October 28, 2011

Index Ranks Companies on Political Spending Disclosure
    by Robert Kropp

The Center for Political Accountability collaborates with the Zicklin Center for Business Ethics Research in the Index of Corporate Political Disclosure and Accountability, which ranks companies in the S&P 100 according to their disclosure and board oversight of political spending.

SocialFunds.com -- Today, at the Zicklin Center for Business Ethics Research at the Wharton School, the Center for Political Accountability (CPA) launched the most recent of its initiatives to improve disclosure and board oversight of corporate political spending.

The CPA-Zicklin Index of Corporate Political Disclosure and Accountability ranks companies in the S&P 100 according to their disclosure and board oversight of political spending activities. In the aftermath of the Supreme Court's Citizens United decision, and with the 2012 electoral season already underway, the Index provides shareowners and other stakeholders with insight into how the nation's largest companies are addressing the risks associated with political spending.

CPA has been at the forefront of the investor-driven campaign for corporate disclosure of political spending since 2003.

"When we began," Bruce Freed, president of CPA, told SocialFunds.com, "Few if any companies had disclosure and board oversight policies."

In his introductory remarks at today's launch, Freed noted that several companies that engaged in political spending and appeared to be financially sound have collapsed, and said, "Over the past eight years, the Center and a coalition of investors have engaged close to 200 companies on political disclosure. Today, as a result of the CPA-led effort, 88 companies have adopted political disclosure and accountability policies. This includes more than half in the influential S&P 100."

CPA published The Green Canary in 2005, which evaluated the risk to shareowner value by the absence of disclosure. Hidden Rivers followed in 2006, describing how trade associations such as the US Chamber of Commerce conceal corporate political spending and often donate to candidates whose positions are at odds with the policies of companies themselves. In 2008, Taking Initiative called for board oversight of political spending.

Then, last year, CPA joined with The Conference Board to produce the Handbook on Corporate Political Activity as a guide for corporations in adopting political spending policies.

Today's release of the Index marks another significant step in the evolution of CPA's campaign. Freed told SocialFunds.com, "Political disclosure is becoming a mainstream corporate practice." The rankings provided by the Index are important, Freed said, "Because when you go to companies and ask for disclosure they always ask what other companies are doing. Now we have numbers to show it's going mainstream."

The report states, "Companies have a duty to shareholders to ensure that corporate funds are used in ways that advance long-term company interests and enhance shareholder value." Working with Peter Kinder, a co-founder of KLD Research & Analytics and Professor William Laufer of Zicklin, CPA identified 29 indicators to gauge disclosure, policies, compliance, and oversight. From these, seven key indicators were identified:

• Disclosure of contributions or expenditures to candidates and committees;
• Disclosure of independent expenditures;
• Disclosure of payments to trade associations and other tax-exempt groups used for political purposes;
• Disclosure of payments to ballot measure committees;
• Archived reports on website of direct spending;
• Policy of regular board oversight; and
• Semiannual posting of political spending report.

"A major role was played by Peter Kinder," Freed said. "He was instrumental in shaping the indicators. He helped bring a rigor to creating this Index that will give it real impact."

The advisory committee for the Index included Steve Lydenberg of Domini Social Investments and Julie Gorte of Pax World Management.

The Index reveals that for large US companies at least, corporate disclosure and board oversight of political spending is indeed becoming a mainstream practice. As Freed said, "Fifty-seven companies either disclose, have board oversight, or don't engage in political spending. Forty-two are doing some form of trade association disclosure. A third have adopted some form of restrictions on their political spending."

Furthermore, the Index reports, 24 companies state that they do not make independent political donations, and 16 say they do not spend funds directly on candidates or political committees. Colgate-Palmolive and IBM prohibit use of corporate funds for either direct or indirect political activity.

Four companies earned the highest score of 100 in the Index: Colgate-Palmolive, Exelon, IBM, and Merck. At the other end of the spectrum, eight companies—including Amazon.com, Berkshire Hathaway, Cisco Systems, Nike, Sprint Nextel, and Walt Disney—received scores of zero.

Describing the process of developing the Index, Freed said, "We sent companies preliminary scores and then talked to a third of them. What we found was that the Index was prompting companies to enhance their policies. Some companies that had performed poorly strengthened their policies and jumped in the rankings."

With voluntary disclosure becoming a mainstream practice, and more companies restricting their political spending activities, the motivation for companies to adopt policies and ensure board oversight should increase. The annual updating of the Index will give investors and companies themselves a picture of how risk is being managed. The first update is scheduled for next September, in advance of the 2012 elections.

CPA and Zicklin plan to expand the Index to include all companies in the S&P 500, Freed said, perhaps as early as next year. Describing the Index as "a natural development of the work we've done," Freed said, "The next area we're looking at is the role of directors in conducting effective oversight. We'll also be looking at corporate political spending in a global context. That will contextualize what political spending is like in this country."