{"id":90,"date":"2012-02-07T20:04:45","date_gmt":"2012-02-08T00:04:45","guid":{"rendered":"http:\/\/blogs.duanemorris.com\/capitalmarkets\/?p=90"},"modified":"2014-09-10T10:33:37","modified_gmt":"2014-09-10T14:33:37","slug":"shareholder-pressure-increases-for-disclosure-of-lobbying-activities-and-other-political-expenditures","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/capitalmarkets\/2012\/02\/07\/shareholder-pressure-increases-for-disclosure-of-lobbying-activities-and-other-political-expenditures\/","title":{"rendered":"Shareholder Pressure Increases for Disclosure of Lobbying Activities and Other Political Expenditures"},"content":{"rendered":"

Investors and shareholder activists have become increasingly focused on the oversight and disclosure of political expenditures by public companies since the Supreme Court\u2019s 2010 decision in Citizens United v. Federal Election Commission<\/em>, which invalidated restrictions on certain corporate political spending. Because the 2012 presidential election is expected to be a hotly contested race funded by record levels of political spending, the public\u2019s interest in political and lobbying expenditures by public companies is intensifying and merits a careful review of recent trends in the policies and disclosure practices of public companies with respect to their political spending.<\/p>\n

Since 2003, the Center for Political Accountability (CPA) has coordinated a campaign to cause companies to disclose political expenditures and to require board oversight of their political spending with corporate funds. According to a report posted by the National Association of Corporate Directors, the number of shareholder proposals addressing political contributions rose from 56 to 88 in the year following the Citizens United<\/em> decision, with 55 ultimately coming to votes in 2011. Support for the 35 CPA-style resolutions that came to votes at meetings increased from 28.4% in 2010 to 32.8% in 2011.<\/p>\n

A November 2011 study by the Sustainable Investments Institute (Si2), funded by the IRRC Institute, calculated that S&P 500 companies spent $1.1 billion on direct political expenditures in 2010, with 87% of that amount spent on lobbying, as distinguished from contributions to candidates, to parties, to federally registered political committees and for ballot initiatives. Si2 found that disclosure of political spending is increasing and saw a significant rise in board oversight of political spending, reporting that boards at 31% of S&P 500 companies now explicitly acknowledge, either in their board committee charters or in policies posted on their websites, that the board, in some capacity, has oversight responsibility for the company\u2019s spending in political campaigns, up from 23% in 2010.<\/p>\n

In the updates to its proxy voting policies issued in November, Institutional Shareholder Services (ISS) changed its policy and now generally supports shareholder proposals requesting greater disclosure of a company\u2019s political contributions, as opposed to ISS\u2019s prior case-by-case approach. ISS specifically noted, however, that in making its determination, ISS will consider a company\u2019s disclosure of its oversight mechanisms. Now that ISS will generally recommend that shareholders vote in favor of proposals seeking enhanced disclosure of political spending, issuers should consider whether they have established appropriate mechanisms for board oversight of political spending and whether they have provided appropriate disclosure of their political spending and the applicable oversight processes. ISS also broadened its policy on lobbying activities to clarify that the policy applies to proposals seeking information on a company\u2019s grassroots lobbying activities, not just direct lobbying, as well as to a company\u2019s broader efforts to inform or sway public opinion.<\/p>\n

In late January, the American Federation of State, County and Municipal Employees (AFSCME) announced a lobbying disclosure initiative that it characterized as a natural extension of the ongoing shareholder campaign to encourage greater political spending transparency and accountability. AFSCME announced the filing of shareholder proposals at 40 corporations, for votes at 2012 shareholder meetings, urging companies to report on lobbying expenditures, including indirect funding of lobbying through trade associations. Among other things, these proposals will call for disclosure of companies\u2019 policies and procedures governing lobbying, including by trade associations, payments used for direct lobbying as well as grassroots lobbying communications and decision-making processes and oversight by management and the board. In light of this recent upsurge in shareholder activism and increased investor focus on political and lobbying expenditures, directors and executives of public companies should carefully consider the adequacy of their company\u2019s policies and procedures, internal controls and oversight mechanisms with respect to political and lobbying activities and expenditures, as well as related disclosures in their public reporting. Among other things, companies should consider the following:<\/p>\n