Corporate political donations test promises of voting rights

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When it comes to politics, companies often say one thing in public while their money says another. They explain the contradiction between principled statements on issues like social justice and donations to political groups that take the opposite position by saying they give to both parties or do not control how funds are used.

But companies have never been subjected to such close scrutiny on political spending like they are doing now. And the cost of perceived hypocrisy rises beyond social media storms, bad public relations, and potential consumer boycotts.

Investors are fighting with corporate boards, tabling shareholder resolutions that demand more transparency and accountability around political donations. More and more, they are winning.

“It cannot be overstated how much this year’s events have focused on political spending,” said Shelley Alpern, director of shareholder advocacy at Rhia Ventures, a social impact investment firm. After the Capitol riot and a Republican push to pass restrictive voting laws that disproportionately affect racial minorities, investors want to know more about where a company’s political donations go. “Something has changed in a tangible way in the understanding of the public and shareholders,” said Ms. Alpern.

This year, the investors attending the shareholders’ meetings are spend more proposals on political activity than ever before. Among other things, these resolutions call for regular reports on the decision-making processes for donations and a full accounting of all political spending by candidates, lobbyists, parties, business groups and any other organization that may use it. money for political purposes.

In many cases, company management is resistant to proposals. Losing shareholder votes in this way erodes the authority of directors and even puts their jobs at risk.

The proof is in the proxy resolutions.

In 2019, there were 51 political spending proposals in S&P 500 companies; none were successful and they received an average of 28% support. Last year, out of 55 similar proposals, six were accepted and average support rose to around 35%. The non-profit, non-partisan Center for Political Accountability has partnered with activist shareholders on many of these resolutions. So far this year, he has put forward 30 resolutions, and five of the seven that have been put to a vote have won majority support.

Last month, shareholders of Chemed, the healthcare and cleaning conglomerate, passed a political spending proposal with 80% approval, and United Airlines investors approved a similar resolution with 67% backing. . Partners in the Center for Political Accountability also secured agreements from nine companies without their resolutions being voted on, while three proposals were withdrawn based on conversations with companies about improving the transparency of their political spending.

“This is the strongest opening we have had,” said Bruce Freed, president of the Center for Political Accountability. “This sends a strong message to companies that shareholders want them to adopt policies of disclosure and accountability for their political spending with company funds. Businesses are really under pressure.

The New York State Public Pension Fund is one of the centre’s partners. He has tabled more than 150 shareholder proposals on political spending since 2010, securing approval or deals in about a quarter of cases. This year, three of its five proposals were resolved without a vote, and two were adopted by shareholders, a much higher success rate than in previous years.

Political donations fall under the purview of the burgeoning environmental, social and governance investment movement known as ESG. and spending – could lead investors to flee a stock or, as we have seen, stage public reprimands against directors. There is also regulatory, litigation and Assurance risks to ESG gaps, which could adversely affect a company’s bottom line.

“Corporate spending for political causes in the dark is bad for business,” said Thomas DiNapoli, Comptroller of New York State and administrator of the public pension fund. “It puts businesses and their value at risk. “

Disclosures about political spending are inextricably linked with ESG issues, according to Allison Herren Lee, commissioner of the Securities and Exchange Commission. They allow investors to test companies’ claims about their support for climate-friendly policies or social justice issues and to hold business leaders to account before the associated risks materialize.

Despite growing investor action on political spending disclosure, a law passed last year bans the SEC from finalizing a rule requiring them. That could change with Democratic control of Congress, and companies may have to change their approach anyway. “Even though there is no SEC rule that specifically requires companies to disclose their political expenses, companies may still have an obligation under anti-fraud rules to ensure that the statements they choose to do is not materially misleading, ”Ms. Lee said.

Robert Jackson, director of the Institute for Corporate Governance and Finance at New York University School of Law, said that until recently, business leaders often weren’t sure where their money was going. political donations. With more pressure to be transparent, they are less likely to delegate this task. “More and more well-run companies and responsible boards of directors are demanding to know where the money is in politics,” he said.

The biggest test is yet to come.

Republican lawmakers in nearly every state have introduced bills restricting access to ballots. In response, hundreds of companies signed statements opposing “all” voting restrictions. These declarations were organized in part by the Black Economic Alliance at the national level and local business coalitions in Arizona, Georgia, Michigan, Texas, Florida and elsewhere.

Voting is the basic right that underpins democracy and a healthy business environment, companies say. Yet many have also made substantial donations to Republican groups that have helped elect politicians who propose and advance laws restricting voting rights.

Analysis by the Center for Political Accountability has traced tens of millions of dollars in donations from state-owned companies over the past two election cycles to the Republican State Leadership Committee and the Republican Governors Association, key groups that work to elect candidates for the state level, where much of the action on voting rights is underway. Among those companies, Amazon, Bank of America, Best Buy, Cisco, Citigroup, Facebook, General Motors, Microsoft and Wells Fargo each donated more than $ 100,000 and subsequently signed statements opposing the voting restrictions.

If companies continue to donate to these groups, companies will knowingly pay to re-elect those who pass laws that companies say undermine democracy.

The Republican Governors Association and others are “527” groups, so named after a section of the tax code. They can accept unlimited corporate donations – directly from their treasury, not corporate political action committees – and distribute the funds to candidates, including those who may oppose corporate public policy positions. The groups “allow companies to reduce their liability,” said Jacob Hacker, professor of political science at Yale University.

Many companies suspended donations from PAC companies after the Capitol riot, and some are redefining their policies. JPMorgan Chase, for example, said on Friday he was taking back donations but not the 147 Congressional Republicans who opposed certification of the election result. Citi said it will resume its corporate PAC donations with new criteria that assess donations on a case-by-case basis.

With many lawmakers and Republican state governors running for re-election in 2022 – including Governors Ron DeSantis in Florida and Brian Kemp in Georgia, both of whom recently signed laws restricting voting – the companies that have donated in the past will they do the same now? Most won’t say it officially, and in off-cycle years, 527 groups aren’t required to disclose their donations until July.

“We’re really going to see in the next few months how sincere they are,” said Ms. Alpern of Rhia Ventures.

The Republican State Leadership Committee declined to comment on the donations it receives from companies. The Republican Governors Association did not respond to a request for comment.

GM signed a letter opposing voting restrictions in Michigan and joined the Black Economic Alliance’s national statement. The company said in a statement that it is continually reassessing donations, but already committed late last year to donate to the Republican State Leadership Committee and its Democratic counterpart in 2021. ” Support for these organizations does not represent approval for all issues. that the organization supports, ”the statement said.

Microsoft has signed the national declaration and letters opposing voting restrictions in Texas. He has “absolutely scrutinized” political donations, he said in a statement. “We are also using our voice at the state level to advocate for policies that make access to voting easy and safe and to ensure that the electorate is well informed,” he said, adding that the Support for these issues is “a key criterion in any future contribution decision. But he has made no specific commitments.

Facebook, which signed the national declaration in April and declined to comment on its donations, donated $ 50,000 to the Republican State Leadership Committee in February, as the newsletter shows. Popular information.

“Beyond CEO statements,” said David Clunie, executive director of the Black Economic Alliance, “companies demonstrate their values ​​by the way they allocate their resources.”

What do you think? Will greater investor control over political donations change corporate actions? Let us know: dealbook@nytimes.com.