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Aug 13, 2014

A bigger push for political spending disclosure

Processes for revealing companies' political activity need to be developed in the broader context of strategic communications plans, say experts

If there is any doubt that we’re entering an era of more rigorous disclosure for which public companies need to be prepared, consider some recent developments in the realm of corporate openness about their levels of political activity.
At the Society of Corporate Secretaries and Governance Professionals’ conference in Boston in June, a panel debated the drivers and merits of disclosure of corporate political activity. One panelist, Paul Atkins, head of Patomak Globe Partners, which provides strategic regulatory advice, asserted that the impetus for so many shareholder proposals around disclosure of public advocacy from SRI investors, unions and others in the past year had been these groups’ failure to convince the SEC to create rules requiring more disclosure of such activities. 
Other panelists took a different view.
‘There’s interest from employees, not only investors, driving decisions for disclosure,’ said Marcel Bucsescu, assistant director of the Conference Board Governance Center, in Boston. When Corporate Secretary spoke with him today, he elaborated: ‘What pushed them over the decision line was they found their employees were interested in asking questions. It was an opportunity to engage around education with employees and the role of the company’s political action committee.’
Bruce Freed, president of the Center for Political Accountability, said, ‘We’ve been told by companies that disclosure helps them bring discipline to their [political] spending and they finally have a handle on what they’re spending through trade associations.’ Companies also want a level playing field with all companies making such disclosures, he added.

In 2011 the Conference Board formed a Committee on Corporate Political Spending with members of eight companies to provide a ‘safe setting’ in which people from various functions within companies – including corporate secretaries and CSR officers – could discuss best processes for disclosure, says Bucsescu.
‘Companies that are members of the committee have found benefits from disclosing their activity, ranging from engaging their investors practically for feedback and engaging other stakeholders to tie it to public strategy based on stakeholder priorities,’ he said in Boston.
To date, 128 companies have reached disclosure agreements with their shareholders, including more than half the top 100 firms in the S&P 500 Index, acccording to Freed. Last September the CPA-Zicklin Index, which ranks political disclosure policies among the top 200 companies in the S&P 500, found 16 had a strong disclosure policy compared with six in 2012. Last year more than a third (35 percent) of the top 200 disclosed their payments to nonprofit 501(c)(4) groups – so-called dark-money conduits that spend without disclosing donors – or had a policy against giving to such groups, up from 25 percent in 2012.
This year the index is expanding to rank the top 300 companies in the S&P 500, laying the groundwork to rank all 500 beginning in 2015, says Freed.
There’s a clear need for board oversight of such disclosure policies, Bucsescu said. That might take the form of the board ‘reviewing it, understanding what the company’s approach is, how it ties into the broader business strategy. Some companies’ boards will take it further with audits and advice from third parties.’

In a July 28 blog post to the Harvard Law School Forum on Corporate Governance and Financial Regulation, Charles Nathan, head of RLM Finsbury’s corporate governance practice, said it’s critical for companies that voluntarily disclose their political spending policies and practices ‘to understand that such disclosures need to be prepared and evaluated in the context of a strategic communications plan.’ That includes controls to ensure the political spending sums reported by companies match the data in public filings, including tax returns of recipients such as 527 organizations.
For some firms, disclosure is ‘more of a reactionary process,’ says Bucsescu. ‘Just disclosing may not make sense until you have the full governance process in place.’

David Bogoslaw

Associate Editor and Online features producer for Corporate Secretary