As investors continue to digest the ramifications of the January 6th US Capitol riots, 2021 is expected to be a “breakthrough season” for shareholding voting on corporate political spending.
“It is a large-scale systemic risk to long-term investors who depend on a functioning and inclusive electoral process for sustainable growth,” says Eli Kasargod-Staub, co-founder and executive director of Majority Action, an NGO focused on corporate accountability.
Companies are under particular pressure over their donations to US lawmakers who deny the results of the 2020 presidential election. In a recent project coordinated by Majority Action, more than 30 senior US state pension fund officials asked BlackRock, Vanguard, State Street, JP Morgan Asset Management and BNY Mellon to account for a collective $1m in donations to 147 “election objector” members of Congress since 2016.
The tipping point has come after nearly a decade of engagement by key investors on the issue – most significantly, the New York State Common Retirement Fund, which started filing shareholder proposals on disclosure of political spending in 2010 in reaction to the US Supreme Court’s ‘Citizen United’ ruling. The ruling removed restraints on corporate expenditure for political purposes as it was considered free speech and therefore protected by the US Constitution.
‘Shareholders should know if companies are using their investments in ways that benefit long-term value or are putting their bottom lines at risk’ – New York State Comptroller Thomas DiNapoli
New York State Comptroller Thomas DiNapoli believed the expected increase in political spending by portfolio companies as a consequence of the rule change would lead to legal, reputational and business risks. As a result, the fund has filed more than 155 shareholder proposals demanding disclosure over the past decade. In that time, 45 companies have agreed to adopt such disclosure, including Bank of America, Delta Airlines and PepsiCo.
“For too long, investors and the larger public have been left in the dark on the extent of corporate dollars in politics,” DiNapoli tells RI. “Shareholders should know if companies are using their investments in ways that benefit long-term value or are putting their bottom lines at risk. We've reached agreements with dozens of companies to disclose their political spending and I urge more to do the same.”
This year the Common Retirement Fund has targeted five companies on the issue. Three have agreed to adopt disclosure ahead of their AGMs: beverage giant Molson Coors, CMS Energy Corporation and First Energy (the US state utility embroiled in a high-profile scandal around alleged bribes to politicians for passing laws supporting taxpayer subsidies). Proposals on political spending filed at Duke Energy and cruise line Royal Caribbean will go to vote. Last year, the same proposal got 31% support at Royal Carribean and 42% at Duke Energy.
The vote at Duke Energy is especially critical, says Majority Action’s Kasargod-Staub, because – as well as being one of the largest carbon emitters in the US – it is a member of lobby groups that undermine environmental legislation.
“If it wasn’t for BlackRock and Vanguard, the 2020 resolution would have received majority support,” he says.
Since then, Duke Energy has been implicated in the unrest surrounding the 2020 US elections. Board director Daniel DiMicco left the firm in January after he allegedly gave tens of thousands of dollars to members of Congress who voted to overturn the election results. He denies that was the reason for his departure.
BlackRock and Vanguard declined to comment on whether they will support the political spending resolution filed by NY State at Duke Energy this year.
In general, BlackRock, Vanguard and Fidelity don’t support political spending resolutions, says Bruce Freed, President and Co-founder of the Center for Political Accountability (CPA) – the organisation that developed the model for all the shareholder proposals covered in this article.
Freed says that last year, on average, proposals built on its model got 41.9% support from shareholders, with Vanguard, BlackRock and Fidelity being the barrier to many of them passing. State Street is distinguished from its peers, supporting around half of such resolutions consistently since 2019 (45.5% support in both 2019 and 2020).
Other major investors were more supportive of such resolutions in 2020, including JPMorgan Investment Management (45.5% increase) Wellington Management Company (49.8% increase) and T. Rowe Price (39.8% increase).
CPA’s model proxies help investors navigate the arcane process for securing resolutions on proxies, and ensure the disclosures requested cover trade associations and nonprofits (also known as 501(c)(4)s or ‘social welfare’ organisations), which may be used to obscure spending for political purposes.
Last year, CPA sent its updated Model Code of Conduct for Corporate Political Spending to all S&P 500 companies. Its annual CPA-Zicklin Index, which benchmarks S&P 500 companies on political disclosure, is used by investors to identify laggards and leaders on the issue.
The Nathan Cummings Foundation filed a proposal at Texas-based Diamondback Energy after it scored zero on the Index. Laura Campos, Director for Corporate & Political Accountability, said it withdrew the resolution after receiving a strong commitment on political spending from the company.
Members of the Interfaith Center on Corporate Responsibility (ICCR), which include Natham Cummings, have filed 10 proposals on political spending at companies including Nike, T-Mobile USA and Exxon. Like Diamondback, some are expected to make commitments before the AGM, prompting a withdrawal. Others, like Exxon, are expected to make it to vote.
ICCR member Unitarian Universalist Association is filing the proposal at Exxon. Last year, it got over 30% support. Tim Brennan, who advises the association on responsible investment issues, says the vote will be even more important this year because Exxon reportedly donated $50,000 to the Republican Attorney Generals Association, an offshoot of which was listed as a participant in the March to Save America gathering that led to the Capitol Hill riots (the Association told Bloomberg at the time that staffers' decision to join the rally was not authorised).
Like many others, Brennan says that engagement with Exxon over recent years has been disheartening. “It’s a well-run company – they have some of the best engineers in the world – but with regards to political spending, they will only do the absolute minimum and disclose what's required by law.”
To date, the main focus for shareholders tackling political spending has been disclosure. The next frontier could be getting companies to forswear donations, says Kasargod-Staub. This is already happening in some cases: State Street promised not to donate to “election objectors” after shareholder pressure last year, and last month, investors wrote to board directors at Coca-Cola, Southern Company, AFLAC, Delta, UPS and Home Depot asking them to explain political spending support for legislators who are backing controversial voter suppression bills in Georgia.
“Shareholders may ultimately vote against such directors if sufficient action isn’t taken,” says Kasargod-Staub.