June 28, 2012

More on “Corporate Political Spending: A Hot Topic That Will Not Go Away”

Recently, I blogged about corporate political spending. It’s a hot topic, but the numerous shareholder proposals on the topic have not received widespread shareholder support – although the first proposal did recently receive a majority vote as noted in this Davis Polk blog. And now there is a new Manhattan Institute study that claims that corporate political spending doesn’t hurt shareholders.

As noted in Jim Hamilton’s blog, some members of Congress are again (still?) pushing the SEC to adopt rules requiring disclosure of corporate political activity and to require a shareholder vote before being able to use funds for political spending. A push from someone in Congress in this area is essentially an annual rite of passage – but you never know when something might get traction on the Hill.

And one last item about The Conference Board’s corporate political spending conference I attended. One term that was bandied about was how to avoid being “Target-ized.” I asked Heidi Welsh of Si2 what that meant and here is her guidance:

Basically, Target gave $150k to a Minnesota political committee called “Minnesota Forward,” which was “business friendly” ie. in favor of lower taxes, less regulation, etc. Then Minnesota Forward gave the money to a Republican gubernatorial candidate, Tom Emmer. Emmer is against gay marriage and had taken some other strongly conservative social positions. The contribution was made known from media trolling of the state’s campaign finance disclosures – which are more robust than most – and gay rights groups felt the company had betrayed its commitment to the gay community (Target previously was well regarded by the Human Rights Campaign, etc.). So there was a nation-wide boycott. Very hard to quantify the impact on sales (it always is), but the publicity firestorm was intense and until now it’s been used as the index case for political embarrassment that can occur when companies dabble in politics.

Today, I think there are three more recent examples that are far more potent: 1. ALEC and Pepsi, Coke, etc., with “stand your ground” legislation (I think 14 companies have cut their funding to the group), 2. Wal-Mart lobbying against FCPA while knowing it quashed an internal investigation of bribery in Mexico, 3. the health insurance companies and the $86 million funneled through AHIP to the U.S. Chamber of Commerce on health care lobbying. The common denominator on all these three is that the money went to non-profit groups (either trade/501 c-6s or 501 c-3s) and thence into politics.

The challenge for companies is “how to address an apparently insatiable appetite for more information about how corporate money gets into the political arena?” Usually it’s not a straight-forward path as there are different definitions about what “political spending” is. My sense is that the general public’s definition is much broader than the one used by most companies. For example, this issue of “what is political spending” was in a Chicago Tribune article. Boeing apparently didn’t consider ballot initiative spending to be “political.” We found in our study of 2010 corporate political spending that companies spend quite a bit on ballot initiatives, but don’t always consider them political since they theoretically are non-partisan (but generally aren’t really).

Our analysis of all the S&P 500 political spending policies suggests that companies usually think it just means campaign spending directly to candidates, although this is changing. But the shareholder proponents on this topic have increasingly focused on indirect political spending, which encompasses money that is spent on both campaigns and lobbying, and on issue ads and campaigns from non-profits. While the investors in almost all cases are looking at company treasury money, the general public usually doesn’t perceive much difference between treasury and PAC money – even though the latter is from executives/employees, and isn’t “shareholder money” per se (unless you get into the issue of executive compensation, which many do). The 99 percenters don’t make these distinctions, however.

Does Corporate Spending Disclosure Impinge on Free Speech?

Check out Nell Minow’s blog entitled “‘Tis the Season of the Shareholders” on the important topic of whether forcing companies to make disclosures about their political spending is impinging on free speech.

More on our “Proxy Season Blog”

We continue to post new items regularly on our “Proxy Season Blog” for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Progress Report: Political Contributions & Lobbying Proposals
– Extension of the CPA-Zicklin Corporation Political Disclosure and Accountability Index
– How to Mitigate Disruptions at Your Annual Meeting
– Tracking Fortune 200 Ballots & Voting Results
– ICCR’s ESG Shareholder Proposal Database
– US Season Preview: Governance Proposals

Deal Cube Tournament: Round Two; 7th Match

As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

Green Bay Packers Football Stuff
‘For Sale/Sold’ Sign
Pink Clear Pig
Suitcase Nuke

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– Broc Romanek