Corporate Disclosure of Lobbying Activities and Expenditures
A Progress Report on the 2012 Proxy Season
In 2011, the AFSCME Employee Pension Plan filed eight shareholder proposals asking for companies to disclose their lobbying activities. The proposal did well as a first year proposal, averaging more than 24% at the five companies where it came to vote. From this initiative, in 2012 a group of institutional investors came together in a coalition calling on companies to report on their lobbying programs and expenditures.
Building on the five year plus initiative to have companies disclose political spending, these investors proposed that companies expand their transparency on their influence on elections and public policy by including lobbying disclosure.
Specifically, they argued that enhanced lobbying disclosure would enable them to better evaluate business risk associated with their companies’ efforts to influence regulatory and legislative processes.
This position is consistent with that of U.S. Supreme Court Justice Anthony Kennedy, who, as author of the 5-4 majority decision in Citizens United v. Federal Election Commission stated that, if given prompt disclosure of political expenditures, “Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits…” While Justice Kennedy was speaking of corporate expenditures aimed to influence elections, his logic applies equally to the need for lobbying disclosure.
While Citizens United and the focus on political expenditures have attracted a great deal of media attention, corporate lobbying expenditures extend far beyond campaign contributions. A November 2011 study by Si2, funded by the IRRC Institute, entitled “Corporate Governance of Political Expenditures” found that in 2010, S&P 500 companies spent a total of $1.1 billion on campaign contributions and lobbying, with $979.3 million in federal lobbying expenditures making up 87 percent of this spending. And this $979 million figure does not include state level lobbying expenditures.
Moreover, lobbying by trade associations to which corporations contribute is substantial, and these corporate contributions are largely unreported. In 2010 the U.S. Chamber of Commerce spent more than $132 million lobbying, making it the country’s largest lobbying group. And in 2009, the Chamber of Commerce and seven other leading trade groups took in more than $1.3 billion. These groups, in turn, spent some $500 million on lobbying and other political activity. Yet the Si2 study found that only 14 percent of S&P 500 companies disclose the portion of their trade association dues used to fund lobbying.
In fact, most companies do not provide even rudimentary disclosure on their lobbying expenditures and practices to investors. Out of the S&P 500, the IRRC study found 64 percent of companies make no mention of lobbying activities, policies or oversight. Furthermore, the study found that only 13 companies in the S&P 500 provide investors information on how much they spending on lobbying.
This year the investor coalition took a logical next step and asked companies to disclose their direct and indirect lobbying activities. Whether the issue is environmental impact, consumer protection, financial reform or shareholder rights, it is important for investors to understand how company dollars are spent to influence our laws and regulations by lobbying. While many companies have modest government affairs budgets, others spend tens of millions of dollars annually on lobbying directly and through trade associations.
More than 40 investors joined in filing and co-filing the resolution seeking comprehensive disclosure of corporate lobbying; among them are New York State Common Retirement Funds, Walden Asset Management, the AFSCME Employees Pension Plan, Needmor Fund, PAX World Fund, SEIU, Tides Foundation, AFL-CIO, Funding Exchange, Green Century Funds, CWA and Russell Family Foundation. Also participating were faith-based investors such as CHRISTUS Health, Catholic Health East, Midwest Capuchin Franciscans, Sisters of St. Joseph of Boston, Sisters of Notre Dame Boston, Mercy Investment Services, Glenmary Home Missioners, and Sisters of Notre Dame Toledo. This investor network is organized by the AFSCME Employees Pension Plan and Walden Asset Management, a division of Boston Trust & Investment Management Company.
Specifically, the resolution asks for disclosure of:
1. Company policy and procedures governing lobbying, including that done on our company’s behalf by trade associations.
2. Payments used for direct lobbying, as well as grassroots lobbying communications.
3. Membership in and payments to any tax-exempt organization that writes and endorses model legislation.
4. Decision-making processes and oversight by management and the Board.
The 40 companies receiving lobbying disclosure resolutions for the 2012 proxy season were:
3M Johnson & Johnson
Abbott Laboratories JPMorgan Chase
Aetna Kraft Foods
Altria Group Northrup Grumman
Amgen Occidental Petroleum
AT&T Peabody Energy
Bank of America PepsiCo
Chesapeake Energy Southern
CVS Caremark St. Jude Medical
Coca-Cola Union Pacific
Comcast United Parcel Service
ConocoPhillips UnitedHealth Group
Devon Energy Verizon
Eli Lilly WellPoint
General Electric YUM! Brands
GEO Group Zimmer Holdings
Of the 40 resolutions filed, investors expect 22 to come to a vote in this proxy season.
Constructive dialogue with a number of companies led to the withdrawal of the resolution from 12 companies:
• Johnson & Johnson
• Eli Lilly
• General Electric
• Northrup Grumman
• Occidental Petroleum
• St. Jude Medical
• YUM! Brands
• Zimmer Holdings
In addition, a number of companies filed “No Action letters” with the Securities and Exchange Commission (SEC) seeking to omit the resolution from the proxy. The primary argument made was that the lobbying resolution overlapped with a political spending resolution that had already been filed and therefore only one resolution should be included.
The SEC agreed with this argument and thus AT&T, JPMorgan Chase, WellPoint and CVS Caremark were able to omit the lobbying resolution.
In addition, a lobbying resolution at Comcast was no-actioned on an ownership challenge.
A proposal at Pfizer was withdrawn for technical reasons because a different proposal that also had lobbying elements in it had been filed first.
Other companies challenged the lobbying resolutions on other grounds but were unsuccessful. Devon Energy actually sent two lengthy letters to the SEC from their law firm Skadden Asps, making a range of arguments challenging lobbying resolutions in general. Their lack of success in convincing the SEC seems to indicate that lobbying disclosure resolutions, when properly filed, will be safe from SEC challenges.
Abbott Laboratories, Verizon and Chesapeake Energy were also unsuccessful in their SEC challenge.
Last year, Prudential provided a “best standard” of trade association lobbying disclosure that investors presented to companies as a model. Prudential’s policy provides trade association disclosure, including the annual dues, assessments and contributions of $50,000 or more paid by the Company to trade associations and tax-exempt groups such as 527 organizations, as well as the portion of these dues and assessments attributable to the lobbying activities of those organizations. (Prudential disclosure can be accessed here: http://www.prudential.com/view/page/public/18550 )
Responses to the requests for lobbying disclosures varied as one might expect in year one of such a request.
Some companies adopted a defensive posture and refused to even engage with proponents. Others held conversations with proponents to better understand their rationale for the request but were unresponsive.
Yet other companies, both recipients of the resolution or investor letters asking about lobbying oversight, immediately saw lobbying disclosure as a natural extension of the section of their website disclosing political spending and responded positively to the idea, in some cases adding disclosure on what their lobbying priorities were, how responsible oversight was in place, the dollar amounts spent directly and through trade associations on lobbying and their involvement in influencing policy at the state level.
We believe reasonable disclosure of company lobbying will soon expand into an accepted and reasonable governance practice.
However, if there is any clear area of unease about lobbying disclosure, it is listing the major trade associations a company is part of, the level of dues paid and the percent of those dues used for (non-tax deductible) lobbying expenditures. While some companies like Prudential comfortably disclose this information, trade associations like the U.S. Chamber of Commerce, actively protect their dues levels as secret even though they are one of the most active business lobbies in the country and between 45 and 50% of every dues dollar is spent on lobbying, oftentimes on very controversial issues.