The unholy alliance between money and politics is one of the biggest controversies capturing the public spotlight these days. Fortunately, heightened attention to the topic seems to be convincing the biggest corporations to adopt better policies.
Money is one accessory of power, and the American public has recently gotten a clear concept of money's monumental role in political policy and power (not to mention corruption).
It's hard to keep things clean when money talks so loudly these days, but at the very least, transparency keeps investors and Americans at large in the know -- and hopefully keeps the funds flow somewhat in check. In a pleasant surprise, it turns out an impressive number of large-cap companies have gotten the message and are voluntarily disclosing their political donations and related policies.
The transparency trend and positive peer pressure
The Center for Public Accountability recently released a report on political disclosure and oversight policies of Fortune 100 companies. The report (which you can download here) illustrates an unexpected victory: More than half of the largest 100 companies are not only voluntarily revealing their direct political contributions, but they're also adopting board oversight for those expenditures.
Based on the analysis of seven key factors covering disclosure, policy, and oversight, the CPA-Zicklin Index disclosed top-rated companies. Colgate-Palmolive (NYSE: CL), Exelon (Nasdaq: EXC), IBM (NYSE: IBM), and Merck (NYSE: MRK) all led the pack by racking up scores of 100 in the index. Johnson & Johnson (NYSE: JNJ) and Pfizer (NYSE: PFE) ranked close behind, with scores of 92.
IBM and Colgate-Palmolive are particular standouts; as a matter of policy, each company forbids any direct or indirect corporate political spending.
Granted, plenty of companies ranked low on CPA's list, but just seeing some exemplary standouts is a good sign. Many corporations could follow suit to avoid looking sketchier (and riskier) than their well-known peers; that's positive peer pressure.
Vocal demands to end the silence
Corporate political contributions filtered around quietly for years. In fact, CPA formed in 2003 specifically to engage with companies to improve their political spending disclosure and oversight. Back then, few corporations voluntarily made these disclosures, exposing shareholders to risk; the major progress since then makes CPA's current data even more striking.
Recent public attention (not to mention occasional outrage spikes) has surely helped push for this corporate change of heart. Corporate political spending entered the limelight after last year's Citizens United case, through which the Supreme Court struck down a ban against corporate political spending. Public outrage has also been reflected in movements like Dylan Ratigan's "Get the Money Out of Politics" campaign.
Starbucks (Nasdaq: SBUX) founder and CEO Howard Schultz also recently entreated his fellow corporate leaders to withhold political contributions until Washington gets to work in reasonably working to fix our nation's clear and present economic dangers.
Anyone who was paying attention to the prevailing winds at public companies during the spring proxy season might have noticed an increased push for corporations to come clean on their contributions. According to shareholder advisory service ISS, the number of shareholder resolutions related to corporate political activities rose 40% to 79 last spring.
In another move to underline the need for better policies, ISS responded to the current climate with a change in its own policy; it has proposed to alter its general voting benchmark to recommend that shareholders vote "for" resolutions that call for better corporate policies related to political spending. ISS had previously reviewed these and made its recommendations on a case-by-case basis.
Knowledge is power
Investors in corporations must keep tabs on this issue for many reasons. Here's one really significant one: That's your money getting spent on political purposes you may not even agree with. Meanwhile, when corporations support political candidates with controversial stances, when the word gets out, it can get ugly. Think consumer boycotts, distrust, and lasting damage to brands. That's a very real risk that can hammer the bottom line.
Money may be power in this day and age, but knowledge is, too. Let's keep an eye on our companies' policies on political spending activities, and push them to do the right thing and, at the very least, let us know exactly how they're spending shareholder money.
Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.
