While the U.S. Supreme Court may have ruled that contributing money to political campaigns and action committees is a form of free speech, the public perception — often bolstered by factual evidence — is that capital provides unequal access to those with political power.
Corporate spending on political contributions and lobbying can create reputational risks — especially when S&P 500 companies spent more than $1 billion on these activities for 2010. Such risks can be managed effectively if companies examine whether their memberships in trade associations that are engaged in lobbying activities accurately represent their corporate interests and policy positions. Shareholders in turn need to understand their companies’ spending for trade association lobbying and the risks they might present.
And now, the Securities and Exchange Commission is considering a rule to require public companies to disclose their spending on politics and lobbying.
SEC Commissioner Luis Aguilar released a statement on Wednesday presenting a clear connection between good corporate governance and shareholders’ capacity to make informed decisions and exercise their rights as investors and owners — it is believed Aguilar wrote this statement partially in response to former SEC Commissioner Paul Atkins’ Feb. 3 Politico opinion piece, “SEC rule on corporate political giving too extreme.”
“Disclosure of corporate governance information in the annual proxy statement also promotes capital formation,” Aguilar states, “as studies have shown a statistically significant relationship between governance quality and cost of capital, in which the market rewards companies perceived to have better governance practices.”
The SEC appears to agree: Its Feb. 15 no-action letter denied Bank of America’s request to exclude a shareholder proposal that asks that the board study the feasibility of adopting a policy prohibiting the use of Treasury funds for direct and indirect political contributions. As a result, two resolutions — one on lobbying and political spending disclosure and another one calling for a policy banning political spending — now can appear on Bank of America's proxy ballot this year.
This watershed moment of SEC opinion will now enable shareholders to speak up on these two topics without worrying that such proposals could be struck down on the basis of being vague, immaterial or duplicative.
Next page: A level playing field