an Oklahoma law requiring
that publicly traded companies have classified boards. Classified, or staggered, boards, in which
directors serve overlapping terms, remains an important corporate governance issue for sustainable
investors and governance advocates; during the 2011 proxy season, shareowner votes in favor of
board declassification proposals averaged 72%.
According to the American Corporate Governance Institute (ACGI), "There is significant
empirical evidence suggesting that classified boards could be associated with lower valuation and
worse performance." By 2011, only one-third of S&P 500 companies still had a classified board.
An example of corporate lobbying to influence legislative and regulatory action was described
in a recent article,
authored by Bruce Freed and Karl Sandstrom of CPA and published in The Conference Board Review.
consequences of weak regulation can be staggering," the article stated. "A 2009 International
Monetary Fund study shows how mortgage lenders spent millions in political donations, campaign
contributions, and lobbying activities to defeat legislation aimed at predatory lending."
"Their success in quashing a regulatory response that could have mitigated reckless lending
practices and the consequent rise in delinquencies and foreclosures led the study's authors to
conclude that the financial industry's political influence poses a risk to itself as well as to the
economy," the article continued.
The investor coalition was organized by the AFSCME
Employees Pension Plan and Walden Asset
Management. Timothy Smith, Director of Environmental, Social and Governance (ESG) Shareowner
Engagement at Walden, stated, "Over the last five years, investors increasingly have urged
companies to disclose their spending aimed at influencing elections. This year investors have taken
a logical next step and asked companies to disclose their direct and indirect lobbying activities.
Whether the issue is environmental impact, consumer protection, financial reform or shareholder
rights, it is important for investors to understand how company dollars are spent to influence our
laws and regulations by lobbying activities. While many companies have modest government affairs
budgets, others spend tens of millions of dollars annually on lobbying directly and through trade
associations. We believe it is timely and appropriate for companies to be much more transparent."
The 40 companies targeted by the resolution include Bank of America, ConocoPhillips,
Goldman Sachs, IBM, JPMorgan Chase, Occidental Petroleum, PepsiCo, and Union Pacific.
fate of the proposal should prove especially interesting at Union Pacific, on whose board of
directors Tom Donohue, President of the Chamber of Commerce, sits. Donohue is a member of the
board's compensation and corporate governance committees as well.
According to a 2009 blog post
by the Natural Resources Defense Council, by 2008 Donohue had been paid annual retainers by Union
Pacific totaling over $1 million since 1998. He had also been granted over 43,000 shares of the
company's stock by 2008, and is entitled to the value of 20,000 more shares when he leaves the