Blog: Shareholder proposals for political spending disclosure make headway this proxy season

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The January 6 attack on the Capitol and the subsequent efforts to rewrite voting and vote-counting laws led many companies and CEOs to speak out, sign public statements and pause or discontinue some or all of their political donations.  However, as companies and executives increasingly take positions and express views on important social issues such as voting and democracy, climate change and racial injustice, there are many who want to hold them to it. As an MIT Sloan lecturer suggested in this article in the NYT, a signed statement from a CEO expressing commitment to an issue “gives people who want to hold corporations accountable an I.O.U.” One way the public has tried to call companies to account is to examine any dissonance or contradiction between those public statements and the company’s political contributions—to the extent those contributions are publicly available.  A piece published recently in the NYT’s DealBook, On Voting Rights, It Can Cost Companies to Take Both Sides, explores how that concept has played out dramatically this year, particularly as investors have sought accountability by submitting more shareholder proposals than ever seeking political spending and lobbying disclosure—and actually winning. As the executive director of the Black Economic Alliance contended in the article, “[b]eyond C.E.O. statements[,] businesses demonstrate their values by how they allocate their resources.” And investors are increasingly compelling companies to disclose their allocation of resources on political spending.

According to the NYT, in 2019, of 51 political spending proposals at S&P 500 companies, none passed, and the average level of support was only 28%.  By comparison, in 2020, of 55 political spending proposals, six passed and average support increased to about 35%. The Center for Political Accountability, together with its shareholder-proposal partners, has so far this year submitted 30 proposals and received six majority votes, including two at 80% and one at 68%. CPA and its partners have also withdrawn nine proposals after reaching agreements with companies about disclosure. According to CPA, “this has been the strongest proxy season” they’ve had. 

The NYT also reports that, since 2010, New York State’s public pension fund, one of CPA’s proposal partners, has submitted over 150 shareholder proposals on political spending. This year, two proposals received a majority vote and agreements were reached on three of five proposals, “a much higher success rate than in previous years.”  According to the pension fund’s trustee, the New York State comptroller, “[c]orporate spending on political causes in the dark is bad for business….It puts companies, and their value, at risk.”

Political spending disclosure is tied to ESG, the NYT observes, invoking SEC Commissioner Allison Lee, who views the disclosure as a way that investors can “test companies’ claims about support for climate-friendly policies or social justice issues and…hold corporate managers accountable before any associated risks materialize.” Even though there is no SEC rule that explicitly mandates political spending disclosure, Lee suggests that “companies may still have an obligation under the anti-fraud rules to ensure the statements they choose to make are not materially misleading.”

Former SEC Commissioner Robert Jackson told the NYT that, “until recently company leaders often didn’t know where their political giving went. With more pressure to be transparent, they’re less likely to delegate that task. ‘More and more well-run companies and responsible boards of directors are demanding to know where money goes in politics,’ he said.”

The NYT predicts that voting rights might be the issue that throws into sharpest relief any contradiction between corporate political statements and corporate political spending. As efforts have been made in a number of states this year to restrict ballot access and change who has final say on the vote count, the NYT reports, “hundreds of companies have signed statements opposing ‘any’ voting restrictions…. Voting is the basic right underlying democracy and a healthy business environment, the companies say.” But many have also made substantial donations to state party groups “that helped elect the politicians now proposing and advancing laws that restrict voting rights.” If a conflict between action in the form of political spending and publicly announced core values is brought to light, the conflict could fracture the company’s relationship with its investors, employees, customers and the public, who might view the company’s public statements as merely virtue-signaling or even hypocritical—perhaps leading them to spurn the company and its stock. The CPA “traced tens of millions of dollars of donations from public companies in the past two election cycles” to state party leadership committees and governors associations, “key groups that work to elect candidates at the state level, where much of the action on voting rights is now taking place.” These committees and associations are “527” groups, which “can accept unlimited donations from corporations—direct from their treasuries, not corporate political action committees—and distribute the funds to candidates, including those who may oppose companies’ public policy stances.”  

Many companies interviewed by the NYT for the article refused to respond on the record about their future donations. To the extent these donations continue, or resume after a post-January 6 pause, will public scrutiny lead to charges that these companies strayed from their announced core values, with all the negative consequences that may follow from that?

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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