With the 2012 presidential and congressional elections hurtling toward us and another proxy season just around the corner, the topic of corporate political spending is looming large, as U.S. companies weigh decisions on whether, how, and to what extent to spend corporate funds to contribute to political campaigns and advocacy organizations.
The topic of corporate political spending has been front and center since the January 2010 Supreme Court decision in Citizens United v. Federal Election Commission. A great deal has been written on the decision, the impact, and the response by both the private and government sectors. Last Friday, the issue was brought front and center again with the release of a new index of the S&P 100 by the nonprofit Center for Political Accountability (CPA).
CPA, which has been urging companies to adopt disclosure and oversight of corporate political spending, and which coordinates many of the shareholder proposals on the issue, has begun benchmarking the practices of companies in the S&P 100. CPA teamed with the Zicklin Center for Business Ethics Research at The Wharton School of the University of Pennsylvania to develop the CPA-Zicklin Index of Corporate Political Disclosure and Accountability, which ranks S&P 100 companies on their policies, disclosure and oversight related to corporate political spending. The Index excludes Phillip Morris International, which has no operations in the United States.
CPA president Bruce Freed says the index shows that, “Companies are adopting restrictions on corporate political spending because of shareholder engagement. And they are doing it voluntarily. The trend is toward disclosure by management and board oversight since political spending does pose a serious risk.” Freed co-authored the 2010 Conference Board Handbook on Corporate Political Activity and serves as chair of the advisory group for The Conference Board Committee on Corporate Political Spending.
The CPA-Zicklin report reflects a wide range of policies on political spending among S&P 100 companies. More detail on the results can be found in the press release, but here are some of the statistics highlighted in the report:
- Among the group, 83 companies directly engage in political spending. Of those, 57 disclose details of their spending on their websites.
- Among the companies that directly engage in political spending, 65 have some level of board oversight of political contributions and expenditures. Most (53) have designated a specific board committee to oversee the spending—often the public policy or public affairs committee, or the nominating and corporate governance committee. Ten companies state on their websites that the committee also reviews indirect expenditures made through trade associations and other tax exempt groups.
- Thirty companies place some prohibitions on using corporate funds for political activity, and 16 say that they do not spend treasury funds directly on candidates or political committees.
- Twenty-four companies have policies that prohibit making independent political expenditures. The other 75 either do not explicitly prohibit independent expenditures, or leave open the possibility of such spending. Of that group, 11 disclose their independent expenditures or say they will disclose if they engage in this spending. The other 64 do not disclose details of their independent expenditures or are unclear in their policies.
One type of corporate political spending that has come under particular scrutiny is payments to trade associations and 501(c)(4)s, since trade associations are not required to disclose their members, and 501(c)(4)s generally do not have to disclose their donors and with limited exceptions, are not required to disclose their contributions. While the S&P 100 seem to be adopting political oversight policies generally, the index indicates that disclosure of trade association expenditures is still an unsettled matter.
Like the Baruch Index released earlier this fall (see our blog post here), the CPA-Zicklin Index takes a snap shot of the current environment. And the index is another important resource for companies examining their political spending policies and procedures. The Index will be updated annually and will be expanded in 2012 to cover the S&P 500.
Pfizer, a member of The Conference Board Committee on Corporate Political Spending, scored in the top quartile of the CPA-Zicklin Index. Says Matthew Lepore, Vice President and Corporate Secretary, Chief Counsel – Corporate Governance at Pfizer, “Like our recent Committee report on political spending, an index like the CPA-Zicklin Index (and the recent one by Baruch College) is useful in terms of looking at a variety of company policies and practices. It is ultimately up to companies and investors to consider these tools, and for companies to assess the issue of corporate political spending in a way that is in line with their business, industry and corporate culture. Each company should identify its objectives in the political arena, in consideration of internal and external stakeholders, and put in place the process that is right for them.”
Obviously, there are differing views on the issue of disclosure, but it is important that management and boards at least have the discussion. As noted in The Conference Board Handbook on Corporate Political Activity, “it is always good corporate governance practice to evaluate political expenditures rigorously. Companies that adopt robust approval and oversight policies that cover the full range of corporate political activity and accountability are better positioned to avoid the serious financial, legal, and reputational risks associated with political spending while protecting shareholder value and promoting the company’s best interests.” In February of this year, The Conference Board convened the Committee on Corporate Political Spending, a committee of Fortune 500 corporations that is working to educate and engage the corporate community on policies and practices that companies can consider in the oversight in corporate political spending.
Since Citizens United, scrutiny of the disclosure and oversight of political spending has increased significantly, as evidenced by the proliferation of proposed legislation and shareholder proposals on the topic. For instance, during the 2011 proxy season, shareholders of Russell 3000 companies filed 67 proposals related to political contributions according to data from FactSet. For the 50 that went to a vote, shareholder support averaged roughly 23 percent (based on “for” votes as a percentage of votes cast). Three received for votes of 40 percent or higher, and another 10 had “for” votes of at least 30 percent. In addition, the SEC allowed a shareholder proposal seeking a shareholder advisory vote on political spending onto a corporate ballot for the first time in 2011, potentially paving the way for more “say-on-political spending” proposals.
For further discussion of how companies are addressing issues related to corporate political spending, check out an advance copy of the report by The Conference Board Committee on Corporate Political Spending, which recently hosted a public symposium where the issues and the steps that corporations can take to participate in the political process were discussed (see our prior blog post). The Conference Board will also host a webcast series on these issues throughout November, To Disclose or Not to Disclose, Is that the question? (registration required)