A separate analysis by Institutional Shareholder Services, soon to be distributed to the group’s clients, found that the number of shareholder proposals demanding more transparency in that arena has been steadily rising, from 88 in 2011 to 126 this year.
“This is a reaction to shareholders who have turned the volume up significantly in demanding information on political spending,” said Kenneth Gross, a campaign law expert at Skadden, Arps, Slate, Meagher & Flom. “The threat of legal action under state law in certain places is also playing a role.”
The trend is unfolding as the Securities and Exchange Commission weighs whether it should step into the fray and require publicly traded firms to report political spending — a move that’s been fiercely opposed by business groups and Republicans in Congress, some of whom argue that the information is unlikely to be material to shareholders.
The SEC said it might look into the issue after a group of 10 professors from leading law schools filed a petition asking the agency to mandate such disclosures. Retail investors, state treasurers, union pension funds and elected officials rallied behind the plan, helping generate more than half a million letters to the agency. But SEC Chairman Mary Jo White has declined to take a position on the matter, citing the need for further agency review.
“The companies have been moving toward disclosure on their own for years,” said Bruce Freed, president of the CPA, which pioneered the push for political spending disclosures. “But there’s variance among what information the companies are disclosing, and an SEC rule would bring uniformity.”
The center has been prodding companies to voluntarily make public their political spending since its creation a decade ago, Freed said. The movement slowly gained traction and was energized by the 2010 Supreme Court decision in Citizens United v. Federal Election Commission.
The decision rolled back restrictions on political spending by corporations, associations and labor unions. Corporations are banned from donating directly to candidates at the federal level, but they can spend unlimited amounts to advertise for or against a candidate as long as they do not coordinate with the candidate’s campaign.
They can do so independently or through trade associations and various types of nonprofit groups, which are not required to disclose who their donors are.
The CPA scored the top 200 companies in the S&P 500-stock index to rate disclosure policies and practices. It granted the most weight to companies that made public their payments to trade associations and tax-exempt organizations. Added points were given to corporations that posted a detailed policy governing political expenditures.
Sixteen companies shared the top five scores on the CPA-Zicklin Index, up from six last year. Among them were repeat high-performers, including Merck, Aflac and Microsoft. Qualcomm joined their ranks after settling a lawsuit earlier this year with the New York state comptroller concerning its political spending disclosures.
The comptroller, Thomas P. DiNapoli, sued Qualcomm to review the company’s political expenditures. His office is the sole trustee of the New York State Common Retirement Fund, which is a major Qualcomm shareholder. Since 2011, the office has filed shareholder proposals that led to agreements for more robust disclosures with more than 20 companies — including Southwest Airlines, Dr Pepper Snapple Group, Harley-Davidson and Noble Energy. Noble was one of the firms singled out in the index for showing the greatest improvement in disclosure policies this year.
Experts who track the issue cite a steady increase in the percentage of shareholders who favor disclosure when the matter is put before them for a vote. Still, the vast majority of these proposals have been rejected, and most by large margins.
“The chances of these shareholder proposals succeeding at the ballot box, if you will, are relatively small,” said Dan Bross, Microsoft’s senior director for corporate citizenship. “By the time a proposal comes before shareholders, it’s almost too late to craft an effective policy that can be in the interest of shareholders and the corporation. By that time, the conversation is pretty adversarial.”
Proponents of disclosure say shareholders need to know precisely how a company is spending money on politics in order to assess whether the spending exposes them to reputational, business or legal risks. They point to the 2010 debacle by Target, which offered a public apology after donating money to a political group that backed a Minnesota gubernatorial candidate who opposed same-sex marriage.