Shareholder groups seek to limit corporate contributions

Shareholder groups aim to keep a lid on companies’ political spending in the wake of Citizens United v. the Federal Election Commission, a case in which the Supreme Court eased restrictions on corporate campaign spending.

Michael Sloan

In late February, an obscure real estate company in Jacksonville, Texas, placed ads in two newspapers calling on local Republicans not to support the incumbent state representative in the GOP primary.

The ads didn't work. The incumbent won handily. But they played on the worst fears of some liberal groups. In the wake of a Supreme Court ruling easing limits on political spending, will corporate money flood into political campaigns?

Shareholder groups and others are rushing to make sure it doesn't. Handed down in January, the court's decision came too late for most shareholder activists to file resolutions for corporate annual meetings this spring. So some of them are turning to uncommon methods to keep a lid on corporate political donations.

"We're thinking beyond our usual tool of shareholder resolution filing, [exploring] what else might be effective," says Laura Berry, executive director of the Interfaith Center on Corporate Responsibility (ICCR) in New York. "The filing tool is a good one. But it's insufficient to the magnitude of the problem [of corporate political spending] this year. And the timing doesn't help."

In its January ruling in Citizens United v. the Federal Election Commission, the Supreme Court allowed corporations, and, by extension, unions and advocacy groups, to tap their treasuries to support or attack candidates for federal office – although they still can't directly contribute to these candidates. "We're horrified. It was a dreadful ruling that has all kinds of pernicious implications," says Ms. Berry.

So shareholders are fighting back. For example:

•In late February, the Center for Political Accountability (CPA) and the Council of Institutional Investors jointly sent letters to 427 of the companies in the S&P 500 stock index, asking them to disclose all their political contributions. The letters, signed by 44 other groups, also asked corporate boards to approve and review all company political outlays. As of now, 73 companies in the S&P 500, including almost half of those in the S&P 100 index, disclose their political spending, says Bruce Freed, the CPA's president.

•The Investor as Owner subcommittee of the Securities and Exchange Commission is taking up the issue of political contributions. "We will be [exploring] whether investors have a consensus view [on] what, if any, steps the SEC should take," especially as concerns disclosure, says Stephen Davis, chairman of the subcommittee and executive director of Yale University's Mill­stein Center for Corporate Gov­ernance and Per­for­mance in New Haven, Conn.

•Concerned par­ties are also supporting congressional bills that address corp­orate political spending. In March, for example, the Council of Institu­tional Investors and other groups testified at a congressional hearing in favor of the Share­holder Protection Act, which would require greater disclosure and accountability of corporate political spending.

For years, shareholders have been filing general resolutions asking companies, for example, to disclose their political contributions and directors' oversight of these outlays. As of early March, 46 resolutions on corporate political spending had been filed for 2010, versus 48 for all of last year, according to proxy advisory firm RiskMetrics Group Inc.

In the aftermath of the Citizens United case, however, one institutional investor is asking for something more ambitious. In February, the $129.4 billion New York State Common Retirement Fund in Albany asked American International Group (AIG) to give shareholders a vote on its political spending for the prior year, a request the fund calls unprecedented. "It wouldn't be a binding ratification," says Robert Whalen, spokesman for Thomas DiNapoli, sole trustee of the pension fund. "But we hope it would be a guide to the company's [future] political spending."

(Separately, the fund is the focus of a state probe of alleged kickbacks, but that investigation involves former state officials, not the current trustee.)

AIG spokesman Mark Herr had "no comment" on the Common Fund's shareholder resolution. He pointed out that AIG has "not made any political contributions at the federal level since 2008."

No one knows how much the Citizens United ruling will boost political spending on ads or other communications. The Center for Responsive Politics in Washington projects total spending (from all sources, not just corporate) of more than $3.7 billion in this year's election cycle. That excludes any Citizens United effect, says CRP spokesman Dave Levinthal.

Some investors particularly fear heavy spending by trade associations or other advocacy groups. One oft-cited rationale: In a January speech even before the Citizens United ruling, Thomas Donohue, head of the US Chamber of Commerce, said the chamber plans "the largest, most aggressive voter-education and issue-advocacy effort in our nearly 100-year history." (Chamber officials did not respond to requests for comment.)

Some other investors say many corporations will remain cautious in this area.

"Investors are concerned about the results of the Citizens United case. But so are many companies," says Timothy Smith, senior vice president of Walden Asset Management in Boston. "Political spending can be controversial and polarizing. And if a company has a brand name, it may not want to be involved in controversies regarding political contributions."

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