We’re willing to bet that the Securities and Exchange Commission (SEC) doesn’t often draw picketers, but on March 26, a group organized under the banner of the Coalition for Accountability in Political Spending (or CAPS)1 stood outside the SEC’s normally quiet offices and demanded the swift implementation of a proposal requiring publicly traded companies to disclose details of the agency’s political spending.
Two weeks earlier, at a press conference broadcast on C-Span, a coalition of citizens groups2 announced plans to transform this year’s stockholder meetings into a “shareholder spring” of protest against corporate involvement in politics. Bob Edgar, president of Common Cause and former Democratic congressman from Pennsylvania, told reporters, “We plan to let these corporations know that there will be a great cost to playing politics.”
What happened to turn the once un-sexy topic of campaign finance reform into a hot issue? Citizens United, of course – the Supreme Court’s January 2010 decision that struck down restrictions on independent political spending by corporations and unions – and its subsequent impact upon the 2010 and 2012 election cycles.
“The problem of Citizens United is that it allows corps to drown out the voices of regular people,” Edgar said at the event. Last fall, Common Cause urged the nation’s top 700 corporations to refrain from political giving during the 2012 election season. “We are working to give that request teeth through the shareholder resolution process,” Edgar continued, announcing a partnership with Trillium Asset Management (Trillium) and Green Century Capital Management to place resolutions at Bank of America, 3M and Target. “We plan to organize press conferences and rallies at each of these shareholder meetings. We plan to let these corporations know that there will be a great cost to playing politics.”
Readers of this newsletter know that shareholder resolutions addressing corporate political spending have been quietly transforming corporate disclosure and spending policies since the mid-2000s. Working in close coordination with the Washington-based Center for Political Accountability (CPA), investors have convinced more than 100 companies to commit to greater oversight and disclosure of political expenditures. What is new this year is the even-greater need for corporate self-restraint given the Court’s decision, the embrace of shareholder resolutions as a tool by citizens groups, and the new directions that shareholder resolutions are taking.
The New Landscape
It was only a few months after Citizens United was handed down before the risks that it provided became glaringly apparent. In the early part of 2010, Target Corporation gave a substantial ($100,000) contribution to an independent committee set up to support a Minnesota gubernatorial candidate known for his anti-LGBT (lesbian, gay, bisexual, transgender) views. When the news broke, the company endured a full-scale backlash of in-store protests, a grassroots boycott and widespread media coverage. Trillium and other social investment firms quickly filed a shareholder proposal aimed at strengthening the company’s internal criteria and vetting processes used to make political donations.
The other corporate contributors to the committee, known as MN Forward, must have breathed a sigh of relief that Target took the brunt of the public’s wrath. 3M, however, defiantly made a second large contribution to MN Forward after the Target controversy broke, insisting on its right to support “pro-business” candidates even if they took positions in direct opposition to the company’s other values (such as valuing diversity in the workforce and community).
As a 527 committee, MN Forward was required to disclose the identity of its large donors, but secrecy is common, if not the norm, after Citizens United.3 Unlike 527s, 501c-4’s and trade associations (501c-6’s) are not required to disclose who their donors are, and both can funnel money to additional parties to make donor identities even harder to trace. These loopholes have led to the rise of Super Pacs.
For example, PhRMA, the drug industry trade association, gave $4.5 million to a 501c-4 in 2010. The recipient organization did not have to disclose the gift, and it only became public information when PhRMA filed its 2011 tax returns, full year after the 2010 elections.4
The trend lines are alarming. Spending by outside groups between the 2006 and 2010 mid-term elections rose from about $50 million to $275 million.5 Total independent expenditures rose from nearly $69 million to approximately $305 million in those cycles.6 The impact of Citizens United could not be clearer.
New resolutions push the envelope
Since 2004, Trillium has been a leader in corporate political spending advocacy. Our engagements with more than 20 companies have led the majority of them to make governance and transparency improvements. This year we’ve continued our successful run with Chubb, State Street and Halliburton agreeing to make significant improvements to their policies, particularly in the area of disclosure.
Trillium’s position has evolved since Citizens United. We believe that even though corporations’ right to spend shareholders’ money freely in the political process has been affirmed, it is inappropriate, unwise and overly risky to do so. We will continue to advocate for complete transparency and board-level oversight of political contributions at those companies that choose to engage in the political process, but where we can, we will also encourage corporations to simply refrain altogether. Companies should not be in the business of making political decisions on behalf of their shareholders, who cannot “opt out” of their contribution to these efforts in the way that union members can collect a refund for the portion of their dues used for political campaigns.
Our resolutions at 3M and Bank of America (and Green Century’s at Target) represent new ground – the first time that institutional investors are proposing that companies refrain completely from all categories of political spending, and the first time that such proposals will be championed by citizens’ groups.
Their recent mishaps well illustrate why we believe 3M and Target are good candidates for a “no spending” policy. As for Bank of America, as a company it is still reeling from the financial and economic crisis caused in part by misdeeds and miscalculations of its own making. Its industry was described by the Center for Responsive Politics, a group that tracks political spending, as “far and away the largest source of campaign contributions to federal candidates and parties.”7 In the view of many, the government bailouts that guaranteed the survival of Bank of America and its peers were granted in no small part in return for Wall Street’s generous political spending over the years. The New York Times described Bank of America as “one of the most demonized corps in America…. a symbol of all that’s wrong with banking, from stick-it-to-’em fees to dubious home foreclosures,”8 and as I write this, Matt Taibbi, the writer whose “giant vampire squid” characterization of Goldman Sachs will haunt that company for some time to come, has just published the screed “Bank of America: Too Crooked to Fail,” in Rolling Stone.
According to the CPA, Bank of America has contributed approximately $6.7 million in corporate funds to political activities since 2002. “The true figure is difficult to determine because reporting at the state-level is incomplete and can be misleading. This estimate also excludes payments Bank of America has made to trade associations or other tax-exempt organizations that fund political activities,” because the bank does not disclose that information. In a recent CPA ranking exercise, Bank of America placed 71st in the S&P 100.9
Companies that refuse to refrain from all types of political spending tend to claim that it would be a form of unilateral disarmament. However, this argument conveniently ignores other ways in which their voice can be heard on public policy issues – through lobbying, corporate PACs, and via the personal donations of employees, three routes our resolution does not address. Nor would they be breaking new ground, as a number of companies either have adopted policies banning all forms of political spending or have refrained from such spending even in the absence of such policies.10
A surge of investor interest
Proxy Preview 2012, a joint publication of As You Sow Foundation and the Sustainable Endowments Institute, has dubbed political spending “the headline issue” on corporate ballots this spring. In addition to the three “no spending” resolutions from Trillium and Green Century, the CPA and its partners have filed 47 addressing oversight and disclosure (which earned about 30 percent of the vote last year, on average), and Northstar Asset Management has filed seven that call for shareholder approval of political spending budgets.11 In addition, forty more proposals call for greater transparency about corporate lobbying budgets and priorities.
Public policy measures
Trillium is supporting several approaches aimed at blunting the impact of Citizens United or reversing it entirely. In February, Trillium CEO Matt Patsky testified before a Massachusetts state legislative subcommittee in support of a bill calling upon Congress to propose an amendment to the U.S. Constitution reversing Citizens United.
Last year, we signed onto an amicus brief in a Montana case in support of the state’s ban on corporate political spending, which is under challenge by a conservative group that wants corporations to be spend unlimited sums in elections.
We have also added our name to letters supporting the DISCLOSE Act, which would broaden disclosure requirements for political donors, and the rulemaking petition championed by CAPS officials.
And the proposals that drew picketers to the SEC? It has set a record for that agency with 178,000 signatures of support.
1. Founded in August 2010, CAPS is “the nation’s first and only bi-partisan coalition of elected officials dedicated to curbing corporate influence in our elections.” (See http://politicalspending.org.)
2. Common Cause, Public Citizen, Coalition for Accountability in Political Spending (CAPS), Service Employees International Union, MoveOn.org, Americans United for Change, Public Interest Research Group (PIRG), Public Campaign Action Fund, Campaign for America’s Future, National People’s Action, Progress NOW, Every Child Matters, Health Care for America Now, Occupy Wall Street, and USAction
3. According to Craig Holman of Public Citizen’s Congress Watch, the proportion of groups making electioneering communications that reported their donors declined from nearly 100 percent in 2004 to 34 percent in 2010. (Webinar sponsored by Business Ethics Network, September 13, 2011.)
4. Michael Beckel, “Drug Lobby Gave $9.4 Million to Nonprofits That Spent Big on 2010 Election,” February 27, 2012 (at http://www.iwatchnews.org/2012/02/27/8271/drug-lobby-gave-94-million-nonprofits-spent-big-2010-election).
5. Holman, ibid.
6. Meredith McGehee, Campaign Legal Center (Webinar sponsored by Business Ethics Network, September 13, 2011.)
7. “Finance/Insurance/Real Estate” industry profile by the Center for Responsive Politics at www.opensecrets.org/industries/indus.php?Ind=F.
8. “The Image Officer With A Lot to Fix,” New York Times, January 14, 2012.
9. The CPA-Zicklin Index of Corporate Political Disclosure and Accountability, October 2011 (www.politicalaccountability.net/index.php?ht=a/GetDocumentAction/i/5800).
10. Corporate Governance of Political Expenditures: 2011 Benchmark Report on S&P 500 Companies (www.siinstitute.org).
11. As You Sow Foundation and the Sustainable Investments Institute, Proxy Preview 2012 (asyousow.org/publications/2012/ProxyPreview2012.pdf).
The views expressed are those of the authors and Trillium Asset Management, LLC as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be a forecast of future events or a guarantee of future results. These views may not be relied upon as investment advice. The information provided in this material should not be considered a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the authors on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. The information contained herein has been prepared from sources believed reliable but is not guaranteed by us as to its timeliness or accuracy, and is not a complete summary or statement of all available data. This piece is for informational purposes and should not be construed as a research report.