Concern about undue corporate political influence remains the biggest single issue of concern for shareholder proponents, even though total filings are down from their 2014 apex. Proponents have filed more than 1,000 proposals over the last 10 years. Since these proposals use the same resolved clause repeatedly, despite relatively high support they are particularly vulnerable to exclusion under the new SEC rules that have substantially increased resubmission thresholds.
Proponents have filed 78 proposals thus far in 2021, down from 87 in 2020, although filings after the spring season are likely to increase the annual total. These resolutions seek more oversight and disclosure and only a few issues outside the coordinated main campaigns have come up (chart, top right). Since proponents are less likely to withdraw proposals on political spending, proportionally more of these go to votes. (Graph, bottom right.)
New developments: New in 2021 is a significant expansion of proposals asking for more specific information about lobbying on climate change, as noted in the section on climate change (p. 13). Since the lynchpin of effective climate action is government action, proponents are particularly interested in ensuring that companies do not use their influence to block climate legislation. Driving this development is the ample evidence most U.S. energy companies have opposed efforts to curb emissions and encourged reliance on fossil fuels, and the certainty that the changed political landscape in Washington means companies will spend potentially even more to affect legislation and regulation in the Biden administration.
In addition to the climate lobbying surge, a new proposal from the Nathan Cummings Foundation at Best Buy seeks informaiton about lobbying specifically connected to racial justice.
In response to the campaigns for more corporate
accountability, a growing number of companies now
do have oversight in place. However, their disclosure of expenditure amounts in public reports for investors still lags, particularly for state lobbying and especially for so-called “dark money” that flows through trade associations and other nonprofit groups, where donors are anonymous yet play an outsized role in shaping election outcomes and public policies. (See p. 38, for findings from a 2020 Si2 study that found partisan state spending by leading companies in the states.)
Proponents: Proponents include social investment and religious organizations, leading pension funds from New York City and State, trade unions and some individuals. Investor concern about corporate election spending began in 2003 with the founding of the Center for Political Accountability (CPA) and intensified after the Citizens United U.S. Supreme Court decision in 2010. The CPA’s model oversight and disclosure approach is the standard template for lobbying transparency, too, and forms the basis for the lobbying disclosure campaign run by Boston Trust Walden and the American Federation of State, County and Municipal Employees (AFSCME). The umbrella Corporate Reform Coalition supports shareholder activity on corporate spending and includes other reformers.
Resources: The most recent version of the CPA-Zicklin Index was released in fall 2020, tracking S&P 500 performance about spending on elections. No similar index exists for the lobbying issue, but that shareholder campaign emulates the model pioneered by the CPA. The Conference Board’s Committee on Corporate Political Spending offers a more corporate but generally supportive perspective on accountability, but has seen little recent activity.
Multiple proposals: Since 2013, proponents have been able to concurrently file separate election spending and lobbying proposals at the same company; before that the SEC judged them to be too similar and allowed the omission of the second one received. This year, seven companies have more than one proposal—Delta Air Lines, Duke Energy, ExxonMobil (three), FirstEnergy, Pfizer (one on values congruency, explained below), United Airlines and Vertex Pharmaceuticals.
Proponents espousing free market ideals for several years have borrowed the resolved clauses written by disclosure advocates, in successful efforts to block the main campaign proposals, since SEC rules still allow the exclusion of the second-received proposal on the same subject. None have surfaced to date in 2021, but these proponents are challenging corporate charitable giving practices. (See Conservatives, p. 68.)
Lobbying
Primary resolution: The resolved clause for the main lobbying campaign resolution remains the same as in the past and has been filed at 31 companies so far in 2021 (see table for a full list). Fifteen are resubmissions and several face the new, higher resubmission thresholds.
The main proposal asks for an annual report that includes:
Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications.
Payments by [the company] used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient.
[The company’s] membership in and payments to any tax-exempt organization that writes and endorses model legislation.
Description of the decision-making process and oversight by management and the Board for making payments described in sections 2 and 3 above.
For purposes of this proposal, a “grassroots lobbying communication” is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or regulation. “Indirect lobbying” is lobbying engaged in by a trade association or other organization of which [the company] is a member.
Both “direct and indirect lobbying” and “grassroots lobbying communications” include efforts at the local, state and federal levels.
The report shall be presented to the Audit Committee or other relevant oversight committees of the Board and posted on [the company]’s website.
Votes—Investors at Tyson Foods gave the proposal 17.9 percent in February—reflecting some 80 percent of shares not held by the Tyson family, but not reaching the 25 percent of all shares votes that it needed to qualify for resubmission under the new rules. (The proposal is in its fifth year.) Other early votes were at AECOM with a majority vote of 54.6 percent on February 24, and votes at Walt Disney on March 9 and Maximus on March 17.
Withdrawals—So far, proponents have withdrawn three proposals after reaching agreements, for resubmitted proposals at Comcast and Pfizer and for a first- year proposal at Sanderson Farms.
SEC action—Citigroup has mounted the only challenge to date, arguing lobbying is not significantly related to its business. This contention has succeeded at companies that have spent almost nothing on politics, but Citi spends millions although that is a fraction of its overall assets, net income and revenue. The SEC already rejected a no-action challenge to this proposal in 2018, in which the bank made this same “unrelated” contention, but only because it said the board had failed to explain its analysis, another new requirement based on an SEC Staff Legal Bulletin. Should the proposal go to a vote, it must earn at least 25 percent under the new rules; last year it received just 15.1 percent in its eighth year, down from a high of 30.9 percent in 2017.
CAPITOL RIOT, BRIBES AND ASTROTURFING: DARK MONEY LOBBYING REQUIRES TRANSPARENCY
JOHN KEENAN
Corporate Governance Analyst, AFSCME Capital Strategies
The U.S. Capitol riot on January 6 underscores the need for companies to disclose lobbying funded by dark money contributions, including all third party spending used to affect public policy. In the aftermath of the attack, many companies announced they would stop making political contributions in 2021 to lawmakers who voted to reject the election certification. But the question should be whether these emergency measures to repair repetitional damage should become something more lasting.
Climate-related advocacy: Last year, BNP Paribas Asset Management filed a new resolution, arguing that the gap between countries’ GHG reduction commitments and what is needed to meet the Paris climate treaty objectives demands affirmative efforts from companies, not obstruction. It zeroed in on relationships with trade associations and other political entities that impede climate progress, at four companies. Votes were high—53.5 percent at Chevron, 45.9 percent at Delta Air Lines and 31.5 percent at United Airlines, although the SEC agreed it duplicated one of the regular lobbying proposals filed first at ExxonMobil. This year, there are 13 filings at energy and transportation companies and airlines (see table) from several proponents. In a similar mien to 2020, the proposal asks that the board for most recipients conduct
an evaluation and issue a report within the next year...describing if, and how, [the company’s] lobbying activities (direct and through trade associations and other organizations) align with the goal of limiting average global warming to well below 2 degrees [1.5 degree at Sempra] Celsius (the Paris Climate Agreement’s goal) and how the company plans to mitigate risks presented by any misalignment.
The proposal at Norfolk Southern is slightly different. It says:
We believe it is in the interest of shareholders that Norfolk Southern’s management and Board of Directors ensure that its lobbying activities, both directly and indirectly through its trade and other associations, align with the Paris Agreement’s goals and the company’s own climate risk mitigation actions (e.g. emissions targets). Misalignment squanders company resources and presents reputational and other risks. Thus, we urge the Board and management to assess Norfolk Southern’s climate-related lobbying and report to shareholders.
Withdrawals—Proponents have withdrawn at three companies so far—AIG, Entergy and Valero Energy. AIG has promised more disclosure. Duke will issue the report and Entergy will discuss its climate change policy priorities in its integrated annual report, with support for limiting global warming to well below 2 degrees Celsius; it also will address trade association advocacy and the board’s oversight of lobbying and other advocacy. Valero will report on its climate lobbying activities by the end of the year and provide subsequent updates.
CLIMATE LOBBYING: A CRITICAL WAY TO ADDRESS THE CLIMATE CRISIS
LAURA DEVENNEY
Senior ESG Research Analyst, Boston Trust Walden
TIM SMITH
Director of ESG Shareowner Engagement, Boston Trust Walden
The groundswell of companies committing to achieve net-zero emissions by 2050 or sooner, to align with climate science and the goals of the Paris Agreement, has been encouraging. Investors continue to play a significant role in garnering many of these climate commitments, including through engagement initiatives like the Climate Action 100+, where approximately half of the focus companies have committed to set net-zero goals. Still, while these commitments are essential, investors require assurance that companies are taking congruent actions to ensure their public policy activities—and those of their trade associations –also align with global climate goals.
SEC action—Exxon and Sempra both are arguing at the SEC that the resolution is moot given their reporting.
Racial justice: The Nathan Cummings Foundation would like Best Buy to report within the year
describing if and how Best Buy Co. Inc.’s lobbying activities (direct and through trade associations) align with the goal of embracing equality and justice and fighting against systemic racism. The report should also address the risks presented by any misaligned lobbying and the company’s plans, if any, to mitigate these risks.
The proposal is new in 2021 and raises concerns about the retail industry and criminal justice reform needed to address systemic racism. Nathan Cummings says that despite a stated commitment to racial justice, “the company was found to be the top national retail corporation supporting retail industry groups opposing state criminal justice reforms and supporting harsher anti- shoplifting laws,” which “resulted in negative press because of their harmful impacts on communities of color.” This has not only “criminalized poverty” but also “alienates potential customers,” prompting costly litigation. Racism harms the U.S. economy and society as a whole, the proposal says, since it imposes billions in costs from mass incarceration.
Election Spending
The Center for Political Accountability and its allies, a wide variety of institutional investors, continue to seek board oversight and transparency about election spending from corporate treasuries, with 30 proposals filed this year. Thirteen are resubmissions. (See table for the full list.) Support from investors for these resolutions has continued to climb and averaged 38.6 percent last year, 10 points higher than a decade earlier. There were four majority votes last year on this issue, at Activision Blizzard (pending again), Western Union, J.B. Hunt Transport and Centene, with one more just under 50 percent at Illumina (also refiled).
BUSINESS AND POLITICAL SPENDING: AN EPIPHANY?
BRUCE FREED
President, Center for Political Accountability
DAN CARROLL
Vice President for Programs, Center for Political Accountability
Will January 6th become an epiphany for U.S. public companies and their political spending? The insurrection at the U.S. Capitol turned a spotlight on their contributions to the 147 senators and House members who opposed certification of the 2020 presidential election results. In reaction, more than 40 companies announced they would withhold PAC support for these members or pause all PAC contributions.
The standard CPA proposal, the same for several years, asks companies to produce a report, with semiannual updates, on:
Policies and procedures for making, with corporate funds or assets, contributions and expenditures (direct and indirect) to (a) participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, or (b) influence the general public, or any segment thereof, with respect to an election or referendum.
Monetary and non-monetary contributions and expenditures (direct and indirect) used in the manner described in section 1 above, including:
The identity of the recipient as well as the amount paid to each; and
The title(s) of the person(s) in the Company responsible for decision-making.
Withdrawals and SEC action—One proposal at Molson Coors has been withdrawn so far and more withdrawals are likely as the season progresses; proponents typically withdraw about a third of their CPA-model filings. Proponents also have withdrawn two proposals so far after SEC challenges, at Alaska Air Group (the company argued it was moot) and at Kimberly-Clark (it arrived too late) and it has been omitted at Expeditors International of Washington on the grounds that the proponent failed to present the same proposal at an earlier annual meeting.
Values: Reproductive health rights advocates have three proposals this year asking companies to “publish an annual report, at reasonable expense, analyzing the congruency of political and electioneering expenditures during the preceding year against publicly stated company values and policies.” Rhia Ventures and Tara Health outlined their argument in favor of more corporate support for women’s health in an article published in Triple Pundit on January 22, “Why Reproductive Rights Matter to the U.S. Business Community.” The resolution connects corporate support for anti-abortion politicians to risks that can affect the company.
The proposal was withdrawn for procedural reasons at AT&T. JPMorgan Chase is contending at the SEC that the resolution is moot, but commission staff rejected this argument at Pfizer. (Also see Health section, p. 49, for related proposals coordinated by Rhia Ventures asking Church & Dwight and Walmart to report on how they support employees in the face of restrictive state-level reproductive health laws.)
Calls for companies to more carefully scrutinize the politicians whose campaigns they support have grown in the wake of the January 6 attack on the U.S. Capitol, but lasting change in corporate giving remains uncertain.
U.S. COMPANIES FACE SCRUTINY OVER PARTISAN SPENDING
HEIDI WELSH
Executive Director, Sustainable Investments Institute (Si2)
Following the January 6 attack on the U.S. Congress in Washington, attention turned to corporate political support for the 147 members who voted to overturn the November election results and the 43 senators who voted to acquit President Trump in his second impeachment trial. Dozens of companies announced they would “pause” PAC spending and critics of political spending saw an opportunity to tighten the corporate purse strings. But spending immediately following a general election always drops, and it remains far from clear if the spigots will remain off, with a tight Democratic majority in Congress and contentious policymaking ahead.