The Murky Waters of Political Contributions Disclosure

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April 5, 2017

Since the U.S. Supreme Court’s 2010 decision in Citizens United, which effectively invalidated restrictions on certain corporate political contributions, various shareholder activists and corporate governance advocates have increasingly sought corporate disclosure of such contributions.1 Shareholder proposals seeking greater transparency of corporate political spending, for example, have generally increased in both number and investor support since Citizens United. Moreover, subsequent to Citizens United, neither the U.S. Congress nor the U.S. Securities and Exchange Commission has taken any formal action to ensure that shareholders (as ultimate owners of publicly held companies) are informed of how their corporate assets are being spent on political activity despite the significant increase in investors’ and governance advocates’ calls for corporate political contributions disclosure. Many companies, however, are voluntarily making these types of disclosures and such undertaking is evolving into a best corporate governance disclosure practice.

This article (1) provides general background information regarding corporate political contributions and related disclosure, including corresponding 2016 and 2017 proxy season activity, (2) summarizes the current corporate political contributions policies and positions of several large asset managers and pension funds, leading proxy advisory firms, and certain corporate governance advocates to provide insight into the expectations of these entities with respect to such contributions and related disclosure, and (3) presents practical considerations for board members to help facilitate discussion as to whether their company’s current political contributions and related disclosure policy, if any, satisfies the needs of the company and its shareholders and other stakeholders.

Political Contributions and Related Disclosure


Many companies and their boards of directors are being challenged by certain shareholders and corporate governance advocates to disclose information relating to their corporate political contributions.[2] Despite no current congressional or SEC mandate to do so, companies are increasingly voluntarily disclosing their political contributions prompted, in part, by increased shareholder activism on this issue. Such transparency, certain shareholders and corporate governance advocates argue, helps shareholders monitor whether this use of corporate assets is aligned with the business purposes and corporate values of the company and will generate long-­term shareholder value. For these and other reasons, disclosure of political contributions is evolving into a best governance practice. Consequently, and often prompted by shareholder (or a threat of shareholder) action, boards of directors and management are discussing the extent to which their companies should make such disclosures.

2016 Proxy Season

During the 2016 proxy season, 105 corporate political activity shareholder proposals, including those relating to lobbying spending and political contributions, were reportedly filed with U.S. public companies, down from a high of approximately 140 in 2014.4 The decrease in these types of proposals is due, in part, to the overall increase in companies voluntarily disclosing such activity. Lobbying spending and political contributions disclosure proposals were the fourth and fifth most prevalent shareholder proposals, respectively, in 2016.5 The Center for Political Accountability (CPA), a leading member of a coalition that since 2003 has spearheaded a shareholder proposal campaign for corporate political disclosure and accountability, has utilized a proposal template that generally asks companies to disclose political-spending guidelines, all payments to trade associations and other tax-­exempt organizations that are used for political purposes, the amounts contributed, and the identities of corporate officers involved in the expenditure decisions.6 CPA’s proposals that went to vote during the 2016 proxy season averaged nearly 33 percent shareholder support, with two proposals receiving majority support (no company received majority shareholder support on a political activity proposal during the 2015 proxy season).7

2017 Proxy Season

It is anticipated that the 2017 proxy season will be similar to the 2016 season, as CPA and its investor coalition will continue to submit shareholder proposals relating to corporate political disclosure and accountability. As of mid-­February 2017, at least 90 corporate political activity proposals had been reportedly filed and it is anticipated that additional proposals will be filed as the proxy season progresses.8

Future Action

With the recent change of administration in Washington, D.C., it is unlikely that any formal federal legislative or regulatory action concerning political contributions disclosure will occur anytime soon. Certain investors and corporate governance advocates, however, will likely continue their efforts to make such disclosure a best governance practice and pressure companies to make those disclosures voluntarily.

Current Policies and Positions of Certain Institutional Investors, Proxy Advisory Firms and Corporate Governance Advocates with Respect to Political Contributions and Related Disclosure

There is no one-­size-­fits-­all approach to corporate governance, including whether a company makes political contributions and related disclosures. The unique characteristics of the company, the industry in which it operates, the needs of company stakeholders (including shareholders), and the adoption of corporate governance policies the company and its board feel are essential to generate long-­term shareholder value should inform, in part, such contributions and disclosures. As boards evaluate whether making and/or disclosing such contributions is in the best interest of their companies and shareholders, it may be helpful to understand the corresponding policies and positions of large institutional investors, leading proxy advisory firms and certain corporate governance advocates, as this provides insight into the general expectations of these entities. A select summary of those policies and positions is provided below.

Institutional Investors — Asset Managers

Institutional Investors — Pension Funds

Leading Proxy Advisory Firms

Certain Corporate Governance Advocates

Considerations for Boards of Directors

To facilitate discussion among board members as to whether their company’s current political contributions and related disclosure policy, if any, satisfy the needs of the company and its shareholders and other stakeholders, directors may consider the following:

Undertake a Cost-­Benefit Analysis

Public companies are currently facing increased pressure from shareholders and other stakeholders to disclose their direct and indirect political contributions and to adopt related accountability and oversight policies and procedures. If a company does not already make these disclosures, its board may consider undertaking a cost-­benefit analysis (including evaluating (1) risks relating to reputation, public relations, business strategy and legal liability, and (2) arguments “for” and ‘against” such disclosure) to help determine the extent to which the company should disclose its corporate political contributions, if any. A management-level committee comprised of a broad range of internal stakeholders (including representatives from key business units, investor relations, legal, compliance and marketing) may contribute multiple and diverse perspectives as part of the analysis.

Consider Adopting (and Disclosing) a Formal Policy

To help provide guidance and a framework within which to make corporate political contributions and related disclosures, a company may find it beneficial to adopt a corresponding formal policy. Adoption (and disclosure) of such policy may prevent related shareholder activism and be well-received by shareholders and other stakeholders. A potential political contributions and disclosure policy could incorporate the following or similar concepts:

In adopting a political contributions and disclosure policy, it will be necessary for the board to determine whether such policy should be a formal stand-­alone policy or a policy incorporated into an existing company policy or handbook (e.g., corporate compliance policy or handbook). Regardless of where the policy is placed, it is a best governance disclosure practice to post (or provide a link to) such policy on the company’s website. Many companies also disclose a reference to their policy in their annual meeting proxy statement. If a company adopts a policy that explicitly prohibits political contributions, it should consider disclosing the same.

Determine the What, When, Where and How to Disclose

If the board determines that it is in the best interest of the company and its shareholders and other stakeholders to voluntarily disclose corporate political contributions, it should formalize procedures (which may be incorporated or summarized in the policy discussed above) on the mechanics of the what, when, where and how of such disclosures. Common disclosure mechanics include having a dedicated webpage to making the disclosures, with relevant links to state and/or federal filings, as applicable, that are updated semiannually or annually. A summary of these contributions may also appear in the company’s annual or corporate social responsibility report and be briefly referenced in the company’s annual meeting proxy statement.

Review Policies and Positions of Major Shareholders

The board should undertake a review of the political contributions and disclosure positions of its largest shareholders to determine what, if any, support and/or opposition may exist to the board’s current practice, particularly since large asset managers have varying views on this topic and support corresponding shareholder proposals to differing degrees.19

Benchmark Political Contributions Disclosure

Boards should consider benchmarking their political contributions disclosure against that of their peers and the industry in which they operate (as an outlier may become the target of activist shareholder campaigns or be identified by certain institutional investors as an organization with potentially problematic shareholder engagement and/or corporate governance practices). If a majority of peer companies’ disclosure practices differ from those of the company, the board should analyze the reasons behind this and determine whether a different approach might be in the best interest of the board, the company, and its shareholders and other stakeholders.

[1] Citizens United v. Federal Election Commission, 558 U.S. 310 (2010), which, in relevant part, effectively held that political spending is a form of protected speech under the First Amendment and the government may not keep corporations or unions from spending money to advocate for or against a candidate in an election. Interestingly, the Supreme Court’s decision in Citizens United was, however, supported (in part) by expectations that shareholders and other stakeholders would be informed of the company’s political contributions, with the court noting:

With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are “in the pocket” of so-­called moneyed interests. The First Amendment protects political speech;; and disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.

[2] Although companies may be required to report certain political expenditures to the Federal Election Commission, Internal Revenue Service and/or state disclosure agencies, it has been argued that the current “patchwork” of various political contribution disclosure policies leaves shareholders with “a complex system of partial and disjointed information to consider,” which has “substantial financial implication.” See letter to Mr. Brent J. Fields, Secretary, SEC, Re: File No. 4-­637, Committee on Disclosure of Corporate Political Spending, Petition for Rulemaking, from certain State Treasurers (April 21, 2015).

[3] The 2016 CPA-­Zicklin Index of Corporate Political Disclosure and Accountability, Center for Political Accountability (Sept. 29, 2016).

[4] Of the 105 shareholder proposals filed, 65 related to lobbying and 38 to political contributions. 2016 Proxy Mid-­Season Review, Sustainable Investments Institute, Heidi Welsh (Sept. 9, 2016).

[5] 2016 Proxy Season Review and Random Thoughts on 2017, Institutional Shareholder Services Inc. (course materials for Pat McGurn’s Forecast for 2017 Proxy Season webcast on Jan. 18, 2017).

[6] A typical CPA model political contributions resolution asked the company to report on and update semiannually the following:

  1. Policies and procedures for making, with corporate funds or assets, contributions and expenditures (direct or indirect) to (a) participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, or (b) influence the general public or any segment thereof, with respect to an election or referendum.
  2. Monetary and nonmonetary contributions and expenditures (direct and indirect) used in the manner described in section 1 above, including (a) the identity of the recipient as well as the amount paid to each and (b) the title(s) of the person(s) in the company responsible for decision making.

The report shall be presented to the board of directors or relevant board committee and posted on the company’s website.

2016 Proxy Season Analysis: Three Top Mutual Funds’ Votes Support CPA Political Disclosure Resolution in Line with Their Policies, Center for Political Accountability (Nov. 16, 2016).

[7] Shareholder proposals at Fluor Corp. and NiSource Inc. received 61.9 percent and 50.3 percent shareholder support, respectively (based on votes “for” and “against”). During the 2016 proxy season, five additional companies received shareholder support of more than 40 percent for political contributions-­related proposals (McKesson Corp., NextEra Energy Inc., Range Resources Corp., The Western Union Co. and Wyndham Worldwide Corp.). 2016 Proxy Mid-­Season Review, supra note 4.

[8] Proxy Preview 2017, Heidi Welsh (of the Sustainable Investments Institute) and Michael Passoff (of Proxy Impact) (March 8, 2017). At its annual meeting of shareholders on Feb. 7, 2017, Emerson Electric Co. received 40.3 percent shareholder support (based on votes “for” and “against”) on a CPA-­supported proposal regarding the issuance of a political contributions report. See Emerson Electric Co. Form 8-­K filed with the SEC on Feb. 10, 2017.

[9] Proxy Voting Guidelines for U.S. Securities, BlackRock Inc. (February 2015).

[10] Global Proxy Voting Procedures and Guidelines (North America), J.P. Morgan Asset Management Inc. (April 1, 2017).

[11] Vanguard’s Proxy Voting Guidelines, The Vanguard Group Inc. (2017). Notably, a coalition of advocacy groups launched a 2016 email campaign, which reportedly generated over 65,000 responses, urging Vanguard to change its voting on political disclosure resolutions submitted by shareholders. In response, a Vanguard spokesperson stated: “We regularly engage with the companies held by our funds and political spending disclosure is one of many topics we evaluate and discuss. We’re continuing to monitor the broader conversation.” Corporate Political Donations and Lobbying Are Still Trapped in a Murky, Dark Cloud, Fortune, Eleanor Bloxham (March 7, 2016).

[12] Global Governance Principles, California Public Employees’ Retirement System (March 14, 2016).

[13] 2016 Corporate Governance Principles and Proxy Voting Guidelines, Florida State Board of Administration (2016).

[14] Corporate Governance Principles and Proxy Voting Guidelines, New York City Employees’ Retirement System, New York City Police Pension Fund, New York City Fire Department Pension Plan and Board of Education Retirement System of the City of New York (April 2016).

[15] United States Summary Proxy Voting Guidelines — 2017 Benchmark Policy Recommendations, Institutional Shareholder Services Inc. (Updated March 14, 2017).

[16] 2017 Proxy Paper Guidelines: An Overview of the Glass Lewis Approach to Proxy Advice (United States), Glass Lewis & Co. LLC (November 18, 2016).

[17] Corporate Governance Policies, Council of Institutional Investors (Sept. 30, 2016).

[18] Principles of Corporate Governance, The Business Roundtable (2016).

[19] For example, a 2016 proxy season report noted the level of support for CPA’s model political disclosure proposals by the following asset managers:

2016 Proxy Season Analysis: Three Top Mutual Funds’ Votes Support CPA Political Disclosure Resolution in Line with Their Policies, supra note 6.

This article was published by Law360 on April 5, 2017 and is republished with permission. The article was originally a Chapman Corporate Governance Quarterly Update published on March 28, 2017.

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