Spring is just around the corner, and with April showers will come “proxy season,” when most large publicly traded American companies hold their annual meetings and their shareholders vote on various items on the companies’ proxy ballots. The majority of issues facing shareholders concern executive compensation and the rules for electing directors, but a surprising percentage of shareholder-sponsored ballot items — 41 percent among the 250 largest companies in 2012 — involve social or political issues of little to no relevance to the bottom line.
Last year, a plurality of all shareholder proposals involved corporate political spending. This topic was understandably on some people’s minds in an election year, especially after the Supreme Court’s Citizens United decision loosened restrictions on the role corporations can play in the political process. But it’s also hard to see how it connects to shareholders’ interests as shareholders.
Consider that in the 2012 federal elections, all outside groups — including super-PACs, 527 committees and 501(c) organizations (such as trade associations and labor unions), drawn from all sources (corporate or not) — spent slightly more than $1 billion. That’s a lot of money, to be sure, but it’s less than one one-hundredth of 1 percent of the Fortune 250 companies’ 2012 budgets — and less than the development cost of a single biotechnology product, and also less than what automobile manufacturers and dealers spent on television advertising spots with local broadcasting stations in the third quarter of last year.
Shareholder activism involving corporate political spending has been driven by investors whose interests on this issue are likely hostile to the average diversified shareholder’s interests. From 2006 through 2012, 46 percent of shareholder proposals related to corporate political spending were sponsored by the pension funds of public- or private-sector labor unions — groups whose political activism is regularly in opposition to corporations’. Not a single shareholder proposal was introduced by an institutional investor without a tie to organized labor or an express “social justice,” religious or policy orientation. Among the 11 percent of proposals introduced by individual shareholders, a majority were sponsored by a single shareholder, Evelyn Davis, who asked several companies to take out advertisements in major newspapers documenting their political spending.
Little wonder that the investors presented with proxy-ballot proposals relating to corporate political spending have universally voted them down. Since 2006, shareholders have introduced 224 proposals related to corporate political spending at Fortune 250 companies, and not a single one has gotten majority-shareholder backing over management opposition — or even come close.
With shareholders clearly signaling that new disclosures of or restrictions on corporate political spending aren’t in their own interests, activists have turned to regulators in an effort to reach their goals. A group of law professors has petitioned the Securities and Exchange Commission to engage in “rulemaking” involving disclosure of corporations’ political spending, on which the commission will likely reach a decision by April.
The SEC — which in addition to its oversight and enforcement duties faces 95 new rulemaking processes mandated under the 2010 Dodd-Frank financial reform bill — should leave this one alone. The SEC has recently passed several controversial new rules by 3-2 party-line votes, but it’s also been slapped down three times by the D.C. Circuit Court of Appeals for not acting within the authority it’s been delegated by Congress.
And it’s the Federal Election Commission that Congress has charged with developing rules for politics. Congress has told the SEC, in contrast, that it has to consider “efficiency, competition, and capital formation” in setting its rules — and it’s hard to see how new rules involving corporate spending on politics would relate to those objectives.
As proxy season unfolds, I will be watching to see what happens at the annual meetings of companies like Starbucks, Humana and Marathon Oil, which face shareholder proposals relating to political spending. But I will also be keeping an eye on the SEC, and Congress would be well advised to do so, as well.
James R. Copland is the director of the Center for Legal Policy at the Manhattan Institute, which publishes ProxyMonitor.org, a searchable online database of shareholder proposals submitted to the largest 250 publicly traded U.S. companies. His full Winter Report previewing the 2013 proxy season is now available.
