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Why Both Shareholders and Companies Should Support Political Spending Transparency

It’s too easy for a person in corporate management to secretly spend company money on political projects. Disclosure would ensure that political expenditures are in the firm’s interest.

October 30, 2013

Crossposted on Huffington Post

Investors are hungry for more information about the companies they invest in. Shareholders—the owners of the company—deserve to know where their money is going. Currently, it’s too easy for one person in corporate management to secretly spend company money on pet political projects. Disclosure would empower shareholders to engage in oversight and ensure that political expenditures are in the firm’s interest. And transparency helps investors avoid companies where corporate management consistently engages in risky political behavior.

Top corporate leaders increasingly recognize the value of transparency. For example, Microsoft has made its political activity public since 2007. As Microsoft executive Dan Bross explained, “By not being transparent and open, we’d be increasing the risk to the corporation.” Bross has pushed transparency as a way for corporate America to regain the public’s trust. Now the software giant has made its reports even more detailed, in response to shareholder requests.

Microsoft isn’t an outlier—a growing number of America’s largest publicly traded corporations are now willing to share information about their political spending. The Center for Political Accountability (CPA), which scores companies based on their political activity’s transparency and accountability, found that 78 percent of companies studied improved their score this year. New companies receiving high marks include United Parcel Service, Noble Energy, CSX, and JP Morgan Chase; they join the likes of Merck, Microsoft, and Time Warner at the top of the ranking. And the CPA ranking isn’t the only sign of a trend toward greater disclosure; 90 percent of business leaders support disclosing all individual, corporate, and labor contributions to political committees and organizations that spend money in elections.

Shareholder resolutions concerning political spending become more common every year. This year, disclosure resolutions on campaign spending averaged a vote of almost 32 percent. Shareholder resolutions have resulted in 118 companies agreeing to adopt better policies concerning disclosure and accountability.

Despite the trend, there are some in the business community who oppose disclosure, arguing it might harm companies’ interests. But even setting aside the mounting evidence that political spending actually correlates to lower shareholder value, companies that use political spending to benefit their bottom lines shouldn’t oppose disclosure of that spending. If the activity is beneficial to corporate value, publicizing it should attract investors who agree with the strategy. Plus, disclosure can help companies avoid situations like the one Target found itself in three years ago, when the retailer faced boycotts after donating money that benefited a gubernatorial candidate opposing same-sex marriage—unbeknownst to unpleasantly surprised shareholders.

The Securities and Exchange Commission is poised to consider a petition for rulemaking submitted by 10 experts in corporate and securities law, asking the agency to require publicly traded companies to disclose their political spending. On Wednesday, Sens. Robert Menendez (D-N.J.) and Elizabeth Warren (D-Mass.) are holding a briefing to explain why shareholders need a uniform rule allowing access to information about all publicly traded corporations’ political spending. Voices supporting this measure include a group of 40 mutual fund and institutional asset managers that together manage more than $690 billion, as well as several state treasurers and pension funds. Transparency on political expenditures furthers the SEC’s mission to protect investors and ensure well-functioning markets. The SEC should step in to ensure that investors have the information they need about their companies’ political spending.