On the 2nd anniversary of the Citizens United Supreme Court decision, two investment firms announce that they have filed shareholder resolutions at three companies, Bank of America, 3M & Target Corporation, urging them to refrain from making political donations in the future. This is the first time institutional shareholders have asked corporations to entirely refrain from political spending.
The initiative by Trillium Asset Management, LLC (Trillium) and Green Century Capital Management (Green Century) came as government watchdog groups Common Cause and the U.S. Public Interest Research Group launch a broader campaign against corporate political spending. They sent letters to more than 700 businesses, including all 500 of the S&P 500, asking each to sign a public pledge renouncing the use of funds from their corporate treasuries for political purposes. The letters also ask companies paying dues to trade groups, including the U.S. Chamber of Commerce, to specify that their dues should not be used for political ends. Said Bob Edgar, President and CEO of Common Cause,
The use of corporate funds to influence our elections is bad for business and bad for our democracy. Corporate leaders should heed the call of shareholders and citizens to refrain from political spending.
The Supreme Court’s January 2010 Citizens United decision lifted a century-old ban on the unlimited use of corporate treasury funds for political purposes. Shareholders are increasingly concerned that such funds, which can be funneled to SuperPACS, trade associations and other organizations for political use, often without proper oversight or board and shareholder knowledge, could create a risk to shareholder value.
Target and 3M have been under scrutiny from shareholders since their 2010 support of a controversial Minnesota gubernatorial candidate sparked a nationwide backlash against Target; 3M continued to support the candidate even after the uproar. At Bank of America, the resolution proponents are concerned that continued political spending could expose the company’s already-battered brand to further risk, given its sizable “political footprint.” According to Shelley Alpern of Trillium, which filed the proposals at 3M and Bank of America,
Citizens United conferred expanded freedom to corporations and unions to make political donations, but exercising that freedom exposes companies and their shareholders to significant risk. Better means exist for those in the business community to express their political and policy preferences that do not divert shareholder resources toward political ends that they may not support and which may cause public controversy.
A recent review of the academic literature on the correlation between shareholder value and political activity has indicated that there is a negative correlation between the two and that shareholder value may be hurt by firm political activity. According to study author Michael Hadanindi, political spending by firms,
in particular contributions to policy makers, at best has an insubstantial impact on their bottom line and more often results in a negative effect of firm financial performance, as well as an increase in firm risk taking which will also erode future earnings.
“Given that corporate political spending may indeed have a long-term negative correlation to shareholder value and Target’s firsthand experience with contribution-related backlash, we believe companies should protect against risk and refrain from using treasury funds for political purposes,” said Larisa Ruoff of Green Century. Green Century filed the proposal with Target.
“Neither shareholders nor citizens ultimately benefit from corporate political spending,” said Gary Kalman, Federal Legislative Director of U.S. PIRG. “It’s time for corporations to recognize that fact and refrain from political spending.”