Political spending disclosure has had an irregular history, waxing and waning over the last decade according to a seminal Supreme Court decision, fluctuating SEC rulemaking and activist shareholder agendas and evolving views of good corporate practice. Back in January 2014, I speculated that “voluntary political spending information may be on its way to ‘best practices’ disclosure,” and recommended that companies consider whether to address the issue proactively. (See this Doug’s Note.) Based on the recently released 2015 CPA-Zicklin Index of Corporate Political Disclosure and Accountability, that prediction appears to have come true.
Political spending disclosure gained prominence following the Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission, which allows companies to spend unlimited amounts in their own names or to contribute unlimited amounts to trade associations and other non-profit groups (but left in place limitations on contributions directly to federal candidates and political parties). In response, various non-profit watchdog groups petitioned the SEC to adopt a rule requiring disclosure of corporate political spending, and the prospect of rulemaking gained momentum when the media and numerous legislators adopted it as a cause.
But instead, the SEC withdrew political spending disclosure from its rulemaking agenda in 2014, labeling the priority of such rulemaking as “nonsignificant,” and has shown no signs of pursuing it going forward. This led many to wonder whether political spending disclosure would fade from view. It appears, however, that the opposite is happening.
The CPA-Zicklin Index
The CPA-Zicklin Index, a joint product of The Center for Political Accountability and the Zicklin Center for Business Ethics Research at the Wharton School of Business, concludes generally that political-spending disclosure is a growing trend among major American companies. For example, the Index states that about 87% of S&P 500 companies posted on their websites a political spending policy (ranging from detailed (52%) to brief (35%)). And although the Index does not address political spending proxy disclosure, it is safe to say that a significant percentage of those companies have chosen to make similar disclosures in their proxy statements.
Here are a few more interesting findings:
- A majority of S&P 500 companies have a webpage dedicated to political spending and disclosure.
- 25% of companies placed some type of restrictions on the company’s political spending, such as restrictions on direct independent expenditures; contributions to candidates, parties and committees, 527 groups, ballot measures or 501(c)(4) groups; and payments to trade associations for political purposes.
The Index also offers an opinion as to what constitutes “best practice” disclosures:
“Companies that have demonstrated best practice examples provide clear language about what they are disclosing and make timely reports. These companies disclose the non-deductible portions (used for political or lobbying activities) of their payments, including dues and special assessments, to trade associations in a given year. Many companies use a threshold amount (e.g. $25,000 a year) to reduce the burden of reporting and focus on the politically active trade associations for transparency.”
Regardless of one’s views on the need for, or benefits of, political spending disclosure, it appears true that it is, as the subtitle to the Index says, entering the corporate mainstream. As a result, it is time for companies that have not yet done so to raise the issue internally with senior management, the disclosure committee or the board of directors, as appropriate, to determine whether there is sentiment to move in that direction. While the answer may well be “no” for many companies at this time, it is a question that should be considered within the context of overall governance and disclosure policies. Keep in mind that, because there is no mandating rule, any such disclosure can be tailored to fit each company’s situation, thereby facilitating both activist-desired transparency and the company’s broader interests (within the bounds of Rule 10b-5, of course).
Keep in mind also that political spending policy and disclosure shareholder proposals remain popular. Companies would be wise to be prepared for such a proposal this proxy season.