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More Shareholders Seek Transparency on Corporate Political Spending and Climate Change

Shareholder proposals that would require companies to disclose more activities are gaining traction.

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Stephen Chernin / Stringer

Despite more restrict­ive rules, share­hold­ers have come out of the gate in 2021 enga­ging with compan­ies and demand­ing changes ranging from more trans­par­ency for polit­ical activ­ity to more respons­ib­il­ity with respect to climate change. What’s happen­ing during corpor­ate proxy fights could have a big impact on the health of our demo­cracy.

At the end of the Trump admin­is­tra­tion, the Secur­it­ies and Exchange Commis­sion changed share­holder proposal rules to make it harder for investors to offer topics up for share­holder votes at publicly traded compan­ies. As I wrote about here, I was concerned that this could tamp down share­holder activ­ism to change corpor­ate beha­vior. This has been robust for a decade, espe­cially after the Supreme Court’s decision in Citizens United v. FEC green­lit a whole new abil­ity for corpor­a­tions to spend in polit­ics. Fortu­nately, just the oppos­ite has happened as share­holder activ­ity revved up in 2021.

Corpor­a­tions used their Citizens United rights to spend in 2020 federal elec­tion. In fact, corpor­a­tions spent over $100 million, as I described here in a public comment to the SEC. This was up from the midterms in 2018, when corpor­a­tions spent over $71 million. Of those totals in 2020, at least $33 million was from publicly traded compan­ies and at least $18 million was from publicly traded compan­ies in 2018.

These figures likely under­state the role of corpor­ate polit­ical spend­ing because of grow­ing dark money prob­lems. For one, corpor­ate money can be hidden when it is spent using opaque nonprofits like 501(c)(4)s and 501(c)(6)s. A prime example is the $114 million in dark money that was routed through the U.S. Cham­ber of Commerce, an opaque busi­ness trade asso­ci­ation, between 2012 and 2020.

And a grow­ing phenomenon in the 2020 elec­tion revealed another vector for unre­por­ted polit­ical spend­ing in our elec­tions: digital ads. Open­Secrets calcu­lated that $1 billion in dark money was spent in the 2020 elec­tion alone and that $132 million was spent on dark digital ads. Digital ads often fall outside of the campaign finance report­ing system because the last major over­all of the federal campaign law was in 2002, before Twit­ter or Face­book even exis­ted. But tech­no­logy has evolved, and the result is that the same polit­ical ad broad­cast on TV and on your Face­book feed are subject to very differ­ent regu­la­tions. The Face­book ads can fall into a black hole of zero report­ing. So what investors don’t know is whether any of the $1 billion dollars in dark money spent in 2020 came from their compan­ies.

Perhaps angered by the anti-share­holder rule from Trump’s SEC, or perhaps alarmed at the $1 billion in dark money in the 2020 elec­tion, or worried about the lack of progress on climate change, or even stunned by the Janu­ary 6 insur­rec­tion, investors have taken a more proact­ive stance on share­holder propos­als this year. Heidi Welsh, who stud­ies share­holder trends, noted that share­hold­ers’ “[s]upport for social and envir­on­mental share­holder resol­u­tions, which raise the most fraught corpor­ate respons­ib­il­ity ques­tions, has been rising steeply—s­tun­ningly so.”

And as the New York Times repor­ted, “In 2019, there were 51 polit­ical spend­ing propos­als at S&P 500 compan­ies; none passed, and they received an aver­age of 28 percent support. Last year [2020], of 55 similar propos­als, six passed and aver­age support rose to about 35 percent. … So far this year …five of the seven [polit­ical trans­par­ency propos­als] that have been put to a vote won major­ity support.”

For example, at the annual meet­ing of Cater­pil­lar this month, 47 percent of investors suppor­ted a share­holder resol­u­tion filed by As You Sow asking Cater­pil­lar to disclose whether and how the company is align­ing its climate policies and perform­ance with net-zero metrics. At Chev­ron, a share­holder proposal asking the compan­ies for climate-related account­ing received a vote of 48 percent in favor. Mean­while at Eli Lilly & Co, share­hold­ers voted 48 percent in favor of improved trans­par­ency for lobby­ing expendit­ures. And at Duke Energy Corp., share­hold­ers voted in favor of better clar­ity about polit­ical spend­ing in future elec­tions.

Notably, there have been major­ity votes as well during the 2021 proxy season. At United Airlines, share­hold­ers voted in favor of report­ing climate lobby­ing and report­ing polit­ical spend­ing at over 65 percent. At Exxon, share­hold­ers voted 55 percent in favor of disclos­ing all lobby­ing and 63 percent in favor of climate lobby­ing in partic­u­lar.

One of the things that has made a differ­ence at certain compan­ies is that big insti­tu­tional investors who have sat out these fights in years past have star­ted voting their shares after urgings from groups like the Corpor­ate Reform Coali­tion. In Decem­ber 2020, Black­Rock announced a new stance on Envir­on­mental Social and Governance (ESG) proxy voting. And the invest­ment giant has followed through: in the first quarter of 2021, Black­rock voted for 75 percent of envir­on­mental and social share­holder propos­als glob­ally. Vanguard also put out new proxy voting guidelines for 2021 that high­lighted its interest in the topics of polit­ical spend­ing and envir­on­mental issues, and the company’s actions will be repor­ted later this year.

As share­hold­ers demand more disclos­ures and other changes of corpor­ate beha­vior, the SEC needs to keep up with the times. The commis­sion needs to think about the disclos­ure rules that should apply across the board to all publicly traded compan­ies so that investors can compare firms on ESG metrics apples to apples. Even Congress may get in the act and mandate polit­ical spend­ing disclos­ures from all large public corpor­a­tions.

But until that happens, busi­nesses should listen to their investors who are clam­or­ing for corpor­a­tions to do better for demo­cracy and the envir­on­ment in sustain­able ways for the long term.

The views expressed are the author’s own and not neces­sar­ily those of the Bren­nan Center.