CPA to SEC: Don’t Undermine Corporate Democracy and Investor First Amendment Rights
In a 12-page comment dated Jan. 31, CPA formally opposed rule changes under consideration by the U.S. Securities and Exchange Commission that would cripple small investors’ ability to seek policy changes from American companies and undermine their First Amendment rights.
Inquirer Tracks Vanguard with a Hand from CPA
Using data and analysis, the comment concluded that successful disclosure agreements CPA has championed at such leading companies as Alphabet, Goldman Sachs, JPMorgan Chase and Boeing would have been blocked if the proposed rules had been in place. In addition, the commentary said corporations have realized strong dividends through the SEC’s existing shareholder proposal process.
“The process provides an early warning system for management, alerting them to problems or issues that may have evaded their radar. It serves as a pressure release valve, allowing investors to push for incremental change without the burden and costs of newly imposed regulation. The proxy process also allows companies to engage with shareholders on specific issues, helping to avert unhealthy escalation of conflict,” CPA wrote.
“The proposed rule changes would disproportionately hit small investors and their ability to wage multiyear campaigns for improved disclosure and policy changes. Specifically, the increased resubmission thresholds, as well as the new ‘momentum’ requirement, would severely impair the capacity for investors to raise new issues, spread awareness, and build sufficient support to force management to take action."
“Indeed, an analysis hypothetically applying the currently proposed resubmission thresholds to all past proposals based on the Center’s model political disclosure resolution reveals both that successful efforts to bring disclosure and transparency to company political spending would have been blocked before reaching a critical mass of support and that a number of efforts already receiving significant shareholder backing would have been excluded due to random year-to-year fluctuation in shareholder votes.”
CPA has been in the forefront of opposition to the SEC proposal since the Financial Times published in November the Center’s op-ed urging against its adoption. The rules would raise ownership thresholds for filing a shareholder proposal; bar share aggregation; set new thresholds for resubmission of a proposal; and impact proxy advisors.
“Thanks in part to the proxy proposal process, voluntary corporate political disclosures are becoming a corporate governance norm and are a positive example of campaign finance reform achieved through private, not public, channels,” CPA told the SEC in its comment.
“Ironically, the SEC’s move comes at a time when more shareholders are engaging with companies, and many board members have become more responsive to investor perspectives. It would be harmful to companies to undercut a long-held shareholder right when it has provided companies the benefit of lower risks and better investor relations. Further, the proposal would undermine Justice Anthony and the Supreme Court’s expressed faith in the ‘procedures of corporate democracy’ to protect all shareholders,” CPA said in a reference to the Supreme Court’s Citizens United decision a decade ago.
“Those ‘procedures of corporate democracy’ were sufficient in the Court’s view to ‘protect dissenting shareholders from being compelled to fund corporate political speech.’ But the extent to which the SEC’s proposed rules undermine the protections of all shareholders – particularly individuals and small shareholders – calls into question whether dissenting shareholders will be sufficiently protected from being compelled to fund corporate political speech.”
CPA also authored this month a critique of the SEC rules in a post published by the blog of the Harvard Law School Forum on Corporate Governance and Financial Regulation.
A separate critique by Eleanor Bloxham, a CPA ally and founder of the Value Alliance Co. and the Corporate Governance Alliance, recently appeared in Barron’s. It was headlined, “The SEC’s New Rules Will Move Companies Backward.”
Pennsylvania-based fund giant Vanguard is getting a lot of attention from the Philadelphia Inquirer, and in January, the newspaper offered readers a more comprehensive grasp of related issues by talking to CPA.
On Jan. 7, the newspaper had an article headlined, “How Vanguard aims to prevail in fee wars, especially vs. Schwab-TD Ameritrade.” The article noted opposition by Vanguard, BlackRock, and Fidelity, the so-called “Big Three” institutional investors, to political disclosure resolutions from public company shareholders.
“Political spending is widely recognized as posing an even greater risk in today’s hyper-polarized political environment,” the article quoted CPA President Bruce Freed as saying. “It’s hard to understand why the Big Three institutional investors continue to resist this trend. Their obstinance puts companies – and their clients investing through them – at risk.”
On Jan. 19, a separate Inquirer article asked, “Will Vanguard take up BlackRock’s climate risk challenge?” A reporter again turned to CPA for context.
The Big Three “present a very serious problem because of the power they wield through their ownership,” CPA told the newspaper. “Only now is BlackRock moving on climate change, but it remains to be seen what that really means. It will put pressure on Vanguard, Fidelity, and Charles Schwab."
‘Open Secrets’ Spotlights CPA Data
Our friends at OpenSecrets.org gave shout-outs to CPA and turned a spotlight on our data in January.
For a comprehensive article about an explosion of political dark money since the Supreme Court’s Citizens United decision a decade ago, Open Secrets analyzed (and linked to) corporate disclosure data from CPA’s TrackYourCompany.org.
“Every one of the top 10 dark money spenders disclosing spending to the FEC since Citizens United have taken money from corporations, partnered with corporations, have affiliates with corporate financiers or some combination of the above during the last decade,” Open Secrets reported based on its analysis.
In an earlier report marking the Citizens United anniversary, Open Secrets drew on data from CPA’s 2019 nonpartisan scorecard rating corporations for political transparency:
“In most cases, the only way to know how much money a major company gives to dark money groups is if it voluntarily discloses its political contributions. Shareholders of public companies are increasingly pushing for this transparency. According to the Center for Political Accountability, 49 percent of companies on the S&P 500 don’t disclose their contributions to 527 groups — information that is already made public by the IRS anyway. Far more companies, 64 percent, do not disclose their contributions to 501(c)(4)s, leaving hundreds of powerful companies unaccounted for.”
CPA Offers Help to the Big 3
CPA is offering the Big 3 institutional investors its help to move to vote for corporate political disclosure and accountability resolutions.
The Center sent letters in January to BlackRock, Fidelity and Vanguard.
“We urge you to take a fresh look at your voting policy on corporate political disclosure resolutions filed by CPA’s investor partners. We would welcome the opportunity to work with you on this. We have done this with many companies, including investment managers. Please let us know how we might move forward on this,” CPA wrote.
SEC Commissioner Jackson To Step Down in Mid-February, Leaves Legacy of Dissenter, Shaper
SEC Commissioner Robert Jackson Jr., a longtime champion of corporate political disclosure, has announced he will step down from the commission in February to return to his position as a tenured law professor at New York University.
Jackson joined the commission in January 2018 as an appointee to a Democratic seat. You can see video of a Reuters interview with Jackson to learn more.
“Rob has made his mark as a forthright voice on the Commission. In the tradition of former Supreme Court Justice Louis Brandeis, his dissents will be central to shaping a new SEC agenda focused on investor protection, maintaining the integrity of the markets, and bringing sunlight to corporate political spending,” said CPA President Bruce Freed. “We know he will make a great contribution in his new endeavor at NYU Law School.”
CPA in the News
When Marketplace focused recently on practices of Democratic presidential candidates raising money, it also mentioned corporate money funneled into state elections, quoting CPA on the topic.
The Marketplace article was entitled, “Some Democrats don’t want corporate money. That’s not stopping corporations.”
CPA’s Freed told Marketplace that companies tend to spend more at the state and local level than in Washington. “They’ll work through third party groups like the Republican or Democratic governors associations, or the legislative campaign committees,” Freed said.
Disney Cites Index Trendsetter Status
It’s increasingly common for big companies to broadcast it when they get a favorable rating from CPA’s annual scorecard for political disclosure and accountability.
One of the latest to do so is The Walt Disney Co., which highlighted in its 2020 proxy statement the Trendsetter status the company received in the 2019 CPA-Zicklin Index of Corporate Political Disclosure and Accountability.
“[T]he Company has been recognized as one of the leaders for political disclosure among S&P 500 companies,” Disney’s proxy statement noted.
|CPA is a non-profit, non-partisan organization created in November 2003 to bring transparency and accountability to political spending. To learn more about the Center for Political Accountability visit www.politicalaccountability.net.