Shareholders Demand Disclosure -- and Republicans Push Back

AP Photo/Manuel Balce Ceneta

House Financial Services Committee Chairman Representative Jeb Hensarling speaks on Capitol Hill in Washington, Tuesday, May 2, 2017, during the committee's hearing on overhauling the nation's financial rules. 

Corporate political spending has spiked noticeably in the business-friendly Trump era, but so has the pressure on corporations to fully disclose the money they pour into politics.

Shareholders have filed dozens of resolutions this proxy season that call on companies to explain and account for their political spending. In January and February alone, shareholders filed 90 resolutions relating to political activity, including one that comes before the Berkshire Hathaway board on May 6. By one estimate, such resolutions numbered 105 in 2016.

But Republicans on Capitol Hill, under pressure from business lobbyists, have introduced legislation authored by Texas Representative Jeb Hensarling that would silence most shareholders as part of a larger bill to overhaul the Dodd-Frank regulations. The resolution would be “a disaster” for the shareholder movement, says Bruce Freed, president of the Center for Political Accountability, which publishes an annual ranking of companies’ political money transparency and oversight.

This year, shareholders and watchdogs have stepped up the pressure by calling on mutual funds such as the Vanguard Group, Inc., BlackRock, Inc., and Fidelity Investments to get behind the disclosure resolutions. A Corporate Reform Coalition led by watchdogs, academics and investors urged mutual funds in a May 3 press call to back disclosure. Mutual funds have significant voting power but typically abstain from or reject such resolutions, says a report released this week by Public Citizen.

Shareholder and public pressure on corporations has been building since the Supreme Court’s 2010 Citizens United ruling, and more than half of S&P 100 companies already voluntarily disclose some or all of their advocacy-related political activities.

Most corporate spending post-Citizens United has flown under the radar, however, routed through trade and advocacy groups that operate outside the disclosure rules. Companies have typically shied away from contributing directly from their corporate coffers to super PACs, which may take unlimited contributions but must publicly report their donors, to avert consumer backlash.

But that may be changing under Donald Trump, who has stocked his cabinet and his White House staff with CEOs and Wall Street insiders. Trump’s inaugural committee drew $107 million—double the previous record—including tens of millions from big companies making unlimited corporate contributions for the first time, according to Bloomberg BNA.

One inaugural event raised millions for the Congressional Leadership Fund, a super PAC associated with House Speaker Paul Ryan, from such corporate givers as AT&T, Amgen, Anthem, and Exelon, Bloomberg BNA found, which until now have steered clear of super PACs. The Congressional Leadership Fund, in turn, has spent millions to support GOP candidates in the two high-dollar special House elections now under way in Georgia and Montana.

“This could be the beginning of expanded company contributions to super PACs,” says Freed, whose group recently unveiled a new “Track Your Company” tool that allows users to search and tally the often-obscure expenditures that companies make at the state level and through tax-exempt groups.

These disclosures show, for example, that though AT&T may have donated to a super PAC for the first time this year, the company funneled $4.7 million in 2015 alone to such non-federal political groups as the Cleveland Host Committee for the Republican National Convention, the Republican and Democratic Governors’ Associations, and the Republican State Leadership Committee, which helps elect GOP governors and gubernatorial candidates.

Such expenditures can put companies directly at odds with their own corporate policies. Dozens of corporations that denounced North Carolina’s anti-LGBT bathroom law last year had also donated to the Republican State Leadership Committee, which helped install the GOP legislative majority that enacted the law.

“Companies in many cases don’t know where the money is going, don’t know how it is being used, and really don’t look at the risks that are associated with this type of spending,” says Freed.

But disclosure advocates may be running out of ways to shed light on corporate political spending. During the Obama administration, the Corporate Reform Coalition lobbied the Securities and Exchange Commission to require all companies to fully disclose their political expenditures.

Now that Wall Street lawyer Jay Clayton has been confirmed to lead the SEC, the chance that the commission will move to require disclosure has gone from slim to none. Democratic Senator Bob Menendez of New Jersey said on the Senate floor this week that he voted against Clayton in part because he gave “no straight answer” when asked whether he would consider the 1.2 million public comments made to the SEC in favor of corporate political disclosure.

And the Hensarling bill would strip most shareholders of all leverage, not only to push corporations for political disclosure, but in other areas that often come up in shareholder resolutions, such as environmental stewardship and gender parity on boards. The bill would dramatically raise the ownership threshold for shareholders seeking to file resolutions. At present, a shareholder who has owned 1 percent or $2,000 of a company’s market capitalization for a year may file a resolution.

Hensarling’s legislation would eliminate the $2,000 threshold and expand the ownership minimum to three years, a proposal in line with recommendations by the Business Roundtable. At many large companies, a 1 percent share would be worth billions of dollars. Asked about the bill, a committee aide responded via email that that current rules “have allowed gadflies to hijack the process and push social and politically motivated agendas.”

But Freed says that shareholder resolutions have been “a very powerful tool” in changing corporate policies. Increasingly, he notes, companies embrace disclosure voluntarily as a good governance measure. Indeed, there’s some evidence that companies with strong political money transparency, policies and board oversight outperform other companies on the stock market. In other words, corporations that spend political money with no regard for their shareholders, their employees and the public may have reason to regret it in the long run. As would Republicans who count on their support.

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