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November 06, 2012
A Different Take on CSR Disclosure and Political Spending
    by Robert Kropp

A report from two University of California professors determines that political contributions by corporate managers, when viewed through the lens of corporate social responsibility disclosures, can lead to excess stock returns, especially in states that vote Democratic.

The most expensive Presidential election campaign in American history ends today, when voters will choose one of two starkly opposed paths forward for the next four years. A leading factor contributing to the expense, of course, was the US Supreme Court's controversial Citizens United decision in early 2010, which established the concept of corporate personhood and opened the floodgates for the political spending that occurred this year.

What has been decried as the abandonment of judicial restraint by the Roberts court is one of the most critical issues of today's election. Four of the sitting Supreme Court judges are over the age of 70, and there is a distinct likelihood that the winner will reshape the Court for a generation to come.

Led by the Center for Political Accountability (CPA), sustainable investors, galvanized by Citizens United, have engaged with many corporations in an effort to have them disclose their political contributions. By March of this year, CPA reports, 100 large corporations have adopted the governance standards of political disclosure and board oversight of political spending.

A recent report from two University of California professors may be an outlier in the landscape of corporate political spending, but its points make for interesting reading. Entitled
Strange Bedfellows? - Voluntary CSR Disclosure and Politics, the report seeks to determine if an association can be established between a company's intensity of corporate social responsibility (CSR) disclosure and the individual political contributions of corporate managers.

Using press releases published on
CSRwire, the authors determine that such an association can indeed be established, especially "when Democratic individuals who work at companies in states where the voting favors the Democratic presidential candidate make the contributions."

Furthermore, the authors continue, "Tests show a positive and significant association between corporate political contributions and excess stock returns." Investing in companies with high CSR disclosure intensity and political contributions by corporate managers produces an excess stock return of 4.5% over the three-month period following disclosure.

"These results challenge the widely-held belief that money does not seem to curry favor with politicians," the report states.

"Corporate individuals' political contributions have a distinct impact on company shareholder value when viewed through the lens of the intensity of companies' voluntary CSR disclosures," especially in states which voted for the Democratic candidate in previous elections, the authors conclude.

Their study confirms the position that investors treat CSR disclosure as an important contributing factor in their investment strategies, the authors assert.

Much recent literature on the subject of corporate political spending comes to the opposite conclusion about its effectiveness, however. A
study published earlier this year, for example, found that corporate "donations are negatively correlated with future excess returns."

"Political donations are symptomatic of agency problems within firms," according to the report, whose authors concluded that better corporate governance is associated with reduced political spending.

And Bruce Freed, President of CPA, wrote to in an email, "Political spending poses a range of risks to companies reputation, legal and business and the spike in secret political spending can distort markets and outcomes."


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