IN-DEPTH: Q&A with the Center for Political Accountability
An interview with Bruce Freed, president and co-founder of the Center for Political Accountability (CPA), and Dan Carroll, the CPA’s vice president of programs and counsel.
Washington-based CPA is a non-profit advocacy organization with engagements focused on improving transparency and accountability around corporate political spending.
The CPA targeted 26 companies with political disclosure proposals this year. How have your engagements been received in 2024, during a key election year?
DC: Of these proposals, 19 went to a vote with an average support level of 25.7%. Only one proposal was successfully eliminated by a no-action letter on a filing deficiency, whereas the remaining six proposals were withdrawn after agreements were reached. The fact that it’s an election year has definitely drawn more investor attention to this topic. It should be a prompt for companies to pay extra close attention to their election-related spending and disclosure and accountability policies.
BF: There’s a real recognition now that political spending using treasury funds poses a risk to companies. Another factor is the strong support from the proxy advisory services for the CPA’s political disclosure and accountability resolutions. We are agnostic on whether companies should spend, but if they do, they need to have robust policies in place to govern and assess that spending, and there needs to be robust due diligence. I think we’ve been so successful in getting companies to adopt disclosure and accountability policies by framing political spending as the risk management issue that it fundamentally is.
How do proposals seeking political spending congruency vary compared to standard requests for political spending disclosure?
DC: Some of our proposals request that companies disclose any election-related spending by third-party groups that they give to. This essentially provides the information required for investors to conduct their own alignment study. Alternatively, some proposals ask specifically for alignment reports but not the underlying data. However, in our view it’s hard to really know what's being presented by the company or how positive a light the company is framing it in if we’re lacking the underlying data, so these proposals aren’t ideal. Transparency proposals asking for just the base data tend to do pretty well. The alignment and underlying data for alignment reports are still in their early years and while they’re starting to gather more support, they’re still far below the average support for the standard proposals we've been using since the mid-2000s.
Have you noted any particular trends among different sectors?
DC: We often look at company scores on the CPA-Zicklin Index of Corporate Political Disclosure and Accountability by sector. It’s useful for benchmarking and we frequently target a portion of our proposals more on the sectors that score poorly. Real estate and information technology are among the poorest performing sectors on the index. We’ve also found that there’s a lot of room for growth among the Russell 1000 companies that aren’t S&P 500.
BF: In recent years, utilities have become the dominant sector for high scores on the index in part because of their publicly regulated nature and because of some of the corruption issues.
In your experience, how do companies view the index?
DC: Even outside of shareholder pressure, companies seem to be generally interested in improving their score. However, some companies will try to argue that because they already achieve a good score on the index, that means their lobbying practices are also fine, or that their spending is aligned with their stated values and goals. We've taken issue with companies that have tried to use the index as a shield in that way because it’s a false statement of what the index actually measures.
What advice do you have for boards when engaging on the topic?
DC: Even a small donation can create serious reputational problems for companies. However, if a company has clear policies stating that they don’t engage in election-related spending, we treat that as if they’ve committed to full disclosure. We've reached agreements with companies where they’ve agreed to have a one or two paragraph policy stating that they don't use corporate funds for any forms of election-related spending, even trade associations or social welfare groups. So, it’s not a very onerous request, even for companies that don’t engage in election-related spending.
BF: The media are paying much greater attention to companies’ political spending now which has contributed to a much higher risk level for companies that have undisclosed spending. Even for contributions to social welfare organizations that don’t legally require disclosure, there is always the risk of inadvertent disclosure. So, companies need to be very careful because they cannot be sure that their political spending will not see the light of day. Boards also have to conduct due diligence and perform risk assessments. That's something that boards are starting to take much more seriously because employees can get disaffected, consumers can shift to a competing brand and companies can effectively be blackballed because of who they’re associated with. Considering that, companies need to treat this as a risk in need of management and then go beyond disclosure and accountability policies and install a framework for approaching, governing and assessing their spending.
