What happened to shareholder proposals for political spending in the 2022 proxy season? | Cooley LLP

By | July 12, 2022

What happened to shareholder proposals for political spending and lobbying in the 2022 proxy season? In these two articles, ISS gives us an update on shareholder proposals for political contributions and lobbying disclosures submitted for the 2022 proxy season. According to the ISS, many shareholder proposals addressing political spending and lobbying reflect investor concerns that support for certain candidates and causes or certain lobbying activities may be inconsistent with stated values ​​or public position of the company. Drilling down, we also look at more specific data from the Center for Political Accountability regarding shareholder proposals for election spending submitted by partners in its proposal for the 2022 proxy season, as well as a preview of what’s on the agenda from the CPA for next proxy season.

According to the ISS, there are a wide variety of measures focused on political spending — including requests for reports on global public policy and political influence as well as clear alignment of political spending with the values ​​and priorities of company. In this report, the ISS focuses on political campaign contributions, including calls for greater disclosure. Although the interaction has led to improved disclosures about political contributions over time, particularly in large companies, the ISS observed that “social and political turmoil has drawn attention to companies that support some individual candidates may oppose public statements about issues such as race, justice, gun control, LGBTQ rights and electoral integrity.These concerns have raised the profile of political contributions and resulted in resolutions about the transparency and consistency of a company’s spending and stated values. ” How does the company reconcile its public support for environmental sustainability or social justice with its support for legislators working against these efforts? To that end, some of these proposals question why political contributions or expenditures “appear to be inconsistent with public statements on company values, vision, and operational practices.”

The ISS identified 19 proposals in political campaign contributions submitted for the 2022 proxy season, of which 16 were voted on in mid -June. According to the ISS, two proposals received majority support. The overall average support was 34.1%, with the lowest support at 4.2% in a company with majority insider ownership.

According to the ISS, many of the shareholder proposals requesting disclosure about direct and indirect lobbying activities and spending also focus on whether these activities are aligned with a company’s public statements. Some proposals respond to lobbying activities from a relatively new climate perspective, asking whether the lobbying activities of companies or their trade associations are consistent with their public statements about climate or their “ in line with the objectives of the Paris Agreement. ” The ISS reports that most of these measures were “removed after companies agreed to increase disclosures about the Paris alignment of their direct and indirect lobbying.” A form of proposal submitted to some pharma companies sought an independent third-party report on whether the company’s lobbying activities — whether directly or indirectly through trade associations — were consistent with public policy positions. and its public statement. According to the ISS, these resolutions “typically receive more than average support from shareholders.”

The ISS reported that approximately 31 lobbying proposals have been submitted for the 2022 proxy season, three of which relate to climate-related lobbying. By June 13, three had received majority or nearly majority support. Overall, the average support is at 31.8%. The ISS interprets the failure rate to indicate that, although many are still concerned about lobbying activities, “the majority of investors are convinced that the additional disclosures made by the companies have long been targeted such measures marks sufficient improvement over previous practices. ”

The Center for Political Accountability reports that, of the 22 shareholder political spending proposals submitted by its proposal partners for the 2022 proxy season, 14 resulted in an agreement with a company or a withdrawal of the proposal if the company made of considerable progress, and eight went to the votes, of which two received a majority vote. The average vote was 33.9% (38.1% excluding a company with majority insider ownership). That shows a decline from the 2021 proxy season, when CPA partners submitted 28 proposals, of which 12 voted, and six received a majority vote, including two at 80% and one at 68%. For 2021, the CPA and its partners also withdrew 13 proposals; 10 are the result of agreements with companies regarding disclosure and three are strategic withdrawals where the company has made significant improvements but not enough to come to an agreement. The average vote is 48.1% for 2021. According to the CPA, as more companies begin to provide regular disclosure about their political spending, there are fewer recurring proposals and fewer targets for the original CPA model proposals that only seek full disclosure and transparency — and these are the remaining companies that may, on average, be “more resistant to transparency” than previous targets.

The CPA advises that next season will see a substantial increase in the number of proposals its partners will submit to the proposal. In addition to the standard disclosure proposal to be submitted to companies with little or no disclosure policies, the CPA also expects to submit proposals related to the disclosure of contributions to 527 organizations or trade associations engaged in spending that associated with the election. As described by the CPA, “527” organizations are typically entities such as state party leadership and legislative campaign committees and general associations of governors and lawyers. These organizations receive “contributions from a variety of sources and then spend them to advance a broad political agenda.” When a company has contributed to a 527 group, the corporation and other funds are pooled and then channeled to state and local PACs and candidates, to “dark money” groups and in the other 527 national groups. As a result, companies no longer control the use of their funds. Groups determine how money is used, they control the message and decide which candidates or issues to support, regardless of the contributor’s own goals and intentions. The donor company may not know how 527 plans to use the company’s money, making it difficult for the company to evaluate the risk involved. (See this PubCo post.)

The CPA also plans to submit a third type of proposal that will ask companies making donations to third-party groups, such as trade associations, social welfare or other organizations engaged in political activities, to adopt a policy requiring that these groups agree to report to the company how the group spent those funds for political activities, including the identification of the recipients and the amounts. Reports will be posted on the company’s website, providing transparency and accountability. The proposal could even be submitted to companies with good scores on the CPA-Zicklin Index, but do not provide this information. By tracking how donation money is spent, the CPA believes, a company can better assess the consequences of its political spending and avoid the reputational risk that can arise from electoral spending that does not coincide with company values. announced to the public. The CPA argues that the inability of companies to know the consequences of their political spending — and the associations that may result from that spending — presents a more serious risk. If a conflict between action in the form of political spending and publicly announced core values ​​is discussed, the conflict could damage the company’s relationship with its investors, employees, customers and public, which can look to public statements of the company as a mere virtue — signaling or even hypocritical — perhaps leading them to dismiss the company and its stock.

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