Corporate Political Spending Disclosure

By Cydney Posner

In 2012, shareholders submitted over 100 political spending proposals (reports vary, some showing as many as 125 proposals – see News Brief dated 6/7/12), and it has been widely reported that Corp Fin is considering recommending a proposal that would mandate disclosure of corporate political spending and lobbying activities (see News Brief dated 11/8/12).  The Center for Political Accountability published a one-page summary  providing its take on the key elements of corporate political spending disclosure, sure to be one of the hot-button issues this proxy season (and already the subject of highly publicized, recently settled litigation, as well as corporate collaborations with union pension funds). 

The first element of effective corporate political spending disclosure involves adoption of a policy describing objective criteria for participation in the political process, identification (by name or category) of decision-makers and a commitment to public disclosure of expenditures.  The second element, disclosure of political spending from corporate treasury funds, is designed to allow shareholders to evaluate "whether corporate spending is in their best interest." Disclosure must be itemized and include both direct expenditures (e.g., state-level candidates and committee contributions, ballot measure spending and independent expenditures) and indirect expenditures (e.g., trade association dues and other payments, including special assessments for political purposes, and payments to other tax-exempt organizations, such as 527 groups, super-PACs, and 501(c)(4) "social welfare" organizations used for political purposes).  (You might recall that 501(c)(4)s are social welfare nonprofits that are sometimes used to run "issue ads" -- and can even run ads directly advocating for the election or defeat of a candidate -- in a way that is similar to PACs, but aren't subject to FEC rules requiring disclosure of donees.)  The final element, designed to ensure accountability to shareholders and other stakeholders, is oversight by the board of directors on a regular basis.  Data applying the 2012 CPA-Zicklin index (from the Wharton School and the Center for Political Accountability) evaluating and rating the transparency of political spending disclosure for about 200 companies according to a host of specified criteria can be found here. The accompanying report can be found here. 

The November 2010 Handbook on Corporate Political Activity from The Conference Board addresses some of the pitfalls, from adverse publicity to political corruption charges, that can result from corporate contributions and political spending.  The Handbook includes information (at least as of 2010) regarding various state prohibitions and discusses ways to establish an effective program to manage and oversee political spending. To the extent that companies do engage in political spending, the article, Dangerous Terrain discusses, among other things, ways to minimize the risk involved in giving money to third-party groups, for example, by asking for regular updates from trade associations and placing restrictions on how company money can be used by recipients.

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