Political Spending And Lobbying by James R. Copland and Margaret M. O’Keefe, Proxy Monitor

Introduction

In 2016, a shareholder proposal concerning corporate political spending received majority shareholder support over board opposition—the first such result among 455 such proposals introduced over the last 11 years. There was no overall increase in shareholder support for political-spending-related proposals, however, notwithstanding increased political pressures.

Ever since the Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission[3]—which determined that independent political expenditures were speech protected by the First Amendment, even if funded by for-profit corporations—corporate political engagement has been much debated. The decision drew a rebuke from President Obama in his 2010 State of the Union address, with many of the Supreme Court justices in front of him.[4] In 2011, several U.S. senators, including 2016 Democratic presidential candidate Bernie Sanders of Vermont, proposed amending the First Amendment in response.[5] Also in 2011, several professors of corporate and securities law petitioned the Securities and Exchange Commission (SEC), seeking to have the agency establish rules for publicly traded companies to disclose fully their political spending, direct and indirect.[6] This petition has become increasingly politicized in 2016, as U.S. senators have openly clashed with the chairman of the SEC, Mary Jo White, over the agency’s failure to respond to it;[7] and some of these same senators have even seized on the issue to block President Obama’s new appointees to the SEC.[8]

The fight over the professors’ SEC rulemaking petition comes against a backdrop of long-standing efforts to influence corporate behavior on the subject by certain shareholder activists who take advantage of the agency’s rules[9] that allow owners of equity securities to place items on the proxy ballots of publicly traded corporations, to be voted on at their annual meetings, if the sponsoring investors have owned $2,000 or more company shares for at least one year.[10] And in 2003, Bruce Freed, a former Democratic congressional staffer, founded an organization, the Center for Political Accountability (CPA), exclusively to “campaign for corporate political disclosure and accountability.”[11] Dating back to 2006, the first year covered in the Proxy Monitor database, at least 19 shareholder proposals on companies’ political engagements have been placed on Fortune 250 corporations’ proxy ballots each year (Figure 1). The number of such proposals started to increase after Citizens United, peaking at 67 in 2014, before falling somewhat in 2015 and 2016. Nevertheless, as was the case last year, proposals related to corporate political spending or lobbying were the second-most common class of shareholder proposals introduced in 2016 (Figure 2).

Political Spending

*In 2016, for 228 of 250 companies with annual meetings scheduled through the end of June
Source: ProxyMonitor.org database

Political Spending

*228 of 250 companies with annual meetings scheduled through the end of June
Source: ProxyMonitor.org database

From 2006 through 2015, 401 shareholder proposals were introduced at Fortune 250 companies. Not one received majority shareholder support over board opposition.[12] In 2016, a board-opposed proposal on political spending did receive majority shareholder support—a May 5 proposal submitted by the City of Philadelphia Public Employees Retirement System to Fluor Corporation,[13] the largest engineering and construction company in the Fortune 500. This voting result may be company-specific and anomalous, however, as there is no broader uptick in shareholder support for political spending and lobbying proposals in 2016, relative to last year. This finding explores 2016 shareholder-proposal activism related to political spending and lobbying in historical and recent context.

Focus: Shareholder Activism on Corporate Political Spending and Lobbying

Background

The 2016 proxy season began with an atypically politicized environment around the issue of corporate political spending and lobbying. On Thursday, April 7, two Democratic senators—Chuck Schumer of New York and Elizabeth Warren of Massachusetts—held up the confirmation of President Obama’s two most recent nominees to the five-member Securities and Exchange Commission.[14] Schumer accused the president’s nominees of “fence-sitting” on whether they would support taking up a rulemaking petition,[15] submitted to the SEC by several law professors, which calls on the agency to mandate new corporate disclosures on political spending.[16] In a June 14 hearing before the U.S. Senate’s Committee on Banking, Housing and Urban Affairs, Schumer and Warren upbraided Mary Jo White, chairman of the SEC, on the same subject.[17] Warren complained that under White’s leadership, the agency was “mak[ing] life easier for corporations and harder for investors,” while Schumer went so far as to accuse White of “hurting America.”[18]

Politics-Related Shareholder-Proposal Activism: 2006–16

Since 2006, a majority of shareholder proposals involving corporate political spending or lobbying (53 percent) have been sponsored by labor-affiliated institutional investors, generally either pension funds for state or municipal employees or multiemployer pension funds affiliated with private labor unions (Figure 3). The second-most common sponsors of politics-related shareholder proposals have been institutional investors with a social or policy orientation, chiefly social-investing funds that focus on “socially responsible investing”[19] or religious-affiliated investors (typically, the pension funds of Catholic orders of nuns or other church-based institutions).[20] In 2016, such social- or policy-related investors constituted a majority (59 percent) of all politics-related shareholder-proposal sponsors (Figure 4).

Political Spending

*In 2016, for 228 of 250 companies with annual meetings scheduled through the end of June
Source: ProxyMonitor.org database

Political Spending

*228 of 250 companies with annual meetings scheduled through the end of June
Source: ProxyMonitor.org database

The pension funds for New York State and New York City’s public-employee retirees have been the shareholders most regularly sponsoring these types of proposals, followed by the American Federation of State, County, and Municipal Employees (AFSCME), which represents various public employees nationwide (Figure 5). The social-investing funds Northstar Asset Management and Trillium Asset Management have also been regular sponsors of shareholder proposals related to political spending or lobbying. In 2016, the New York State fund has sponsored four shareholder proposals that made Fortune 250 companies’ proxy ballots, as has the social-investing fund Walden Asset Management; the public-employee pension fund for Philadelphia has sponsored three (Figure 6).

Political Spending

*In 2016, for 228 of 250 companies with annual meetings scheduled through the end of June
Source: ProxyMonitor.org database

Political Spending

*228 of 250 companies with annual meetings scheduled through the end of June
Source: ProxyMonitor.org database

Just as the sponsors of shareholder proposals relating to political spending or lobbying have shifted over time, so, too, have their subject matters. From 2006 through 2016, about two-thirds of all politics-related shareholder proposals involved corporate political spending (Figure 7). Most typically, these have followed a template developed by the CPA that 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. In recent years, sponsors of shareholder proposals have more commonly sought to target corporate payments to groups involved in lobbying activities, including

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