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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 directors.

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.

"The 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.

The 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 board.


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