‘We the People’ Already Have a Partial Road Map to Fight Citizens United: Stocks and Mutual Funds

Shari Dunn

Guest Post by Shari Dunn is an attorney and journalist who is also a “True Believer,” Bon Vivant, Raconteur, Creative, Dreamer and Muse. 

Never believe that a few caring people can’t change the world. For indeed, that’s all who ever have. 

That’s one of Dunn’s favorite quotes from Margaret Mead. In this guest post (originally posted at Tweeting For Change, she interviews Julie Goodridge, CEO of NorthStar Asset Management, one of the primary movers behind a group that recently came to my defense after I was sued by several companies for simply fling shareowner proposals. See SRI Funds & Advisors Send Open Letters on Lawsuits Against Shareholders. Here, Shari Dunn talks to Julie Goodridge about owners taking participation to the next level.

Publicly held corporations are in fact made up of people, shareholders and mutual fund participants. And it’s that very fact that might yield the best results in the fight against Citizens United v. Federal Election Commission and McCutcheon, et al. v. Federal Election Commission. Of course, both of those decisions rest on the ill-advised concept of corporate personhood as it relates to political contributions. This article is not about the minutiae of either of those decisions. Rather, the focus here is the fact that real people run and invest in many of those corporations, who will seek to wield the expanded power the US Supreme Court has recently bestowed upon them, and therein lies a potential avenue to take back the kingdom, or at least make a solid run at holding the corporate crown heads accountable to the rest of us serfs.

“How is that possible?” you might ask. Let me introduce you to the modern-day Ma’at (the ancient Egyptian goddess of truth, balance and order), Julie Goodridge, CEO of NorthStar Asset Management Inc. of Boston. NorthStar is a socially active investment firm. What does that mean? It means that NorthStar is not only making money for their clients; they are also taking a stand on the principles, practices and policies that the companies their clients invest in say they are guided by to make that money. They do it through what’s called shareholder activism in the form of shareholder resolutions that bring issues before all shareholders for a vote. NorthStar has sponsored resolutions on issues such as limiting executive compensation, improving corporate environmental practices, and protecting workers from discrimination. And since the Citizens United decision, NorthStar has emerged as a leader in the area of shareholder activism as it relates to corporate political contributions.

So with that in mind, let’s dive right in. I had an enlightening and extremely enjoyable conversation with Julie Goodridge, one of the chief architects of shareholder activism, and what I learned may excite, infuriate, and hopefully spur you to action.

SHARI DUNN: I know that your company has done a lot of work on shareholder activism on a range of issues, from the environment to having a major impact on LGBT issues and now you’ve taken on the issue of corporate political giving head-on. 

Julie Goodridge

JULIE GOODRIDGE: Sure, when Citizens United came down our staff was concerned about runaway giving. If a person has the right to exercise their values when making a political contribution then there’s an analogy with corporations, but the question is: whose values? So what I do is look at corporations to figure out what their moral compasses are and I’ve been doing socially conscious investing the last 30 years. And by the way, this question of whose values has been asked by shareholders since [the issue of divestment in] South Africa.

DUNN: How do you figure out or assess what type of giving a company is doing and what stance shareholders should take on that giving?

GOODRIDGE: First we look to see what a company’s stated values are. Then we see, to the extent we can find out: is their giving aligned with those values? So we took a look at the companies that are in our portfolio, and what data they disclose. We’ve been analyzing PAC (Political Action Committees) information going back even before Citizens United. And company PAC information is completely publicly available and must be disclosed by law. Of course there are many ways that a corporation may give to a political candidate or party and disclosure is always an issue, but we analyze the publicly available information combined with their stated values to see if there is any misalignment.

So let’s say the company has made public policy statements about who they are and what they stand for: non-discrimination, environmentally conscious, LGBT friendly, etc. We look at that and then sometimes we find out that they are giving money to people who are publicly and privately undermining the company’s own stated corporate values. Here’s an example: Home Depot says in their policies, procedures, and publicly, that they support LGBT, but they gave money to the campaign of Bob McDonnell who at the time was running for governor of Virginia and who had clearly stated he wanted to roll back all protective legislation for LGBT citizens. That was a clear example of the stated corporate values not lining up with their giving. In fact, in the case of Home Depot, at the time we did our analysis we found that 27% of political contributions made by Home Depot since 2009 went to issues or politicians who were against LGBT protective legislation. We also found that 31% of their giving was to individuals who opposed stronger legislation on greenhouse gas emissions and other important environmental issues.

DUNN: Okay, so how specifically can shareholders put the brakes on that?

GOODRIDGE: In that case we decided to file a shareholder resolution to say that if they care about LGBT issues, they need a policy stating that those values are included in the protocols the company follows when deciding on political giving. Of course, Home Depot said “Well, we have a business interest and we want to support people in that manner,” but they really didn’t think about the impact of this guy’s voting record, what he stood for, or anything outside of the fact that they had some obscure business-interest reason for giving this guy money. And they really had no idea what his stand regarding LGBT people was. And it wasn’t just Home Depot. We looked at Western Union, Google, Proctor and Gamble, and what we found was that none of these companies had thought about the voting records of the candidates they were supporting.

I mainly think this is a governance issue that many companies never considered, but I am sure in some companies there were people who hijacked the giving and pushed it toward their individual beliefs because there was no policy in place, so people did whatever they wanted. We just did a resolution for Facebook. Even though they support LGBT, they don’t have explicit polices when it comes to possible incongruities between their giving and their stated policies. So we wrote a shareholder resolution that will be voted on in May. The resolution says that shareholders want the board of directors to create and implement a policy on political giving that reflects a consistent incorporation of corporate values. And we want that to be a part of the Company and Facebook political and electioneering contribution decisions. We also want them to report to shareholders on any electioneering or political contributions that might clash or create that incongruity with corporate values, and tell shareholders why they did it.

Of course, there are lots of shareholder resolutions on a variety of issues but shareholder resolutions like ours are terribly controversial. Back in 2010 when we filed our first resolution on political giving, people looked at us like we were crazy. And many companies and observers said “Well, wait a minute. How can shareholders have a say over PAC giving, since PACs are separate entities?” Well, we did some research and found out that shareholders are actually one of the groups of people that are allowed to contribute to a company PAC.

DUNN: Okay so now I, and I am sure some readers, are getting that light bulb turning on over our heads. I can clearly see how shareholders can push back against publicly held corporations who want to run out and exercise sky’s-the-limit giving in light of Citizens United and McCutcheon. They can say “Wait a minute. Your values, (Mr./Ms. Corporation), are made up of and must include my values as a shareholder.” Sounds great, so what’s the catch? And because, to quote one of my favorite TV shows, “all magic comes with a price,” what’s the potential downside to all of this?

GOODRIDGE: Well, all of this is about good corporate policy and it has an impact on the bottom line, which ultimately we want a good return on for our clients, and we want the companies to succeed. But yes, already there is some maneuvering to limit these rights and there are existing limitations. So let’s go back to Facebook. Anytime they do a stock split they take away the voting rights of the shareholders. And of course, different classes of shares, class B or class A, come with different voting rights. In the case of Facebook, Mark Zuckerberg and the insiders were given class B shares that came with 10 times the voting rights of the class A shares they gave the public. So here’s the thing: in a case like that, even if we got every single person to vote in favor of our resolution, it still wouldn’t reach a majority vote because Mark Zuckerberg controls 57% of the company. Also, not all political spending goes through the PACs of various companies. Some companies give money through a variety of other sources that are not transparent* and already there is a move from some to stop shareholder activism and limit shareholder rights.

DUNN: So not only would the majority of individuals be at a monetary disadvantage to influence policy, they also would have organizations they invest in acting in ways that are out of line with the corporation’s expressed values, and there would be nothing they could do about it?

GOODRIDGE: Yes, there was a guy who spoke at Tulane who was talking about doing this. Basically, shareholders should not have the right to raise issues of social import, and should have a minimum amount of money invested, a higher amount than currently required, to have a voice. It’s really scary for shareholders. I mean, it’s like when you think of what’s gone on with union busting, to say “Yeah, you can still have a union, but you can’t go on strike,” and all these kinds of things. These things, all of them, would ultimately take away individuals’ freedoms and rights. People have been very complacent about this and if this guy has his way he will take away these rights and people need to understand the impact that will have.

EDITOR’S NOTE: From my research I found that an SEC commissioner, Daniel Gallagher, was speaking at the Annual Corporate Law Institute held at Tulane when he “delivered a scathing attack on small investors and proposed radical steps to severely limit democracy in corporate governance,” according to CorpGov.net. In that speech, Gallagher went on to call shareholder activists, “corporate gadflies [who] have used these loose rules to hijack the shareholder proposal system.” In addition, according to CorpGove.net, he proposed “gutting the proxy proposal rules” by, among other things, recommending that for shareowner proposals there must be a minimum of $2 million, a percent to be determined, instead of $2,000 of shares as currently allowed.

DUNN: So the issue of complacency raises this question: how can social media and interactive processes be brought in to help? 

GOODRIDGE: If people are wealthy enough to own shares they may have a voice. But most people own mutual funds or IRA and that is a very different process because they are beholden to the people who manage the mutual funds to vote their shares. So for example, one of the things is that they would have to start writing to the mutual fund company and making a big stink saying they want companies to be accountable for whatever the issue was. That would be a big change and according to the law, the mutual funds are under no obligation to respond to shareowners of the funds in that way.

DUNN: But could there be a way that these fund holders could, through the Internet or using a database or an app, get information that is relevant and as a group, let’s say a million investors in one fund feel a certain way about a type of giving, and they were able to bring their social power to the issue. That could have a big impact, if not legally, then morally, and PR-wise, could it not? Because it seems to me that what it’s going to take for shareholders and mutual fund investors is organization.

GOODRIDGE: That’s something that could be done but we couldn’t do that level of organizing because we have a fiduciary duty. And it’s because we don’t want the companies that we work with to get slammed that we do these shareholder resolutions, to try to prevent companies from getting slammed because of inconsistencies in their giving. But I think your idea is good of going via mutual funds to put pressure on them, the funds, who don’t pay a whole lot of attention to the proxy process. But yes somehow there has to be role for individuals who invest in mutual funds, they do have a place.

DUNN: This would allow people to link together and say “Hey, we want these issues considered,” not to slam the fund but to hold the mutual funds accountable.

GOODRIDGE: That’s a great idea, and it’s the next level of what’s necessary. And just to say, as you know, the issues we deal with are broad and of course the issues include hiring policies, board diversity and getting businesses to understand how important it is to have people of different backgrounds to have a voice upfront.

DUNN: Julie, I can’t thank you enough for taking time today to talk to me. I see some real concrete steps that people can take to have their voices heard and your work is invaluable in that process. I am sure we are going to be hearing more about you, your firm, NorthStar Asset Management Inc., and corporate political giving accountability going forward.

* TheNation.com [“[C]ompanies, recognizing the backlash they would face if caught putting money into 2010 races, have taken their spending underground by funneling contributions through nonprofit organizations (501[c]4s) and trade associations (501[c]6s) that are not required to disclose their donors.”]