Political disclosure up at large publicly held U.S. companies. That’s the conclusion of The Center for Political Accountability (CPA) and The Wharton School’s Zicklin Center for Business Ethics Research. Adoption of sound transparency and oversight practices for their political spending is part of an accelerating trend, according to a new scorecard. Investors want to hold their companies accountable.
Also issued was a 2020 CPA-Wharton Zicklin Model Code of Conduct, suggesting political spending safeguards for companies adapting to a changing political, business, and legal climate.
CPA and the Zicklin Center released the annual CPA-Zicklin Index and the 2020 Model Code of Conduct for Corporate Political Spending.
Political Disclosure Up: Findings
The Index rates S&P 500 companies for their political disclosure and accountability and includes these major findings:
- The number of most transparent companies, labeled “Trendsetters” for scores of 90% or higher, more than doubled to 79 this year from 35 in 2016. Five companies scored 100%.
- Companies adopting board oversight and a more detailed board committee review of political spending increased 46% in the four-year period.
- Companies getting scores in the first tier (80-100%) totaled 156 this year, up two-thirds from 94 companies in 2016.
- For companies continuing in the S&P 500, there is a steady improvement over time. Average scores rose from 46% in 2016 to 57.0% now. That’s an increase of nearly 25%.
Political Disclosure Up: Quotables
The original Model Code of Conduct was issued in 2007. It was updated with input from public companies and directors, socially responsible investors, and academics. The updating roundtable at Wharton took into account three major developments.
- The Supreme Court’s Citizens United. That 2010 decision led to an explosion of secretive “dark money” spending.
- There has also been a rapid growth in ESG investment.
- and an increased acceptance of corporate political disclosure. It provides a framework, including risk management and ethical behavior, to guide companies in their political spending and assessment of its impact.
The Model Code will be sent to all S&P 500 companies.
The “Trump years (2016-2020) have proven to be a boom time for corporate political disclosure and accountability,” the report’s authors write in its executive summary. My two cents: The rulebreaker in the White House focuses our need to know where the money is flowing.
Writes Professor Rebecca Henderson of Harvard in the foreword:
The annual scorecard potentially catalyzes a race to the top, driving increased disclosure and accountability across the entire universe of publicly traded firms.
In response to the Index’s findings, CPA President Bruce Freed said,
In today’s hyperpolarized political environment, companies face serious risks from what their political spending associates them with. Our Index shows real progress in companies acting to manage this heightened risk.
The new CPA-Wharton Zicklin Model Code, Freed added,
offers best practices for responsible political spending at a time of seismic change. What’s more, the recent public corruption scandal involving FirstEnergy in Ohio illustrates how easily corporate political payments can backfire and harm a company’s good reputation and shareholder value.
William S. Laufer, Director of The Carol and Lawrence Zicklin Center for Business Ethics Research, said:
Corporate political disclosure, codes, and compliance practices are the new benchmarks for organizational integrity.
These benchmarks now have well-established standards in the long-standing CPA- Zicklin Index, offered this year with the guidance of a Model Code. Leadership in some of the largest and most powerful companies in the world are increasingly embracing disclosure practices that reflect a new level of transparency.
Michael E. Porter, a Harvard Business School professor and director of the school’s Institute for Strategy and Competitiveness, said:
I urge businesses to adhere to the principles outlined in the Model Code and to support healthy political competition that will improve the overall business environment and advance the public interest. (Read his entire statement.)
From the Preamble to the CPA-Wharton Zicklin Model Code
The model code is intended as a guide for companies that seek to:
- Be responsible members of society and participants in the democratic process and responsive to the range of stakeholders, in both letter and spirit,
- Be recognized for their leadership in aligning corporate integrity and accountability with codified values,
- Prudently manage company resources, and
- Avoid the increased level of reputational, business, and legal risk posed by the seismic shifts in how society engages with and scrutinizes corporations. The risk is exacerbated by the evolution of social media and a resurgence of activism in civil society.
Companies at the top of the Index, Earning Trendsetter Status
- Becton, Dickinson and Co.
- Edwards Lifesciences Corp.
- Honeywell International Inc.
- HP Inc.
- Northrop Grumman Corp.
Others With Trendsetter Status
- Ameren Corp.
- American International Group Inc.
- Capital One Financial Corp.
- Edison International
- Electronic Arts Inc.
- Estée Lauder Companies Inc.
- General Electric Co.
- Hess Corp
- International Business Machines
- International Paper Co.
- JPMorgan Chase & Co.
- McKesson Corp.
- Nielsen Holdings NV
- Noble Energy Inc.
- State Street Corp.
95.7 to 94.4%
- Alphabet Inc.
- Cognizant Technology Solutions Corp.
- Fortune Brands Home & Security
- Host Hotels & Resorts Inc.
- Phillips 66
- Sempra Energy
- Unum Group
- Altria Group Inc.
- Cisco Systems Inc.
- ConAgra Foods Inc.
- Edison Inc.
- Exelon Corp.
- Gilead Sciences Inc.
- Intel Corp.
- Kellogg Co.
- Mastercard Inc.
- U.S. Bancorp
- Union Pacific Corp.
- Visa Inc.
94.3 to 90%
- AFLAC Inc.
- Coca-Cola Co.
- Corteva, Inc.
- CVS Health Corp.
- General Mills Inc.
- Intuit Inc.
- Microsoft Corp.
- Norfolk Southern Corp.
- United Parcel Service Inc.
- Walgreens Boots Alliance Inc.
- WestRock Co.
- AmerisourceBergen Corp.
- Bank of New York Mellon Corp.
- Biogen Inc.; Boeing Co.
- Bristol-Myers Squibb Co.
- Dominion Energy Inc.
- Hartford Financial Services Group Inc.
- Mondelez International Inc.
- Morgan Stanley
- PPL Corp.
- Regions Financial Corp.
- UnitedHealth Group Inc.
- Wells Fargo & Co.
- AbbVie Inc.
- American Express Co.
- Apache Corp.
- Bank of America Corp.
- CSX Corp.
- Entergy Corp.
- Humana Inc.
- Johnson & Johnson
- Kohls Corp.
- McDonald’s Corp.
- Merck & Co. Inc.
- Prudential Financial Inc.
- Qualcomm Inc.
- Regeneron Pharmaceuticals Inc.
- Salesforce.com Inc.
- Tiffany & Co. and
- Williams Companies Inc.
Consistent Bottom-tier Outliers
There are 163 companies from the S&P 500 residing in the bottom tier (with scores of zero to 20 percent), down from 194 in 2016. A number of them are large or well known and have consistently scored in the bottom tier since 2016. These include:
- Berkshire Hathaway Inc. (0.0%)
- Nvidia Corp. (2.9%)
- Netflix Inc. (0.0%)
- Tyson Foods Inc. (8.6%)
- M&T Bank Corp. (0.0%)
- Hanes Brands Inc. (2.9%); and
- Molson Coors Brewing Co. (18.6%).
Political Disclosure Does Not Mean Values Alignment
Disclosure is just the first step. As Justice Kennedy wrote in Citizens United:
With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation’s political speech advances the corporation’s interests in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.
While I frequently see social media campaigns, such as UltraViolet’s aimed at consumers calling out companies for their political contributions, such campaigns by shareholders are rare.
For example, I am pro-choice. Because of their disclosures, we know that $2M (56%) of AT&T’s total political giving in 2020 was to anti-choice candidates or associated PACs. They included Senators Ted Cruz (R-TX), David Perdue (R-OH), John Cornyn (R-TX) and Lindsey Graham (R-SC); Representatives Liz Cheney (R-WY), Kevin Brady (R-TX) and Steve Scalise (R-LA). Vice President Mike Pence’s Great America Committee PAC also received support.
Do these expenditures advance the “corporation’s interests in making profits?” If not, what can shareholders do about it? Should advancing a corporations’ interests in making profits be the only consideration? For example, what if increased profits come at the cost of human slavery or species extinction? Shouldn’t we consider more than profits?