By Jason Zweig | 12:51 pm ET Aug 29, 2014
Image Credit: Christophe Vorlet
Money talks, but investors don’t always get to decide what it says. Sometimes investors can’t even hear it.
When public companies give cash to candidates for office, lobbies or political action committees, the money comes out of shareholders’ pockets. But companies aren’t required to disclose to investors how much they give or where it goes. Business contributors gave more than $2.7 billion to federal candidates, national parties and “super PAC” funding groups in the 2012 elections and another $1 billion in this year’s midterm elections, estimates OpenSecrets.org.
If the fuzzy disclosure bothers you, you will probably have to take matters into your own hands.
And if it does bother you, you aren’t alone.
A survey of more than 1,500 financial analysts, to be released next week, found that 60% feel that companies should have to disclose their political spending to investors. The survey was conducted by the CFA Institute, a nonprofit association of financial analysts. And 62% of the participants in the survey contend that investors should have a say in where corporate political contributions go, while 27% say companies shouldn’t make contributions at all.
The analysts also submitted hundreds of anonymous comments, many of them vitriolic. “What comes through loud and clear,” says Kurt Schacht, a managing director at the CFA Institute, “is that investors are concerned that CEOs not use corporate assets as a slush fund for their personal politics.”
So far in 2014, shareholders at 103 companies have filed resolutions for greater disclosure of spending on political contributions and lobbying, according to Institutional Shareholder Services, which advises big investors on how companies should be run. Roughly a third of shareholders, on average, voted in favor of those resolutions.
Three years ago, 10 law professors petitioned the Securities and Exchange Commission to require public companies to disclose to shareholders their political contributions.
The SEC hasn’t drafted such a rule. While the issue might not seem as crucial as other questions of corporate governance, many people have weighed in. The page on the SEC’s website soliciting public comments on the proposal has so far drawn more than 976,000 submissions. That, according to an SEC spokesman, is the greatest number of comments any proposed rule at the agency has ever gotten.
“Rather than ignore the roughly 1 million people who have weighed in on this petition, the SEC should do a formal study of whether undisclosed political spending is bad for investors,” says Robert Jackson, a professor at Columbia Law School who helped draft the petition.
Taking action on the petition isn’t on the SEC’s formal agenda for 2014-2015.
Numerous companies, like CSX Corp., eBay Inc., Gilead Sciences Inc. and Whirlpool Corp. provide voluntary disclosures of their political spending on their websites.
Most companies still don’t, however. And, warns Prof. Jackson, “the companies that won’t disclose voluntarily are the ones most likely to be spending money in ways shareholders won’t like.”
“If companies feel they’re justified in using corporate dollars for a political purpose, then they should make it easy for the shareholders to obtain that information,” says Anne Sheehan, director of corporate governance at the California State Teachers’ Retirement System, with assets of more than $186 billion.
Is corporate political spending bad for investors?
Companies say they have a legitimate right to influence candidates or incumbents on issues important to their business interests.
“This is just one of many small subcomponents of corporate spending,” says C.T. Fitzpatrick, chief investment officer at Vulcan Value Partners in Birmingham, Ala., which manages $8.7 billion. “We don’t scrutinize how much companies spend on dishwashing liquid in the office kitchens.”
Research has shown that the more money a company donates to political candidates, the lower the future return of its stock. But correlation doesn’t equal causation, and it probably isn’t the political donations alone that are causing the underperformance, says Michael Guttentag, a professor at Loyola Law School in Los Angeles.
Rather, the donations are more likely just one small sign that the company may be run by people who aren’t acting in the shareholders’ best interest, he says.
“There’s certainly a risk that managers are going to spend corporate money on their own preferences, as opposed to what’s good for the company,” says Stephen Bainbridge, a professor of securities law at the University of California, Los Angeles.
But that doesn’t apply just to political donations. “A CEO is probably a lot more likely to throw the company’s money at his alma mater,” says Prof. Bainbridge, “than he is at some political candidate.”
You could, of course, sell your shares or vote against the directors of a company that won’t disclose its political contributions. If you have owned at least $2,000 in a company’s stock for at least one year, the SEC allows you to submit a proposal to be voted on at the company’s annual meeting.
For the time being at least, the only way to do anything about corporate political spending is to put it to a vote—at the corporate ballot box.
Source: The Wall Street Journal
http://blogs.wsj.com/moneybeat/2014/08/29/be-aware-of-companies-bearing-gifts/
http://online.wsj.com/news/articles/SB20001424052970203937904580120071024068314