Follow the (Corporate Campaign) Money

The TakeAway: Shareholder activists and researchers focus on corporate political donations, while more than 80 percent of S&P 500 companies fail to provide spending information

“Follow the money” was a catchphrase of the 1976 movie All the President’s Men, the Watergate / Washington Post reality tale, where the media pursued the bad guys lurking in the shadows and poisoning our politics.  In 2010, the situation’s reversed: now media companies such as News Corp. are poisoning our politics, along with other firms and shadow donors—making “follow the money” practically impossible.  That’s the conclusion of a comprehensive study released today by the Sustainable Investments Institute (Si2) and the Investor Responsibility Research Center (IRRC) Institute, which benchmarks the governance of corporate political spending—an issue that’s heating up after this year’s Citizens United decision, which lifted key restrictions on corporate political expenditures.

But some activist investors question this mix of company money and electoral campaigns.  Yesterday, the Nathan Cummings Foundation (NCF), a News Corp. shareholder, called for the firm to disclose before tomorrow’s annual meeting its “use of corporate assets for any and all political spending”, according to The New York Times.  “The Board has a fiduciary responsibility to its shareholders to ensure that corporate funds are allocated in ways that serve the Company’s interest and will ultimately drive shareholder value creation,” write NCF CEO Lance Lindblom and Director of Shareholder Activism Laura Campos in their letter to News Corp.’s Lead Director, Sir Rod Eddington (who’s up for re-election).

Reports that News Corp. Chairman and CEO Rupert Murdoch spent “at least $2 million of shareholders’ assets to further the political aspirations of his personal friends and to support his own ideological political agenda” triggered their action.  This summer, Murdoch directed News Corp. to give $1 million to the US Chamber of Commerce; in June, the Republican Governors Association received a similarly controversial $1 million gift.  Lindblom and Campos cite reputational risks tied to such donations, particularly given recent allegations of tax fraud and federal elections law violations by the US Chamber.

Joining other members of the $9 trillion Investor Network on Climate Risk (INCR), NCF also co-filed resolutions calling for independent board review of political spending policies at Tesoro, Valero, and Occidental Petroleum.  The co-filers (NCF, Green Century Capital Management and the Unitarian Universalist Association (UUA) question big donations by the oil giants (Valero reportedly spent $4 million, Tesoro $1.5 million, and Occidental $300,000) to support Proposition 23, a California ballot initiative aimed at suspending the state’s landmark global warming act—until the state’s unemployment rate falls below 5.5% for an entire year (it currently hovers at 12%).  “Leading institutional investors both large and small are concerned that Prop. 23 … would be a step backward,” said INCR Director Mindy Lubber.

“Activist investors have been asking companies to disclose more about their spending on political campaigns since 2004, when the Center for Political Accountability began coordinating a campaign for voluntary reform,” write Si2’s Executive Director Heidi Welsh and Analyst Robin Young in How Companies Influence Elections: Political Campaign Spending Patterns and Oversight at America’s Largest Companies. The report examines S&P 500 company data and responses to an Si2 survey, and includes two case studies and a political spending primer.  “The findings indicate that corporations are falling short on political expenditure governance,” said IRRC Institute Program Director Jon Lukomnik.  Among the report’s conclusions:

• More than 80 percent of S&P 500 companies fail to provide information on actual contributions, as opposed to disclosing the policies that ostensibly control that spending, and

• Less than one-quarter of S&P 500 companies require their boards to oversee political spending.

The most striking:  most companies (86%) don’t disclose indirect giving—this year’s favored form.  “The research shows that voluntary disclosure of political spending – particularly independent expenditures and via intermediaries such as trade associations and other non-profits – is very limited,” Heidi Welsh told the Murninghan Post.  “At the same time, money is pouring into campaigns from these sources.”

We think “follow the money” should be replaced with “full disclosure and shareholder approval”—which help assure a healthy democracy.