November 19, 2011
New Report on the S&P 500's Corporate Governance of Political Expenditures
Back in August, ten law professors, as the "Committee on Disclosure of Corporate Political Spending," submitted a petition to the SEC asking “that the Commission develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities.”
The group includes Lucian Bebchuk, Bernard Black, John Coffee Jr., James Cox, Jeffrey Gordon, Ronald Gilson, Henry Hansmann, Robert Jackson Jr., Donald Langevoort, and Hillary Sale. The petition explains: “We differ in our views on the extent to which corporate political spending is beneficial for, or detrimental to, shareholder interests. We all share, however, the view that information about corporate spending on politics is important to shareholders—and that the Commission’s rules should require this information to be disclosed.”
I’ve been following with interest the comments to this petition. They’ve included statements from scholars like Ciara Torres-Spelliscy who has written extensively about corporate political spending, and this week the IRRC Institute has submitted a report on the S&P 500's corporate governance of political expenditures. In its submission cover letter, the IRRC Institute explains: “The report is the first to examine the governance policies of the full S&P 500; the first to report on spending of the full S&P 500; and the first to be part of a benchmarking time series, enabling trends to be examined robustly.”
Earlier this month, I posted about a recent report on the governance practices of the S&P 100, which the Center for Political Accountability and Wharton’s Zicklin Center for Business Ethics released.
I’m still digesting the new IRRC Institute report and may post more soon, but note for those interested in this area that it is well worth reading as it takes a broad and detailed approach, including information on topics such as governance about lobbying and whether companies provide public justifications for why they spend money on politics.
A few tidbits from the fascinating report:
On companies with “no spending” policies: “The overall number of companies that assert they do not spend money in politics has grown to 57, up from 40 a year ago. But a comparison of spending records and policy prohibitions shows that only 23 companies with ‘no spending’ policies actually did not give any money to political committees, parties or candidates in 2010 (though they may still lobby). Only 17 of these firms avoided all forms of political spending, including lobbying. (Another 57 companies have no policies about spending but also do not seem to spend.)”
On transparency: “Voluntary company disclosure of political spending remains limited and only 20 percent of S&P 500 companies report on how they spent shareowners’ money. Two‐thirds of the companies that appear to spend from their treasuries do not report to investors on this spending. The least transparent are Telecommunications and Financials firms; by contrast over 40 percent of Health Care companies explain where the money goes.”
On independent expenditures: “There has been a significant increase in the number of companies that discuss independent expenditures, which following Citizens United are allowed at the federal level for the first time in 100 years. Comparing companies in the index in both years (468 firms) shows that 19 more companies now say they will not fund campaign advertisements for or against candidates, generally will not do so, or are reviewing their policies—up from 58 last year. But only five companies now acknowledge in their policies that they make independent expenditures, even though careful scrutiny of voluntary spending reports adds a few firms to this tally.”
On the increasing adoption of indirect spending policies: “The proportion of companies that have adopted policies on indirect political spending through their trade associations has grown from 14 percent in 2010 to 24 percent. Half of the 100 biggest companies now disclose their policies on indirect spending through trade groups and other politically active non‐profit groups, but this commitment evaporates at smaller companies.”
On big companies spending big: “The top two revenue quintile companies were responsible for the vast majority of both federal lobbying and treasury contributions to national political committees and state political entities, with $915 million (93 percent) of the S&P 500’s total.”
On board oversight: “The 151 companies with board oversight of their spending disburse on average 30 percent more than their peers that do not have such oversight, when the latter comparison is controlled for revenue size. This may give some comfort to investors and others concerned about accountability and transparency, but not to those who think that corporate governance could be used as a lever to reduce spending.”
The report is also terrifically direct about information that is unknown, such as how much companies give indirectly through trade associations and other non-profit groups that spend in elections and on lobbying.