Political Spending Stockholder Resolution Early Returns – Low Vote/High Settlement

Perhaps not surprising in an election year, the hottest trend in stockholder proposals this proxy season has been submission of resolutions focused on political spending. As reported in this Washington Post article, the Sustainable Investments Institute, a Washington nonprofit that tracks stockholder resolutions, found that approximately one-third of stockholder resolutions this proxy season related to political spending disclosure. In general, these resolutions focus on disclosure of all political spending using corporate funds, including payments made to 501(c)(4) trade organizations that engage in lobbying or political campaigning.

Support for these types of resolutions among certain institutional investors has been growing in recent years, including state pension funds. For example, in 2012 the New York State Pension Funds filed 17 stockholder resolutions regarding political spending with companies that did not respond to its outreach efforts after filing only eight such resolutions in 2011. Certain of these advocates are also seeking legislation or SEC rule making that would require political spending disclosure by public companies.

Advocates for political spending resolutions often cite transparency. With this transparency, they argue, stockholders can better understand how these corporate funds are utilized and whether this will positively impact a company’s bottom line. Opponents argue that disclosure of political spending could result in negative publicity due to attacks from special interest groups, which could chill political spending that would otherwise benefit the corporation. In addition, political spending is typically a minor component of overall expenses, so the focus on this spending is not proportional to its economic impact on the bottom line.

Click here for a summary of a discussion paper describing the purported benefits of requiring political spending disclosure and click here for a June 1, 2012 Wall Street Journal opinion piece arguing against requiring such disclosure.

The Staff has consistently found that proposals focusing on a company’s general political activities, including its general policies for political contributions and lobbying expenditures, cannot be excluded under Rule 14a-8(i)(7). However, the Staff has permitted exclusion of proposals focused on specific lobbying efforts rather than general policies as they relate more directly to the operation of a company’s business.

The pressure by advocates in favor of political spending disclosure has been public and intense. Many public companies, including Marriott, Pacific Gas and Electric, Safeway, Kroger, Halliburton, Hershey Co., and CSX Corp. have reached agreement to voluntarily disclose political spending in the face of stockholder resolutions. This is interesting in light of the fact that these types of stockholder resolutions rarely receive majority, or even significant, support of stockholders.

The Center for Political Accountability is at the forefront of efforts to encourage disclosure of political spending. According to their posting on June 1, 2012, stockholders working with The Center for Political Accountability filed 51 stockholder resolutions this year, 13 of which resulted in agreements with the company. Yet, of the 25 resolutions that went to a vote so far, only one, at Wellcare Health Plans, Inc., received a majority vote. In only four others was more than 40% support received.

In the event that the success rate of stockholder resolutions does not improve, it will be interesting to watch whether more boards of directors decide to stomach the pressure from advocacy groups and allow these types of resolutions to go to a vote.