A new study finds that while nearly 80 percent of S&P 500 companies have disclosed direct political campaign spending policies, 86 percent have no disclosed policies regarding indirect political expenditures. Additionally, only 20 percent of corporations disclose how much is actually spent and which organizations or causes receive the funds.
Key research findings include:
- Nearly 80 percent of the S&P 500 companies have disclosed political campaign spending policies. However, only a distinct minority has stand-alone policies that are easily accessible and with clear descriptions of spending decision making and oversight. The publicly available language that companies use to describe their political spending is usually not precise, and rarely includes all types of political spending.
- 86 percent of the S&P 500 does not have stated policies on indirect political spending via contributions to trade associations and non-profit interest groups that have become a key area of concern. Financials firms are notably less likely than other sectors to have any policies on indirect spending.
- Less than one-quarter of S&P 500 companies require their boards to oversee political spending. Nearly all of those are the largest companies in America. Least likely to have oversight are smaller companies and companies in the Consumer Discretionary sector. Board oversight is more prevalent in the Health Care sector, which has been in the spotlight in recent elections and the subject of sweeping and controversial reform enacted in March 2010.
- More than 80 percent of the S&P 500 companies do not provide information on actual contributions, as opposed to the policies that ostensibly control that spending. Almost all companies that do report are at the top end of the revenue scale. One-third of Health Care companies disclose spending but only about 10 percent do in three other sectors—Financials, Telecoms and Consumer Discretionary.
- Only 52 companies indicated they do not use “independent expenditures” to advocate for or against the election of candidates.
- About half of all S&P 500 companies provide some information on which company officers make spending decisions. This management transparency is most common among Consumer Staples companies. In contrast, Financial sector companies provide the least amount of information, even though Congress enacted significant and contentious reforms for the industry in July 2010.
- Nearly 60 percent of S&P 500 companies spend shareholder money from the corporate treasury on political campaigns, while two-thirds have political action committees that spend money contributed by corporate executives. Utilities – amongst the most highly regulated industries – are more likely than any other sector to support candidates, parties and interest groups’ political committees. Information Technology companies are the least likely to spend in these categories.
- Board oversight encourages disclosure of what companies do spend, but there is no evidence that such oversight affects spending.
The study was conducted through an examination of S&P 500 companies’ federal and state campaign contribution data and other publicly available information, combined with the results of a Si2 survey sent to each company. The report also includes two case studies and a short primer on the various types of political spending. The full study is available at www.irrcinstitute.org and www.siinstitute.org and is included in the IRRC sponsored Social Science Research Network Corporate Governance Network at http://www.ssrn.com/cgn/index.html. (full press release)
On a related note, John Coates has a draft study, Corporate Governance and Corporate Political Activity: What Effect Will Citizens United Have on Shareholder Wealth?, that found during the period 1998-2004 shareholder-friendly governance was consistently and strongly negatively related to observable political activity before and after controlling for established correlates of that activity, even in a firm fixed effects model. Political activity, in turn, is strongly negatively correlated with firm value. These findings – together with the likelihood that unobservable political activity is even more harmful to shareholder interests – imply that laws that replace the shareholder protections removed by Citizens United would be valuable to shareholders.
See prior post, Citizens United: Most Won’t Engage But Won’t Monitor Either, as well as Follow the (Corporate Campaign) Money @ the The Murninghan Post, 10/14/2010.