In our paper, Are Red or Blue Companies More Likely to Go Green? Politics and Corporate Social Responsibility, forthcoming in the Journal of Financial Economics, we test the hypothesis that Democratic-leaning firms (i.e., firms with a higher proportion of Democratic stakeholders) are associated with more socially responsible policies than Republican-leaning firms. Our results can be illustrated by a comparison of Starbucks and Wendy’s, two large and well-known food and drink retailers. Starbucks started as a coffee beans store in 1971 and began to grow as a popular coffeehouse chain in the late 1980s after entrepreneur Howard Schultz bought it. Schultz, who is the current CEO and Chairman of Starbucks, is a well-known Democrat who donated $130,500 to Democratic federal candidates and only $1,000 to Republicans over his lifetime. In addition, Starbucks was founded and is currently headquartered in Seattle, Washington, a bastion of progressivism and the Democratic Party.
Posts Tagged ‘Political spending’
The SEC’s recent decision to take disclosure of political activities off the SEC’s agenda is a policy mistake, as it ignores the best research on the point, described below, and perpetuates a key loophole in the investor-relevant disclosure rules, allowing large companies to omit material information about the politically inflected risks they run with other people’s money. It is also a political mistake, as it repudiates the 600,000+ investors who have written to the SEC personally to ask it to adopt a rule requiring such disclosure, and will let entrenched business interests focus their lobbying solely on watering down regulation mandated under the Dodd-Frank Act and the 2012 securities law statute, rather than having also to work to influence a disclosure regime.
Mutual funds’ support for corporate political disclosure reached a new high in 2013, according to a ten-year analysis by the Center for Political Accountability. Forty large US mutual fund families voted in favor of corporate political spending disclosure an unprecedented 39% of the time, on average.
CPA’s review of mutual fund votes looks at how 40 of the largest U.S. fund families voted on 276 shareholder requests for disclosure of corporate political contributions at U.S. companies over proxy seasons from 2004 to 2013 (covering shareholder meetings from 1 July 2003 to 30 June 2013). Together, these fund families manage around $3.3 trillion in U.S. securities, according to Morningstar® fund data, and control a large portion of the shareholder vote in US securities.
On November 21, 2013, Institutional Shareholder Services Inc. (ISS) released updates to its proxy voting policies for the 2014 proxy season, effective for meetings held on or after February 1, 2014.  In addition, ISS has requested that companies notify it by December 9, 2013 of any changes to a company’s self-selected peer companies for purposes of benchmarking CEO compensation for the 2013 fiscal year.
This post provides guidance to US companies on how to address ISS policy changes and also highlights recent developments regarding potential regulation or self-regulation of proxy advisory firms.
The amendments to ISS proxy voting policies for the 2014 proxy season relate to:
Last week the Securities and Exchange Commission released its regulatory agenda, and this agenda no longer includes rules requiring public companies to disclose their spending on politics. The agenda now includes only overdue rules that the SEC is required to develop under Dodd-Frank and the JOBS Act. While we are disappointed by the SEC’s decision to delay its consideration of rules requiring disclosure of corporate political spending, we hope that the SEC will consider such rules as soon as it is able to devote resources to rulemaking other than that required by Dodd-Frank and the JOBS Act. The submissions to the SEC over the past two years have clearly demonstrated the compelling case and large support for requiring such disclosure.
We co-chaired a committee of ten corporate and securities law professors that filed a rulemaking petition urging the SEC to develop rules requiring public companies to disclose their spending on politics. In the two years since the petition was submitted, the SEC has received more than 600,000 comment letters on our petition—more than on any other rulemaking project in the Commission’s history. The overwhelming majority of these comments—including letters from institutional investors and Members of Congress—have been supportive of the petition. At the end of 2012, the Director of the SEC’s Division of Corporate Finance acknowledged the widespread support for the petition, and the Commission placed the rulemaking petition on its regulatory agenda for 2013.
Leading US public companies are making political disclosure and accountability a mainstream corporate practice. That’s a key finding of the 2013 CPA-Zicklin Index of Corporate Political Accountability and Disclosure released on September 25. Now in its third year, the Index benchmarked the top 200 companies of the S&P 500 on their policies and practices for disclosing, decision-making and managing the risks associated with their political spending. (The actual total was 195 after discounting mergers and other factors.)
The increase in the average overall Index score of all companies—a 41 percent jump from 38 last year to 51 in 2013—showed strong across the board improvement in company policies. Over three quarters of these companies—about 78 percent—saw their scores rise. Biggest gains came in board oversight, with 66 percent of the companies improving scores in that area, followed by disclosure, with 57 percent improving, and political spending policies, with 42 percent improving.
While the number of shareholder proposals filed at U.S. public companies continued to increase this year, management has been less successful at obtaining permission from the Securities and Exchange Commission (SEC) to exclude from the voting ballot new types of investor demands.
The finding is discussed in the latest Proxy Voting Analytics (2009-2013), recently released by The Conference Board in collaboration with FactSet Research. The study examines data from more than 2,400 annual general meetings (AGMs) held at Russell 3000 and S&P 500 companies between January 1 and June 30, 2013. Historical comparisons with findings from the last four proxy seasons are also made.
Data analyzed in the report includes:
…continue reading: Proxy Voting Analytics (2009-2013)
Shareholder activists are meeting now to consider what proposals they will file for the 2014 proxy season and the results are largely in from the 2013 proxy season, with analysis coming from all the different proponent groups, the proxy advisory firms and others interested in what happened this year. Si2’s own report in August showed that the upward climb of investor support for social and environmental policy proposals continued this year, with average support hitting a record level of 21.3 percent and requests for more board and workplace diversity, sustainability reporting and corporate political activity disclosure got the highest levels of support. (More information on these overall findings and overall trends, illustrated with charts, appears here.)
One group that reports on proxy season findings is Proxy Monitor, a project of the Manhattan Institute’s Center for Legal Studies. It focuses on resolutions that go to votes at the 250 largest U.S. firms, reporting on the vote results and presenting analysis of the trends on its website. The group’s analyses of proxy season results trends have some significant blind spots that are not always apparent to the novice proxy analyst, but its reports nonetheless are widely quoted in the press. As such, they deserve some scrutiny, which this post offers. Si2 took a look at all the shareholder resolutions filed since 2010 and compared the results to the Proxy Monitor database to see precisely how PM reaches its conclusions.
During this year’s annual meeting season, issuers experienced better outcomes on say on pay (SOP) and shareholder resolutions, underpinned by a high degree of engagement and responsiveness to past votes. With SOP in its third year, companies addressed many of investors’ and proxy advisors’ pivotal compensation concerns, which was reflected in a modest improvement in average SOP support and proportionately fewer failed votes.
Similarly, although the volume of shareholder resolutions on ballots was nearly comparable to the first half of 2012, average support declined across many categories and there were 27% fewer majority votes (See Table 1). This was due in large part to corporate actions on resolutions that are traditionally high vote-getters, such as board declassification, adoption of majority voting in director elections, and the repeal of supermajority voting provisions, resulting in the withdrawal or omission of the shareholder proposal. Indeed, issuers made a conscious effort to avoid the prospect of majority votes, mindful of potential fallout against directors by proxy advisory firms. Beginning in 2014, ISS will oppose board members who fail to adequately address shareholder resolutions that are approved by a majority of votes cast in the prior year, while Glass Lewis is scrutinizing board responses to those that receive as little as 25% support (see our January newsletter).
Corporate America’s “proxy season” has now wrapped up: most of America’s large publicly traded companies hold annual meetings to vote on business, including shareholder proposals, between April 15 and the end of June. Among the 250 largest U.S. public companies by revenues that constitute the Manhattan Institute’s Proxy Monitor database, 214 had held meetings by July 1.
In 2013, companies faced more shareholder proposals, on average, than in 2012, but the average support for proposals fell and a smaller percentage of proposals received the support of a majority of shareholders. The most commonly introduced type of proposal, as in 2012, involved companies’ political spending or lobbying; but as in 2012, none of these proposals passed, and shareholder support for this class of proposals held steady at a modest 18 percent.
This post discusses these results in more detail. First, the post summarizes 2013 shareholder proposals, including their rate of introduction and a breakdown of shareholder proposal types and shareholder proposal sponsorship. Next, the post examines voting results. Finally, the post looks in more depth at the most common class of proposal: that involving political spending or lobbying.