An Outrageous Form of Corporate Waste

Shareholders invest in publicly traded companies for many reasons, not least of which is to make decent returns. Generally speaking, investors hope their companies invest capital into productive channels: inventing, innovating, delighting customers with their products, and otherwise paving the road to growth, leading to fantastic financial results over the long haul.

Unfortunately, there is a big sucking sound emanating from many corporations large and small, and it deserves scrutiny from American investors and citizens alike.

Did any of us really invest in public companies hoping for them to waste billions in Washington?

Voting for transparency
Corporate political spending has increasingly reached the limelight ever since the Supreme Court's Citizens United ruling. In the last several years, shareholder proposals demanding transparency in or even banishment of political spending have increased in frequency, and a significant number of shareholders have supported such proposals.

According to Proxy Monitor's scorecard, which tracks votes on shareholder proposals at the top 200 American public companies, shareholder resolutions related to corporate political spending at some major companies received significant numbers of votes in 2012.

For example, 38.56% of AT&T's shareholders voted for a shareholder proposal from Domini Social Investments asking for a report disclosing political spending.

The American Federation of State, County and Municipal Employees, or AFSCME, garnered some major support in favor of lobbying disclosure, with 28.51% approval from shareholders at Verizon and 32.35% approval at Abbott Laboratories.

In a major victory, Trillium Asset Management's simple request for a political spending report rounded up a whopping 41.08% of shareholder votes at CenturyLink.

Who did your companies "vote" for?
Fast-forward to the present, and the proxy pre-season is already under way. This week, a group of investors announced that they have filed shareholder proposals at a variety of major, well-known American public companies, demanding an end to corporate political contributions.

The coalition consists of Clean Yield Asset Management, Green Century Capital Management, Zevin Asset Management, Responsible Wealth, and Harrington Investments.

Reacting to what they call last year's "unprecedented level of outside spending" in American elections, the investors are filing proposals hoping to ban political spending altogether at the companies they're targeting.

ExxonMobil (NYSE: XOM  ) is one such company; Zevin Asset Management is asking its board to look into the feasibility of adopting a no-spending policy when it comes to political spending. (Last year, 23.60% of ExxonMobil shareholders voted for a report on political spending filed by Laborers National Pension Fund.)

Target (NYSE: TGT  )  has also been targeted by individuals associated with the organization Responsible Wealth, also asking for similar research into the concept of banning the practice. A proposal last year by Green Century Capital Management to prohibit all political spending at Target received a mere 4.60% in shareholder support.

Interestingly, Harrington Investments is proposing that Starbucks (NASDAQ: SBUX  )  end political spending from treasury funds and pledge not to form a political action committee, commonly known as a PAC. In late 2011, Starbucks CEO and founder Howard Schultz proposed that corporate America cut off political donations to coerce Washington into getting its act together on economic issues.

Obviously, the aforementioned investors want corporate America to cut off its political spending altogether as opposed to using it to influence Washington either way.

Money really talks through this "free speech" ruling
One thing that's often left out of the debate is how much unions contribute to political campaigns; what unions can do also expanded through the Citizens United ruling.

Many critics also see a threat of unions' influence on public companies and the political process as it pertains to economics and corporate actions. Last year, I talked to Proxy Monitor's James Copland about what he called "alarming trends" including political spending proposals, which he believed were more about philosophies and agendas than shareholder value in the traditional sense.

As it turns out, in 2012 shareholder votes in favor of political spending disclosure and other related proposals received 17% of the overall votes at the companies that Proxy Monitor tracks, down from 22% the year before. However, it's worthwhile to note that the number of proposals on the topic increased by 20% over the year before.

Investors: Wake up to waste
Investors of all stripes should ponder how they feel about their companies' political spending. The coalition of investors seeking to end such spending pointed out that last year, Chevron's (NYSE: CVX  ) $2.5 million directed into a Super PAC was the largest corporate donation into a Super PAC ever. Whether the companies whose stock you own are supporting your political cause, candidates, or economic beliefs is in question -- and it shouldn't even be an issue in these highly contentious times.

Meanwhile, what good this type of spending actually does for any individual company's financial health is extremely questionable. The coalition pointed to a 2012 study conducted by the University of Michigan that looked at the performance of companies that shelled out money for political ends over the 1991 through 2004 time frame. These companies exhibited slower growth, fewer investments in and spending on research and development, and poor corporate governance policies.

It's not rocket science: Corporate money spent on politics could be used in far more productive ways, like ensuring public companies thrive in an operational environment, not a regulatory one, and make our economy more competitive and generate more productive employment. Right now, millions of dollars are being squandered oiling the Washington political machine. As shareholders, we should fight for transparency on political contributions by our public companies -- or even eradication.

Big Business (and, don't forget, Big Unions) seeks to influence elections and government policy-making through its almighty bucks. It's time investors and citizens stop looking the other way and put an end to it. There are far more productive ways to spend money.

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Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.


Read/Post Comments (5) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 23, 2013, at 12:21 PM, jpanspac wrote:

    Excellent article.

  • Report this Comment On January 23, 2013, at 4:23 PM, mdk0611 wrote:

    I'm not forgetting Big Unions. And when you begin to support what would essentially be "Right to Work" legislation and an end to the forced collection of union dues by (at least governmental) employers I'll be ready to listen to proposals to reduce or eliminate corporate political spending.

  • Report this Comment On January 23, 2013, at 6:34 PM, smartmuffin wrote:

    The easiest way to stop large corporate expenditures on political lobbying would be to eliminate the policies by which the federal government exercises near complete control over virtually every single aspect of operating a business.

    You say "Corporate money spent on politics could be used in far more productive ways" but how do you really know that? Attempting to escape from the oppressive yoke of government control is a perfectly good and valid use of funds, in my opinion. Presumably, most of these expenditures are not made out of some personal political vendetta, but rather for the true benefit of the company, and thus the shareholders. As evidence, look to how many large corporations (especially the big banks) donate to candidates from BOTH parties. If these donations end up securing them special favors and exemptions from onerous regulatoins, then they were in fact a quite productive use of funds. The losers (as always), are the small businesses who are unable to afford high priced lobbyists and bribe money.

    But once again, allow me to re-emphasize. The way to eliminate bribery is not to make it illegal, but to make it not worthwhile. The only way to do that is to dramatically limit the power and scope of regulatory agencies and allow the free market to actually function.

  • Report this Comment On January 24, 2013, at 8:50 AM, prudentinvestr wrote:

    The article does a good job of showing how these corporate expenditures do not really benefit the shareholders. It's the right time to address this issue

  • Report this Comment On January 24, 2013, at 10:25 AM, mdk0611 wrote:

    smart - A example, the requirement to issue and file 1099's for corporate payees that was originally part of the Affordable Care Act. The thought of the waste and cost of a small business sending 1099s to their phone service provider, their electric company etc. etc. was clearly a substantial burden with highly questionable benefits. It was worth every penny for the US Chamber of Commerce and larger businesses to lobby Washington to get that absurd requirement repealed.

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