The U.S. Supreme Court decision Jan. 21 relaxing legal constraints on corporate political advocacy spending makes disclosure of such spending more important than ever.
The decision allows companies, unions and non-profit organizations to finance independent advocacy campaigns in favor of, or in opposition to, candidates, while direct contributions to candidates for federal elected offices are still prohibited.
Companies might not want to become so visible in advocacy campaigns, risking their reputations with shareholders and customers. But with Washington more involved in regulation and financing, companies, especially those in banking and insurance, have been preoccupied more with doing business with Washington than with just doing business. As a result, they may have more motivation to become involved in political campaigns to influence public policies.
Shareholders ought to insist on disclosure of corporate contributions to advocacy campaigns for federal elected office and to trade associations, as well as to state and local candidates, where corporations can contribute directly to candidates and political party committees. Likewise, union members ought to demand full disclosure of union spending in such campaigns.
Some members of Congress are working on legislation to require such disclosure. It must include corporations, unions and tax-exempt organizations.
For corporations, detailed disclosure helps boards, management and shareholders assess the amount of political contributions and value of them in advancing corporate financial performance. It also will encourage sophisticated academic studies of the effectiveness of contributions in promoting shareholder value. After all, if there is no corporate gain from it, there is no reason for corporations to contribute money that belongs ultimately to shareholders.
Public companies, especially in the money management business, ought to see the advantage to their own investment portfolios and lead the way on disclosure. Unfortunately, they generally don't, although Morgan Stanley is a leader in such transparency, according to the Center for Political Accountability.
The Council of Institutional Investors has a sensible policy on the issue, calling for disclosure and for board of directors' oversight of corporate charitable and political contributions, including to trade associations, to ensure the spending is in the interests of the company and shareowners.
Thomas P. DiNapoli, New York state comptroller and sole trustee of the $126 billion New York State Common Retirement Fund, Albany, filed a proposal with American International Group Inc. to give shareholders a non-binding vote on ratifying the company's political spending for the prior year to promote transparency and accountability to investors, he said in a statement Feb. 9.
But calls for shareholder votes on political spending, a so-called say on contributions, won't achieve the board oversight and accountability shareholders should want. The council, for instance, takes no position on such a shareholder vote.
The spending often is aimed at big issues like health-care reform, but sometimes at local issues like zoning for business sites. At the state and local governmental level, at least, corporate contributions often are disclosed generally through only those governmental unit's filings. Companies should consolidate all such contributions on their websites or in their reports to make it easier for shareholders to find and evaluate this spending.
Mr. DiNapoli is right when he said in the statement: “When corporations like AIG spend millions of dollars in elections, they need to be fully transparent and accountable to their shareholders.”
The same logic applies to trade unions and non-profits. Union members deserve to know how their dues are being spent, and non-profits owe their contributors the same information. Any legislation that demands disclosure should include them.
Companies attract scrutiny because they seek commercial advantages through trade restrictions or indirect subsidies through special tax treatment. These advantages can accrue at least temporarily to the benefit of shareholders but also might invite a backlash or cloud true financial cost and profit forecast on a project dependent on political action. Companies, too, draw unwanted attention as targets of excessive regulation and tax increases.
Companies should voluntarily disclose or risk draconian disclosure of political spending imposed by the Securities and Exchange Commission or Congress.
Last year, 47 shareholder proposals called for political contribution disclosure, with votes in favor ranging from about 20% to 40%, according to the center. Companies can look to corporate leaders on disclosure for examples of transparency. Some 70 companies in the Standard & Poor's 500 provide disclosure on political contributions, according to the center.
Disclosure enables pension funds and other shareholders to see that such spending ultimately goes to a good cause: their own enrichment.