Shareholder Proposals For Political Spending Disclosure Make Headway This Proxy Season – Corporate/Commercial Law – United States – Mondaq News Alerts


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The January 6 attack on the Capitol and the subsequent efforts
to rewrite voting and vote-counting laws led many companies and
CEOs to speak out, sign public statements and pause or discontinue
some or all of their political donations.  However, as
companies and executives increasingly take positions and express
views on important social issues such as voting and democracy,
climate change and racial injustice, there are many who want to
hold them to it. As an MIT Sloan lecturer suggested in this article in the NYT, a
signed statement from a CEO expressing commitment to an issue
"gives people who want to hold corporations accountable an
I.O.U." One way the public has tried to call companies to
account is to examine any dissonance or contradiction between those
public statements and the company's political
contributions—to the extent those contributions are publicly
available.  A piece published recently in
the NYT's DealBookOn Voting Rights, It Can Cost Companies to Take
Both Sides
, explores how that concept has played out
dramatically this year, particularly as investors have sought
accountability by submitting more shareholder proposals than ever
seeking political spending and lobbying disclosure—and
actually winning. As the executive director of the Black Economic
Alliance contended in the article, "[b]eyond C.E.O.
statements[,] businesses demonstrate their values by how they
allocate their resources." And investors are increasingly
compelling companies to disclose their allocation of resources on
political spending.

According to the NYT, in 2019, of 51 political
spending proposals at S&P 500 companies, none passed, and the
average level of support was only 28%.  By comparison, in
2020, of 55 political spending proposals, six passed and average
support increased to about 35%.

The Center for Political Accountability, together with its
shareholder-proposal partners, has so far this year submitted 30
proposals. Of the 12 that went to a vote, six received majority
votes, including two at 80% and one at 68%. CPA and its partners
have also withdrawn 13 proposals; 10 were agreements with companies
regarding disclosure and three were strategic withdrawals where the
company made substantial improvements but not enough to merit an
agreement. According to CPA, "this has been the strongest
proxy season" they've had. Their average vote has
steadily increased in the past three years from 36.4% in 2019 to
41.9% last year and 48.1% for 2021.

The NYT  also reports that, since 2010, New
York State's public pension fund, one of CPA's proposal
partners, has submitted over 150 shareholder proposals on political
spending. This year, two proposals received a majority vote and
agreements were reached on three of five proposals, "a much
higher success rate than in previous years."  According
to the pension fund's trustee, the New York State comptroller,
"[c]orporate spending on political causes in the dark is bad
for business....It puts companies, and their value, at


Of course, these proposals are precatory only, but boards
typically consider high levels of votes in favor as a reason to
respond to the issue, engage with shareholders or more. Failure by
the board to take some action on shareholder proposals that
received the support of a majority of the shares cast is considered
a "responsiveness" issue by ISS in determining whether to
recommend votes in favor of board members. Similarly, while Glass
Lewis "may note instances of significant support for
shareholder proposals," it believes that "clear action is
warranted when such proposals receive support from a majority of
votes cast (excluding abstentions and broker non-votes)."

Political spending disclosure is tied to ESG,
the NYT  observes, invoking SEC Commissioner
Allison Lee, who views the disclosure as a way that investors can
"test companies' claims about support for climate-friendly
policies or social justice issues and...hold corporate managers
accountable before any associated risks materialize." Even
though there is no SEC rule that explicitly mandates political
spending disclosure, Lee suggests that "companies may still
have an obligation under the anti-fraud rules to ensure the
statements they choose to make are not materially


In remarks to the Center for American Progress,
entitled A Climate for Change: Meeting Investor Demand for
Climate and ESG Information at the SEC
 Lee stressed
the importance of political spending disclosure in connection with
ESG, noting in particular that investors need to be able to
ascertain inconsistencies between a company's public statements
and its corporate political donations. Political spending
disclosure, she said, "is inextricably linked to ESG
issues." She cited research showing that many companies that
made carbon-neutral pledges or statements in support of climate
initiatives have donated to candidates with "climate voting
records inconsistent with such assertions."  In this
context, disclosure is key to accountability.  (See this PubCo post.)

And, in keynote remarks at the 2021 ESG
Disclosure Priorities Event, Lee contended that political spending
is an issue that can be extremely important to reasonable
investors, particularly because shareholders want to be able to
assess the use by companies of shareholder funds for political
influence. But, despite rulemaking petitions and other efforts,
there are no SEC requirements to disclose political spending and,
as a result, it's rarely disclosed in SEC reports. (As she
notes, the SEC is currently prohibited by Congress from spending
funds to finalize a rule on this subject.) Arguably, she continued,
companies' public statements after the events of January 6
regarding their political spending could "give rise to a duty
to disclose their actual political contributions—not unlike
the duty to disclose merger negotiations in Basic [v.
to ensure that such statements are not
misleading, especially if actual contributions run contrary to
these pledges. (See this PubCo post.)

Former SEC Commissioner Robert Jackson told
the NYT that, "until recently company
leaders often didn't know where their political giving went.
With more pressure to be transparent, they're less likely to
delegate that task. 'More and more well-run companies and
responsible boards of directors are demanding to know where money
goes in politics,' he said."

The NYT predicts that voting rights might be
the issue that throws into sharpest relief any contradiction
between corporate political statements and corporate political
spending. As efforts have been made in a number of states this year
to restrict ballot access and change who has final say on the vote
count, the NYT reports, "hundreds of
companies have signed statements opposing 'any' voting
restrictions.... Voting is the basic right underlying democracy and
a healthy business environment, the companies say." But many
have also made substantial donations to state party groups
"that helped elect the politicians now proposing and advancing
laws that restrict voting rights." If a conflict between
action in the form of political spending and publicly announced
core values is brought to light, the conflict could fracture the
company's relationship with its investors, employees, customers
and the public, who might view the company's public statements
as merely virtue-signaling or even hypocritical—perhaps
leading them to spurn the company and its stock. The CPA
"traced tens of millions of dollars of donations from public
companies in the past two election cycles" to state party
leadership committees and governors associations, "key groups
that work to elect candidates at the state level, where much of the
action on voting rights is now taking place." These committees
and associations are "527" groups, which "can accept
unlimited donations from corporations—direct from their
treasuries, not corporate political action committees—and
distribute the funds to candidates, including those who may oppose
companies' public policy stances."  


A report from the Center for Political Accountability, Conflicted Consequences, looked at corporate
political spending through non-profit, tax-exempt "527"
organizations, such as state party leadership and legislative
campaign committees and the governors and attorneys general
associations. These organizations accept "contributions from a
variety of sources and then spend it to advance a broad political
agenda." Once a company has contributed to a 527 group, the
corporate and other funds are pooled and then channeled to state
and local PACs and candidates, to "dark money" groups and
to other national 527 groups. As a result, companies no longer
control the use of their funds. The groups determine how the money
is used, what the message will be and which candidates or issues to
support, regardless of the contributor's own goals and

The CPA found that, over the last 10 years, hundreds of millions
of dollars have been poured into six large partisan groups by
publicly held companies and their trade associations, destined to
help elect state officials who drove "new agendas that have
transformed state and national policy." What's more, a
number of the intermediate organizations that are financed through
527s "often direct that money in ways that belie
companies' stated commitments to environmental sustainability,
racial justice, and the dignity and safety of
workers." The report also highlighted companies that
voiced their concern for racial injustice and support of diversity,
but, through their donations, ended up supporting legislators who
were instrumental in implementing racial gerrymandering. These and
other conflicts were exposed in various media reports.  As a
result, the CPA advised, companies and their boards need to be
aware of an "increasing risk...from their political spending.
When corporations take a public stand on such issues as racial
injustice or climate change, the money trail... can lead to their
boardroom door. It can reflect a conflict with a company's core
values and positions" and lead to sometimes humiliating, and
perhaps even toxic, unintended consequences. (See this PubCo post.)

Many companies interviewed by the NYT for the
article refused to respond on the record about their future
donations. To the extent these donations continue, or resume after
a post-January 6 pause, will public scrutiny lead to charges that
these companies strayed from their announced core values, with all
the negative consequences that may follow from that?


What about political spending legislation? That could obviate
the need for all of these shareholder proposals. In the aftermath
of January 6, Senators Chris Van Hollen and Robert Menendez
reintroduced the Shareholder Protection Act of 2021 to
mandate not only political spending disclosure, but also
shareholder votes to authorize corporate political spending. Among
other things, the bill would amend the Exchange Act to add, in new
Section 14C, a requirement that proxy statements contain a
description of any expenditure for political activities (as
defined) proposed to be made in the coming fiscal year that has not
been authorized by a vote of the shareholders, including the
proposed total amount, and provide for a separate vote of the
shareholders to authorize these expenditures. Companies would be
prohibited from making any political expenditures that have not
been authorized by a vote of the holders of the majority of the
outstanding shares. (See this PubCo post.)

The accompanying press release observed that "more
than 1.2 million securities experts, institutional and
individual investors, and members of the public have pressed
the [SEC] for a political spending disclosure rule. Yet, no
political spending disclosure standards have actually been
established, which has allowed corporate executives to continue
spending shareholder money without disclosure to and approval from
the very investors funding those contributions." That's a
reference to the 2011 rulemaking petition filed with the SEC by a
committee of law professors (including future SEC Commissioner
Robert Jackson) requesting that the SEC propose rules to require
disclosure of the use of corporate resources for political
activities. The petition ultimately received over 1.2 million
letters in support, and, in May 2015, former SEC Chairs and
Commissioner, William Donaldson, Arthur Levitt and Bevis
Longstreth, sent a letter to then-SEC Chair Mary Jo White urging
her to take action on the petition. (See this PubCo post.) Also in 2015, 44 Democratic
Senators sent a letter to White to add their voices
"to the many who have expressed frustration and disappointment
that the SEC decided to remove this issue from its regulatory
agenda entirely." In their view, because shareholders are
the "true owners" of corporations, public companies
should be required to disclose to their owners how their money is
being spent. (See this PubCo post.)

As you probably know, Chair White took a firm "hands
off" position, emphasizing that the SEC should not get
involved in politics, according to Bloomberg. (See this PubCo post.) Not to mention that numerous
appropriations bills have precluded adoption of any rules by the
SEC requiring disclosure of corporate political spending. (See,
., this PubCo post, this PubCo post and this PubCo post.) In fact, Section 631 of
the most recent appropriations act, the ''Consolidated Appropriations Act,
,'' prohibits the SEC from using any of the funds
made available "to finalize, issue, or implement any rule,
regulation, or order regarding the disclosure of political
contributions, contributions to tax exempt organizations, or dues
paid to trade associations."  Accordingly, some action by
Congress would be necessary to enable the SEC to adopt political
spending disclosure requirements.

Notably, in questioning by the Senate Committee on Banking,
Housing and Urban Affairs in connection with his nomination as SEC
Chair, Gary Gensler, was asked by both sides about political
spending disclosure. Gensler replied that his position on the issue
would be grounded in economic analysis and the courts' views of
materiality as the information reasonable investors want to see as
part of the total mix of information. Gensler added that he
considered the 80 shareholder proposals submitted last year on the
topic and the 40% vote in favor as a strong indicator.  In
light of that level of investor interest, political spending
disclosure was something he thought the SEC should consider. Of
course, if this bill is ultimately signed into law, political
spending disclosure—and more—will certainly be on the
SEC's plate.

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