Spotlight On CPA — Making the Case for Disclosure during COVID

Spotlight on CPA - May 2020

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Interim Report: Vote Surge for CPA Resolution, More Agreements

CPA Opinion Pieces in NY Daily News & Harvard Law School Blog Highlight Urgency of Corporate Political Disclosure as Part of Covid-19 Aid

Time for Directors to Perform Their Responsibilities Seriously and Diligently

Guest Column
by Eleanor Bloxham

How often do you hear executives effusively thanking citizens for granting them the luxury of amassing power and wealth with limited liability through a legal, political construct called a corporation?

The gift of limited liability is even more valuable in times of economic uncertainty or potential bankruptcy. But rather than demonstrating appreciation, grantees have mainly acted the injured party.

To be fair, accepting limited liability for officers and shareholders comes with a few strings. In exchange, state law requires corporations to set up oversight bodies called boards of directors, whose members themselves receive this same gift of limited liability. In striking this bargain, grantors hope the board will make sure the corporation brings prosperity to and generally operates for their good.

But have citizens been naïve? To be sure, as a mechanism, boards don’t always live up to expectation with explosive derelictions leading to regulation and individual directors continuing to struggle to apply lessons learned in their day-to-day functions.

Consider corporate political spending. It’s a perfect example of a director’s fiduciary duty of care to avoid corporate waste and ensure scarce resources are allocated in ways that promote the good of the corporation, its stakeholders and benefactors.

One simple way boards do this is to enact policies around political spending oversight and disclosure, such as those recommended by the Center for Political Accountability (CPA) in its model code of conduct. It’s something shareholders increasingly demand with an average 40 percent yes vote on shareholder political spending proposals, according to Bruce Freed, CPA’s President.

Yet, despite the outsized reputational risks associated with corporate political spending documented in CPA’s Collision Course Report, too many boards take a hands-off approach. And individual directors, whose pay has risen over 40 percent over the last decade, still demur rather than assert their oversight muscle.

One reason that boards lack diversity is that many corporations want members who have had other board experience. A rationale cited for the benefit of directors serving on more than one board is that like bees, they can cross-pollinate best-in-class practices, taking their knowledge and experience from one corporate board and applying it to benefit the others. Of course, if these well-connected directors lack diligence, courage, or influencing skills, that additional board experience provides little value.

A CPA review of the CPA-Zicklin Index, which scores companies on their political spending policies and disclosures, found that board cross-pollination isn’t working. More than a few -- in fact, over 85 directors who served on one or two of the 100 best CPA-Zicklin rated companies -- also sat on one of the 100 worst.

Both board nominations and shareholder votes on nominees should consider a director’s skills and how well the director has exercised care. CPA’s findings argue for greater director accountability and dispute the idea that multiple directorships add value. Further, the study clearly shows more education is required on directors’ duties of care and oversight related to corporate political spending.

Eleanor Bloxham, recognized as one of America’s foremost thinkers on the role of corporations and their governance, is Founder and CEO of The Value Alliance and Corporate Governance Alliance, a board education and advisory firm.

Corporate Counsel: Overlapping Directorships Don’t Necessarily Improve Corporate Political Disclosure

Using CPA research, Corporate Counsel and its companion publication, Law.com, looked at whether overlapping board memberships led to companies to improve corporate political disclosure. Its finding: Not necessarily.

Working from the findings of the 2019 CPA-Zicklin index, Corporate Counsel’s Sue Reisinger wrote in a April 30 article that “at least 85 directors hold overlapping position on two or more boards of companies that have different policies on the issue.” The Index is the annual benchmarking of the political disclosure and accountability policies of S&P 500 companies. It is a joint effort of the Center for Political Accountability and the Zicklin Center for Business Ethics Research of The Wharton School at the University of Pennsylvania.

This dynamic highlighted a concern of The Value Alliance Co. founder and CEO Eleanor Bloxham, who asked, “Are they (board directors) bringing their knowledge of best practices into the boardroom; are they making sure all their boards are operating at a high level?” (See Guest Column in this newsletter for her response)

CPA’s Freed asserted, “Either Directors of top-tier companies are not fulfilling their fiduciary responsibility by pressing lower-tier company to manage risk posed by corporate political spending by adopting political disclosure and accountability policies, or the directors of bottom-dweller companies are not learning from the practices of the top-tier companies on whose boards they sit.”

Either way, Freed said, these directors are “exposing their companies to serious risk.”

CPA Names Ben Becker as First Werner Brandt Research Fellow

The Center for Political Accountability announced that Ben Becker, an incoming senior at Colgate University, will be its first Werner Brandt Research Fellow. The Center created the position to honor Brandt, a former member of its board who had been a long-time senior aide to Rep. Thomas Foley, the Speaker of the House. He died July 11, 2014.

Ben, a double major in Political Science and Computer Science, started at the Center as an intern in the spring of 2019 and became an integral part of the Center’s groundbreaking 527 Mapping Project. He helped create research methodologies and collect data on contributions to and spending by political groups known as 527 committees over the past decade.

He worked at the Center over the summer of 2019, when he continued to research the spending behaviors of public companies in state legislative, gubernatorial, and attorneys general elections. On his return to Colgate, he helped the Center remotely by putting together and analyzing the data found in the Mapping Project.

“We are excited to have Ben as the first Werner Brandt Fellow and to have him examine the impact of political transparency and accountability on company political spending,” said CPA’s Freed.

Brandt joined the CPA board upon retiring from Preston Gates Ellis & Rouvelas as a government affairs counselor. Prior to that, he was Sergeant at Arms in the House of Representatives from 1992 to 1995 and worked for Rep. Foley from 1972 until 1995. “Werner was deeply committed to the Center’s mission of bringing transparency and accountability to company involvement in the political process and to protecting the integrity of our democracy. The Fellow position is a fitting way to honor him” Freed said.

CII Warns Proposed SEC Rules Change Threatens Shareholder Rights

Research by the Council of Institutional Investors, the association of U.S. public, corporate and union employee benefit funds, warned that a proposed Securities and Exchange Commission rules change on shareholder resolutions would have a serious impact on shareholder rights, according to Corporate Secretary (May 6, 2020).

The proposed rules would raise resubmission of shareholder proposal “thresholds to 5 percent, 15 percent, and 25 percent…respectively” and “would add a new ‘momentum requirement.’”

Importantly, CII’s research found that the number of excluded shareholder proposals from 2011 to the third-quarter of 2019 would jump “from 221 to at least 514” with the rule change.

CII noted that “it is no accident that shareholder proposals that would be impacted most are…proposals on independent board chairs and for better reporting to shareholders on lobbying activities and political contributions.”

The Center for Political Accountability highlighted the negative impact of the rule change on its political disclosure resolution in its January 31 comment letter to the SEC. CPA wrote, “The proposed rules would have severely impaired the ability of shareholders to spread awareness and build support for critical issues impacting shareholder value and long-term growth.”

New IRS Rule Makes “Dark Money” Darker

Under a new rule issued on May 25, the Internal Revenue Service will no longer require 501(c)(4) groups to identify to the agency their high-dollar contributors. These groups are the leading repository of political “dark money.”

The agency said it would no longer require (c)(4)s to name donors of more than $5,000 to the tax-exempt groups in their filings. The (c)(4) groups would retain that information themselves. The only exclusion is for charities. They will still be required to report on their donors, although that information will still be withheld from the public.

(C)(4) groups, also known as “social welfare” organizations, along with trade associations, are conduits for donors, including companies and individuals, who want to hide their contributions. The IRS has maintained confidentiality of (c)(4) donor information it receives. Sunlight advocates say the new rule could permit foreign money to flow to (c)(4)s in order to affect U.S. elections.

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.