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 , 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.