California Chamber Pressures CalPERS on Political Disclosure Guidelines

CalPERS is in the process of updating their Global Principles of Accountable Governance guidelines, used in corporate engagements. One of the proposed new subsections reads as follows:

6.5 Charitable and Political Contributions: Corporate charitable and political activity can serve the interests of the company and its investors. Robust board oversight and public disclosure of corporate charitable and political activity can ensure alignment with business strategy while minimizing the potential for abuse and reputational risk if political influence is sought improperly.

a. Board Monitoring, Assessment and Approval: The board of directors should monitor, assess and approve significant charitable and political contributions (including trade association contributions) made by the company. The board should ensure that only contributions consistent with and aligned to the interests of the company and its shareowners are approved. The terms and conditions of such contributions should be clearly defined and approved by the board.

b. Disclosure: The board‘s guidelines for contribution approval should be publicly disclosed as a corporate contributions policy. The board should disclose on an annual basis the amounts and recipients of significant monetary and non-monetary contributions made by the company during the prior fiscal year. If any expenditures earmarked or used for political or charitable activities were provided to or through a third-party to influence elections of candidates or ballot measures or governmental action, then those expenditures should be included in the report.

I didn’t attend the August meeting of the Policy Subcommittee of the Investment Committee, so don’t have the full background but I imagine the amendments to be a response to US Supreme Court’s decision in Citizens United, which lifted restrictions on how much money corporations, unions and individuals could spend on political ads.

A coalition led by the California Chamber of Commerce, the state’s largest business group, said the proposed amendments would handcuff publicly traded companies in the political arena. According to their letter, the proposal

is an unfair and discriminatory mandate on corporate boards of directors, designed to chill the ability of businesses to defend themselves from political attacks by competitors, overzealous regulators, labor unions or no-growth advocates.

To me, requiring boards to “ensure that only contributions consistent with and aligned to the interests of the company and its shareowners are approved” seems entirely reasonable. The amendments also seek to require corporations to disclose their political contributions every year, including those to third-party groups, such as the California and U.S. Chambers of Commerce, that attempt to influence elections.

The draft CalPERS standards are only slightly more stringent than those proposed by The Conference Board (TCB) in their Handbook on Corporate Political Activity published March 31, 2011. TCB recommends corporations review their political expenditures to “examine the proposed expenditures to ensure that they are in line with the company’s values and publicly stated policies, positions, and business strategies and that they do not pose reputational, legal, or other risks to the company.” The major difference is that CalPERS would be asking corporations to disclose their policies and the amounts contributed, after the fact.

I recently voted in favor of a proxy proposal at Procter & Gamble (PG) that would go considerably further than the CalPERS language. The PG proposal by Northstar Asset Management would recommend the Board of PG adopt a policy under which the proxy statement for each annual meeting will contain a proposal describing:

1. the Company’s and P&G PAC policies on electioneering and political contributions and communications,
2. any specific expenditures for these electioneering and political contributions and communications known to be anticipated during the forthcoming fiscal year,
3. the total amount of anticipated expenditures,
4. a list of specific electioneering expenditures made in the prior fiscal year,
5. management’s analysis of the congruency of those policies and such expenditures with company values and policies;
6. and providing an advisory shareholder vote on those policies and future plans

In contrast to CalPERS, NorthStar is recommending that companies provide shareonwers with an advisory vote on policies and future plans. Personally, I think there is far too much corporate money involved in politics. Yes, companies may feel the need to match their competitors dollar for dollar and they also may want to “educate” (lobby) Congress and other corporate bodies concerning proposed laws and regulations. However, if there were transparency concerning policies and amounts expended we would be at least moving a step in the right direction.

John C. Bogle, founder of the Vanguard Group, would be even more stringent than NorthStar. He argues that self-interested managers “exploit provisions in the law…to make lavish political contributions without disclosure… and subvert our political system” that can only be corrected by imposing a requirement for a binding “supermajority” (75%) shareholder vote on political contributions.

It looks like the proposed CalPERS policy could be taken up again on October 17th by committee and the 19th by the full Board (see notice). I hope they don’t back down because of the letter from the Chamber. See Bloomberg Business Week coverage here.

Just as I was about to put up this post, CalPERS came out with an agenda for its October 17th meeting. Item 4 is the one I’ve been discussing. They’ve made some minor additional revisions to their proposed Global Principles of Accountable Governance guidelines on political contributions, primarily that corporate boards should disclose their policy. That’s positive.

In their letter, the California Chamber of Commerce argues that “companies that signed the ‘anti-Citizens United pledge’ in the aftermath of the decision did not see a material increase in firm value.” In other words, the market didn’t place a value on disclosure or restraint by corporations on political spending. Pro-Citizens United and anti-Citizens United companies were priced the same.

Yes, and the market may not mark down the price of companies engaged in criminal activity either. That doesn’t mean we should simply ignore it. No; we should step up enforcement.

I’d like to live in a world where good corporate behavior is rewarded and bad corporate behavior is punished. The first step in that direction is getting corporations to disclose. Without that, you can’t move on to evaluate whether the behavior was good or bad. With full disclosure shareowners will at least know where our money is being spent. Is it being funneled to the US Chamber of Commerce to appeal a proxy access rule that we support? Are our monies going to fund efforts to repeal defined benefit plans for public employees? On campaigns to discriminate against gays? Shouldn’t we have a right to know?

I’d go even further and advocate that shareowners have a voice in such matters. Since the U.S. Chamber has severely limited our potential voice through elected representatives by successfully making the argument that boards would have a fiduciary duty to oppose shareowner nominees, we should now go the route of “say on pay” and seek a say on contributions.