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The 2019 CPA-Zicklin Index of Corporate Political Disclosure and Accountability

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Posted by Bruce F. Freed and Dan Carroll (Center for Political Accountability) and William S. Laufer (University of Pennsylvania), on Tuesday, November 12, 2019
Editor's Note: Bruce F. Freed is President and Dan Carroll is Vice President for Programs at the Center for Political Accountability; and William S. Laufer is the Julian Aresty Professor at The Wharton School of the University of Pennsylvania. This post is based on a CPA publication by Mr. Freed, Mr. Carroll, Mr. Laufer, and Karl Sandstrom. Related research from the Program on Corporate Governance includes Shining Light on Corporate Political Spending by Lucian Bebchuk and Robert J. Jackson Jr., (discussed on the Forum here); The Untenable Case for Keeping Investors in the Dark by Lucian Bebchuk, Robert J. Jackson Jr., James David Nelson, and Roberto Tallarita (discussed on the Forum here); and Corporate Political Speech: Who Decides? by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here).

More publicly held U.S. companies are adopting the strongest measures of transparency and accountability over their corporate political spending. These findings emerge from the 2019 CPA–Zicklin Index, an annual non-partisan scorecard released on October 24, 2019 by the Center for Political Accountability (CPA) and the Zicklin Center for Business Ethics Research at The Wharton School of the University of Pennsylvania. This year’s Index takes on added importance as companies have to grapple with today’s polarized, hyper-sensitive political environment.

Three major findings stand out in the 2019 Index:

  • The largest year-to-year increase in Trendsetter—top scoring—companies. The number stands at 73, up from 57 last year.
  • A doubling in the number of companies with improved scores of 50 points or more, from eight last year to 16 this year; and
  • 60 companies had substantive conversations with CPA about adopting or strengthening political disclosure and accountability policies.

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Another Link in the Chain: Uncovering the Role of Proxy Advisors in Investor ESG Voting

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Posted by Lily Tomson, ShareAction, on Thursday, March 5, 2020
Editor's Note: Kevin Chuah is a PhD Candidate at London Business School; and Isobel Mitchell is Networks Officer and Lily Tomson is Head of Networks at ShareAction. This post is based on their ShareAction report. Related research from the Program on Corporate Governance includes The Agency Problems of Institutional Investors by Lucian Bebchuk, Alma Cohen, and Scott Hirst (discussed on the Forum here); Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here); and Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee by Robert H. Sitkoff (discussed on the Forum here).

Executive summary

This analysis is the second of a two-part report exploring the role and influence of proxy advisors in the investment system, with particular reference to asset managers frequently used by UK- based charity investors. The first part, “Another Link in the Chain: Uncovering the Role of Proxy Advisors” provides an overview of who the major proxy advisors are, and what influence they have on asset managers’ voting decisions. This second part analyses proxy advisors’ recommendations on environmental, social and governance (ESG) shareholder resolutions from the 2019 AGM season, compared to 23 asset managers’ voting decisions, including commonly used charity and other major asset managers.

Proxy voting is a key right of asset ownership—an opportunity for asset owners to influence the strategic direction and governance of the businesses they own. This right has increasingly been outsourced by asset owners to asset managers, who are often in turn advised by proxy advisors that provide recommendations to institutional investors on how to vote at shareholder meetings.

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Corporations Should Reconsider the Value of Their Political Action Committees

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Posted by Douglas Chia, Soundboard Governance, on Monday, February 8, 2021
Editor's Note: Douglas Chia is Founder and President of Soundboard Governance LLC and a Fellow at the Rutgers Center for Corporate Law and Governance. This post is based on his Soundboard Governance memorandum. Related research from the Program on Corporate Governance includes The Untenable Case for Keeping Investors in the Dark by Lucian Bebchuk, Robert J. Jackson Jr., James David Nelson, and Roberto Tallarita (discussed on the Forum here); and Shining Light on Corporate Political Spending by Lucian Bebchuk and Robert J. Jackson Jr., (discussed on the Forum here).

The fallout from the storming of the Capitol building on January 6, 2020 by organized groups of militant and militarized Trump supporters at the behest of the President himself has been widespread, and there has been a backlash by corporate America. Scores of major corporations were quick to restrain or press the “pause” button on their political action committee (PAC) contributions.

Ongoing Calls for Corporate Disclosure

Corporate political spending has long been an issue in corporate governance, and the objections have steadily grown louder and gained more support. Prominent corporate governance experts have been calling for regulatory action for years now, most notably 10 professors (including Director of the Harvard Law School Program on Corporate Governance, Lucian Bebchuk, and future SEC Commissioner Robert Jackson) who filed a rule-making petition to the SEC in 2011 that received over one million comment letters in support, and Bruce Freed of the Center for Political Accountability who has led the movement to persuade corporations be more transparent about their political contributions. Former Delaware Supreme Court Chief Justice Leo Strine has also contributed scholarly work to the conversation.

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Proxy Season: Early Highlights and Emerging Themes

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Posted by Richard Fields and Elizabeth Morgan, King & Spalding LLP, on Tuesday, May 4, 2021
Editor's Note: Richard Fields and Elizabeth Morgan are partners at King & Spalding LLP. This post is based on their King & Spalding memorandum.

The COVID-19 pandemic, volatile market conditions, and increasing stakeholder attention to a range of environmental and social topics made 2020 a remarkably difficult year for many public companies. 2021 will bring new challenges, as major investors and proxy advisors signal enhanced scrutiny of director nominees and executive compensation programs, as well as more openness to environmental and social shareholder proposals.

As many companies prepare for upcoming annual meetings, we take stock of early proxy season activity, highlighting early results and emerging themes relevant to corporate leaders.

Say on Pay. In the early days of the pandemic, some investors and proxy advisors cautioned companies that their pandemic-related pay actions would be put under a microscope, as a referendum not just on corporate performance but also on the level of commitment to their current compensation design when times got tough. While acknowledging the unprecedented effects on public companies, many suggested positive adjustments to pay would be viewed skeptically.

Early results show more scrutiny of pay than last year. Based on Proxy Insight voting results available on April 28, 2021, average support for all say on pay proposals has dropped roughly 1% in the Russell 3000 compared to calendar year 2020. Failures are also up over last year, with 3% of Russell 3000 companies failing so far this year, compared to roughly 2% last year.

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The Choice for CEOs on Political Issues is Not “Yes or No”, It’s “Helps the Brand or Hurts the Brand”

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Posted by Nell Minow, ValueEdge Advisors, on Tuesday, May 4, 2021
Editor's Note: Nell Minow is Vice Chair of ValueEdge Advisors. Related research from the Program on Corporate Governance includes Corporate Political Speech: Who Decides? by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); The Untenable Case for Keeping Investors in the Dark by Lucian Bebchuk, Robert J. Jackson Jr., James David Nelson, and Roberto Tallarita (discussed on the Forum here); and  The Politics of CEOs by Alma Cohen, Moshe Hazan, Roberto Tallarita, and David Weiss (discussed on the Forum here).

The Michael Jordan reason for staying out of politics—”Republicans buy sneakers, too”—is no longer an option. There is no question whether corporations and their CEOs will take political positions; the only question is what those positions will be and how they are decided on and communicated.

Every public company makes asset allocations that include campaign contributions to candidates of both parties and lobbying expenditures, directly and through trade associations and other groups. Increasingly, however, the prevalent policy of hedging with contributions to every elected official is unacceptable. The Business Roundtable statement in 2019 about the vital importance of stakeholders as the best guarantee of long-term, sustainable growth and shareholder returns puts the burden on CEOs to be more specific about priorities and policies.

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When a Company Takes a Stand, What is the Board’s Role?

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Posted by Maria Castañón Moats and Paul DeNicola, PricewaterhouseCoopers LLP, on Tuesday, May 11, 2021
Editor's Note: Maria Castañón Moats is Leader and Paul DeNicola is Principal at the Governance Insights Center, PricewaterhouseCoopers LLP. This post is based on their PwC memorandum. Related research from the Program on Corporate Governance includes Corporate Political Speech: Who Decides? by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); The Untenable Case for Keeping Investors in the Dark by Lucian Bebchuk, Robert J. Jackson Jr., James David Nelson, and Roberto Tallarita (discussed on the Forum here); and The Politics of CEOs by Alma Cohen, Moshe Hazan, Roberto Tallarita, and David Weiss (discussed on the Forum here).

Corporations are playing an increasing public role in some of today’s biggest hot-button conversations. More and more, their investors, customers, employees, and other stakeholders look to them to take a stand on issues such as climate change and racial justice. But, given the controversy around social issues like these, weighing in on sensitive topics may be riskier than ever.

These are uncharted waters for a lot of companies. Many boards of directors are asking themselves how they can help navigate them. With CEOs and other top executives increasingly making headlines for the stances they take, directors have an important oversight role to play.

What’s at stake

There’s nothing new about companies weighing in on public policy matters, even controversial ones, when they affect their business interests. That can mean public comments from CEOs or other executives. It can also take the form of corporate political giving. Companies believe supporting candidates will help ensure that their voices are heard when laws are being debated that may affect their business. The same goes for contributions to trade organizations and other groups that lobby and fund campaigns.

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The Impact of DOJ’s Charges Against a Former Trump Advisor on Companies Working with Foreign Clients

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Posted by Antonia M. Apps, Adam Fee, and Matthew Laroche, Milbank LLP, on Sunday, August 8, 2021
Editor's Note: Antonia M. Apps and Adam Fee are partners and Matthew Laroche is special counsel at Milbank LLP. This post is based on their Milbank memorandum.

On July 20, 2021, the Department of Justice (“DOJ”) unsealed a 46-page indictment charging former Trump Administration Advisor Thomas Joseph Barrack and two co-defendants with acting and conspiring to act as unregistered foreign agents of the United Arab Emirates (“UAE”). [1] The Indictment alleges, among other things, that Barrack acted on UAE’s behalf to influence the foreign policy position of the United States. While media reports have sometimes described these charges as being brought under the Foreign Agents Registration Act (“FARA”), which generally requires agents of foreign principals to register with the DOJ, that is not the case. Barrack was charged under a related but distinct and more serious criminal statute (18 U.S.C. § 951) that makes it unlawful to act within the United States as “an agent of a foreign government” without prior notification of the Attorney General.

Regardless, the charges against Barrack, as well as several other recent FARA prosecutions, reinforce that there is now a real risk of civil and criminal exposure for U.S. individuals and companies assisting foreign clients. It is important that companies working with non-U.S. customers or clients understand the current enforcement environment, including the DOJ’s renewed focus on foreign agent investigations and prosecutions. Companies are now facing increased scrutiny when assisting foreign clients, and they must ensure that they have appropriate policies and procedures in place, with board oversight, in order to anticipate and address foreign agent issues.

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2021 CPA-Zicklin Index of Corporate Political Disclosure and Accountability

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Posted by Bruce F. Freed, Dan Carroll, and Karl J. Sandstrom, Center for Political Accountability, on Saturday, December 18, 2021
Editor's Note: Bruce F. Freed is President of the Center for Political Accountability, Dan Carroll is Vice President for Programs and Counsel, and Karl J. Sandstrom is strategic advisor to the Center and senior counsel with Perkins Coie. This post is based on their CPA memorandum. Related research from the Program on Corporate Governance includes Shining Light on Corporate Political Spending by Lucian Bebchuk and Robert J. Jackson Jr., (discussed on the Forum here) and The Untenable Case for Keeping Investors in the Dark by Lucian Bebchuk, Robert J. Jackson Jr., James David Nelson, and Roberto Tallarita (discussed on the Forum here).

In a two-year period marked by political polarization, civil unrest, and the January 6, 2021 attack on the U.S. Capitol, more U.S. companies have adapted by expanding board oversight of potentially controversial political spending. This increased engagement by boards of publicly held companies was revealed in the 2021 CPA-Wharton Zicklin Index of Corporate Political Disclosure and Accountability, a nonpartisan benchmarking of S&P 500 companies released November 29.

The heightened board and committee involvement came as the annual Index also showed continuing increases for other measures of corporate political spending sunlight and accountability over recent years.

Issued annually since 2011 by the Center for Political Accountability and the Carol and Lawrence Zicklin Center for Business Ethics Research at The Wharton School of the University of Pennsylvania, the Index started with the S&P 100 before expanding to cover the S&P 500 in 2015.

In a statement on the Index, Wharton Professor and Zicklin Center Director William S. Laufer said, “With the looming possibility of a Securities and Exchange Commission rulemaking over corporate political disclosure, corporations can cross the threshold of accountability before being required to do so as a matter of law. And embracing accountability should not only be a matter of legal risk mitigation and even code compliance. Ultimately, corporate political accountability is a reflection of a firm’s integrity, culture, and leadership. This, I believe, explains the significant progress made by S&P 500 companies on the 2021 Index.”

Here are major findings from the 2021 Index:

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Preparing for the Shareholder Proposal Season

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Posted by Marc Gerber, Skadden, Arps, Slate, Meagher & Flom LLP, on Friday, January 14, 2022
Editor's Note: Marc Gerber is partner at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on his Skadden memorandum.

On November 16, 2021, Skadden held a webinar titled “Preparing for the Shareholder Proposal Season.” The panelists were Gianna McCarthy, Director of Corporate Governance for the Office of the New York State Comptroller (New York State Comptroller); Jessica McDougall, Director, BlackRock Investment Stewardship (BlackRock); and Skadden M&A and corporate governance partner Marc Gerber. The key takeaways from the presentation are summarized below.

Overview of 2021 Proxy Season

Mr. Gerber provided a brief overview of the 2021 shareholder proposal season, in particular noting the increase in support this year for environmental and social (E&S) proposals. Ms. McDougall noted that BlackRock had revised its approach to shareholder proposals starting in 2021 and will more likely support proposals if it believes that management could better manage, disclose or otherwise accelerate its progress in addressing a material issue. Ms. McCarthy then noted that the New York State Comptroller’s support for shareholder proposals and for directors in 2021 remained fairly constant with the prior year, although she believes that investors will be more likely to vote against directors in the upcoming proxy season when there are diversity or environmental concerns.

SEC Guidance and Rule Amendments

Mr. Gerber summarized the amendments to Rule 14a-8 of the Securities Exchange Act of 1934, as amended, which were adopted by the Securities and Exchange Commission (SEC) in September 2020, noting that they will be effective for annual meetings held in 2022.

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Survey on Corporate Political Activity for 2022

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Posted by Cydney Posner, Cooley LLP, on Wednesday, February 2, 2022
Editor's Note: Cydney S. Posner is special counsel at Cooley LLP. This post is based on her Cooley memorandum. Related research from the Program on Corporate Governance includes Corporate Political Speech: Who Decides? by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); The Untenable Case for Keeping Investors in the Dark by Lucian Bebchuk, Robert J. Jackson Jr., James David Nelson, and Roberto Tallarita (discussed on the Forum here); and The Politics of CEOs by Alma Cohen, Moshe Hazan, Roberto Tallarita, and David Weiss (discussed on the Forum here).

If you think 2021 was a tough year for corporate political activity, 2022 may be even more challenging. That’s according to a recent survey from The Conference Board of government relations executives and managers of political action committees. In the survey, 87% of respondents said they expect 2022 to be at least as challenging as 2021, and 42% anticipate that it may actually be worse. In the aftermath of the January 6, 2021 attack on the Capitol, many companies and CEOs spoke out, signed public statements and determined to pause or discontinue some or all political donations. The heated political climate also heightened sensitivity to any dissonance or conflict between those public statements or other publicly announced core company values and the company’s political contributions, further complicating the political environment for companies and executives. In the survey, respondents cited a number of factors that contributed to the difficult environment for corporate political activity in 2021: in particular, 77% cited the frequent emergence of new social and political issues on which companies faced pressure to take a stance. According to the Executive Director of The Conference Board ESG Center, “With the 2022 mid-term election year bringing sustained scrutiny, companies that engage in political activity need to make the affirmative case for why they do so….They should focus on engaging and educating both internal and external stakeholders on how their activities serve both corporate and societal purposes.”

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Practical Stake

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Posted by Bruce F. Freed and Karl J. Sandstrom, Center for Political Accountability, on Friday, June 10, 2022
Editor's Note:

Bruce F. Freed is President of the Center for Political Accountability, and Karl J. Sandstrom is strategic advisor to the Center and senior counsel with Perkins Coie. This post is based on their CPA memorandum.

Related research from the Program on Corporate Governance includes Corporate Political Speech: Who Decides? by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); The Untenable Case for Keeping Investors in the Dark by Lucian Bebchuk, Robert Jackson, James David Nelson and Roberto Tallarita (discussed on the Forum here); and The Politics of CEOs by Alma Cohen, Moshe Hazan, Roberto Tallarita, and David Weiss (discussed on the Forum here).

Companies today face a moment of reckoning for their political spending. The crisis that confronts U.S. democracy and the inability to address a broad range of issues demanding public action from climate change to women’s reproductive rights, voting and guns has put front and center the role of company political spending in contributing to the breakdown. It has also underscored the need for companies to take a hard look at the consequences of their spending, the immediate and broad risks that it poses and whether or how they should engage in political spending.

The Center for Political Accountability addressed these fundamental issues in a recently issued report on corporations, political spending and democracy entitled Practical Stake. The title was deliberately chosen to emphasize the stake that companies have in a healthy, well-functioning democracy and contrast that with the role their political money has played in enabling the attack on democracy and creating the climate of intimidation that presents a grave threat. The report concluded by laying out what businesses should do to protect themselves and democracy.

Here are the report’s key points:

  • The dynamic capitalism that companies need for growing, competing, and pursuing their interests depends on a healthy democracy. Acceptance of democratic outcomes, respect for judicial decisions and the rejection of baseless claims are the foundation of the rule of law. When these attributes of a democratic society are put at risk by the power seeking, the conditions that businesses rely upon to prosper are lost.

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Shareholder Resolutions in Review: Lobbying Disclosures

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Posted by Subodh Mishra, Institutional Shareholder Services, Inc., on Monday, July 4, 2022
Editor's Note:

Subodh Mishra is Global Head of Communications at Institutional Shareholder Services, Inc. This post is based on an ISS memorandum by Paul Hodgson, Senior Editor at ISS Corporate Solutions.

Shareholder resolutions filed in the 2022 proxy season reflect continuing investor concern over lobbying activities and whether they are consistent with a company’s public positions and aligned with shareholder interests. However, the passage of only two such resolutions indicates that the majority of shareholders are satisfied with company efforts to address these concerns.

In this series of snapshots, ISS Corporate Solutions examines the key corporate issues raised by this season’s shareholder resolutions. This time, we look at resolutions on lobbying, including activities focused on climate. Voting results are based on filings by companies up to June 13, 2022.

More shareholder resolutions were filed during the 2022 proxy season than the previous year, with 586 environmental and social shareholder proposals submitted at U.S. companies so far, compared to 561 in 2021. Though many have since been withdrawn, many have been or will be voted on. According to data from ISS Corporate Solutions, 569 shareholder resolutions on ESG issues have either been voted on or are pending in annual meetings through November this year.

Some 31 proposals on lobbying were filed during this year’s proxy season, including three focused on climate, 27 of which have been voted on. Of those, just two received majority support, at Netflix and The Travelers Companies, Inc. A proposal at Gilead Sciences received 49.9% support. Overall, average support was at 31.8%. While many shareholders remain concerned about companies’ lobbying activities, both direct and indirect, the failure rate of such proposals indicates that the majority of investors are convinced that additional disclosures made by companies that have long been targeted by such proposals mark a sufficient improvement over past practices.

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Shareholder Resolutions in Review: Political Spending

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Posted by Subodh Mishra, Institutional Shareholder Services, Inc., on Saturday, July 9, 2022
Editor's Note:

Subodh Mishra is Global Head of Communications at Institutional Shareholder Services, Inc. This post is based on an ISS memorandum by Paul Hodgson, Senior Editor at ISS Corporate Solutions.

Shareholder resolutions filed in the 2022 proxy season included several different types of proposals focused on political spending by corporations, reflecting investor concerns that support of certain candidates and causes may be inconsistent with the stated values of the company.

In this series of snapshots, ISS Corporate Solutions examines the key corporate issues raised by this season’s shareholder resolutions. In this post, we look at resolutions focused in campaign contributions, including calls for greater disclosure. Voting results are based on filings by companies up to June 13, 2022.

More shareholder resolutions were filed in the 2022 proxy season than in the previous year, with 586 environmental and social proposals submitted at U.S. companies so far, compared with 561 in 2021. Though many have since been withdrawn, many have been or will be voted on. According to data from ISS Corporate Solutions, 569 shareholder resolutions on ESG issues have either been voted on or are pending in annual meetings through November this year.

Types of Resolutions

There were a number of different kinds of resolutions focused on political spending, all trying to get at slightly differing types of information:

  • Report on Political Contributions
  • Report on Congruency of Political Spending with Company Values and Priorities
  • Report on Global Public Policy and Political Influence
  • Report on Political Contributions and Expenditures
  • Issue Transparency Report on Global Public Policy and Political Influence

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Can We Trust the Accounting Discretion of Firms with Political Money Contributions? Evidence from U.S. IPOs

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Posted by Antonios Kallias (Cardiff University), Konstantinos Kallias (University of Portsmouth), and Song Zhang (University of St Andrews ), on Monday, July 25, 2022
Editor's Note:

Antonios Kallias is a Lecturer in Accounting and Finance at Cardiff Business School; Konstantinos Kallias is a Senior Lecturer in Accounting and Financial Management at Portsmouth Business School; and Song Zhang is a Lecturer in Banking and Finance at the Centre for Responsible Banking & Finance, University of St Andrews School of Management. This post is based on their recent paper, forthcoming in the Journal of Accounting and Public Policy.

Related research from the Program on Corporate Governance includes Corporate Political Speech: Who Decides? (discussed on the Forum here) by Lucian Bebchuk and Robert J. Jackson Jr.; The Untenable Case for Keeping Investors in the Dark (discussed on the Forum here) by Lucian Bebchuk, Robert J. Jackson Jr., James David Nelson, and Roberto Tallarita; and The Politics of CEOs (discussed on the Forum here) by Alma Cohen, Moshe Hazan, Roberto Tallarita, and David Weiss.

In our paper, Can we trust the accounting discretion of firms with political money contributions? Evidence from U.S. IPOs, which was recently accepted for publication in the Journal of Accounting and Public Policy, we investigate the use of accounting discretion by initial public offering (IPO) firms with political money contributions (PMCs).

IPOs are conducive to the study of how political connections and accounting discretion interact; the reported financial data in IPO prospectuses claim a substantially larger influence on investment decisions than the financial statements released by listed companies, as there is little, if any, coverage of the issuing firm prior to going public. The information asymmetries generate competing incentives in IPO earnings reporting. One possibility is that managers systematically report discretionary accruals that result in reduced profitability, aimed at detracting attention from themselves and their political network. Alternatively, the influence that political ties have over the institutional and regulatory landscape could favor reporting decisions that raise the accounting bottom line and, consequently, the IPO offer price. Both predictions, despite the opposite directions, are consistent with earlier research describing an antagonistic relationship between political connections and accounting quality.

Our study broadens the extant research by testing these predictions against a different reporting motivation, whereby IPO issuers with PMCs utilize accounting discretion to inform rather than mislead investors. Two empirical patterns and a puzzle are in line with the use of accruals as a signaling device. First, discretionary accruals are likely to be informative when investors are generally optimistic about the firm’s prospects. Second, income-increasing reporting can signal expected political gains while suppressing disclosure of the underlying political quid pro quo agreements. However, research on IPO issuers with PMC activity exclusively attributes signaling capacity to PMCs, creating a paradox where the magnitude of the reported effects contradicts with the small political budgets of the issuers.

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What CEOs Must Consider When Wading Into Politics and Policy Discussions

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Posted by Christine DiBartolo, Jackson Dunn, and Brent McGoldrick, FTI Consulting, on Sunday, August 14, 2022
Editor's Note:

Christine DiBartolo, Jackson Dunn, and Brent McGoldrick are Senior Managing Directors at FTI Consulting. This post is based on an FTI memorandum by Ms. DiBartolo, Mr. Dunn, Mr. McGoldrick, Elly DiLeonardi, Greg Mecher and Lindsay Kunkle.

Related research from the Program on Corporate Governance includes Corporate Political Speech: Who Decides? (discussed on the Forum here) by Lucian Bebchuk and Robert J. Jackson Jr.; The Untenable Case for Keeping Investors in the Dark (discussed on the Forum here) by Lucian Bebchuk, Robert J. Jackson Jr., James David Nelson, and Roberto Tallarita; and The Politics of CEOs (discussed on the Forum here) by Alma Cohen, Moshe Hazan, Roberto Tallarita, and David Weiss.

Increasingly, Americans are turning to the private sector for leadership as the boundaries between the political, social, and business arenas blur. Viewed in the best light, this is a search for value-based leadership. At worst, the forces of polarization have now crept into companies, which makes it particularly challenging for CEOs to determine how to engage on issues—particularly ones that can be seen as political—without creating new business risks.

In this post, we use our research of two of a company’s most important stakeholders—professionals and investors—to explore what CEOs must consider when wading into politics and policy discussions.

Demands on CEOs are being driven by the belief that businesses can influence the United States’ future

Investors and professionals see large businesses having real impact. In fact, they are perceived to have influence on the future of the country equal to—or even exceeding that of—federal, state and local government. This sentiment goes one step further in current times.

Investors and professionals look to businesses to partner with the government to help manage and overcome crises and major social change. CEOs are expected by stakeholders to take their responsibility to the country, not just their business, seriously.

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2022 CPA-Zicklin Index on Corporate Political Disclosure and Accountability

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Posted by Dan Carroll, Bruce Freed, Karl Sandstrom, Center for Political Accountability, on Tuesday, November 15, 2022
Editor's Note:

Dan Carroll is Vice President for Programs and Counsel of the Center for Political Accountability and oversees the CPA-Zicklin Index, Bruce F. Freed is CPA’s President, and Karl J. Sandstrom is strategic advisor to the Center and senior counsel with Perkins Coie. Related research from the Program on Corporate Governance includes The Untenable Case for Keeping Investors in the Dark (discussed on the Forum here) by Lucian Bebchuk, Robert J. Jackson, Jr., James Nelson, and Roberto Tallarita; The Politics of CEOs (discussed on the Forum here) by Alma Cohen, Moshe Hazan, Roberto Tallarita, and David Weiss; Shining Light on Corporate Political Spending (discussed on the Forum here); and Corporate Political Speech: Who Decides? (discussed on the Forum here) both by Lucian Bebchuk, and Robert J. Jackson Jr.

In a major expansion, the 2022 CPA-Zicklin Index, the nation’s premier benchmarking of U.S. companies for transparency and accountability of their political spending, doubled its rating from the S&P 500 companies to the Russell 1000.

The Index is a nonpartisan scorecard that now gives attention to large and medium-cap U.S. companies that are not S&P 500 components. This will help protect more shareholders and others concerned about increasing risks of company political spending and will enable companies to compare, their policies and practices with those of their  peers and leaders in their industries.

Former Securities and Exchange Commission Acting Chair and Commissioner Allison Herren Lee highlighted in the Index foreword the progress made and the remaining holes that pose an even greater threat as U.S. democracy comes under heavier assault.

As she pointed out, the threat is fueled in part by corporate political money. “[C]orporations continue to pour billions of dollars into political coffers around the country, with little transparency, and thus little accountability, for the political spending decisions made in the twelve years since the Supreme Court’s ruling in Citizen’s United opened the spigot on corporate political spending,” she wrote. “The trend lines in the CPA-Zicklin Index over the past decade show some laudable increases in transparency, but the analyses also show that non-transparency around corporate influence in the political process remains a significant issue.”

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2019 Annual Corporate Governance Review

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Posted by Brigid Rosati, Hannah Orowitz, and Rajeev Kumar, Georgeson LLC, on Saturday, November 2, 2019
Editor's Note:

Brigid Rosati is Director of Business Development, Hannah Orowitz is a Managing Director, and Rajeev Kumar is Senior Managing Director at Georgeson LLC. This post is based a recent Georgeson memorandum by Ms. Rosati, Ms. Orowitz, Mr. Kumar, Don Cassidy, Talon Torressen, and Ed Greene.

Executive Summary

We are pleased to announce the publication of our 2019 Annual Corporate Governance Review. For the third year in a row, Georgeson partnered with Proxy Insight to coordinate voting data and analytics.

We have expanded our review of environmental, social and governance shareholder proposals that were subject to a vote during the period July 1, 2018 through June 30, 2019.

Governance Shareholder Proposals

The number of corporate governance-related proposals submitted during the 2019 proxy season continued to trend downwards, albeit on a relatively incremental basis. Approximately 71% of these proposals reached a vote, in line with the range of 62% to 75% over each of the past five years. Overall, of the 236 proposals that reached a vote, 43 received majority support across the following categories:

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Corporate Political Spending is Bad Business: How to Minimize the Risks and Focus on What Counts

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Posted by Leo E. Strine, Jr. (University of Pennsylvania) and Dorothy S. Lund (University of Southern California), on Tuesday, January 11, 2022
Editor's Note:

Leo E. Strine, Jr. is the Michael L. Wachter Distinguished Fellow at the University of Pennsylvania Carey Law School; Senior Fellow, Harvard Program on Corporate Governance; of counsel, Wachtell, Lipton, Rosen & Katz; and former Chief Justice and Chancellor, the State of Delaware; and Dorothy S. Lund is Assistant Professor of Law at the University of Southern California Gould School of Law. This post is based on their recent article, published in the Harvard Business Review. Related research from the Program on Corporate Governance includes Corporate Political Speech: Who Decides? by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); The Untenable Case for Keeping Investors in the Dark by Lucian Bebchuk, Robert J. Jackson Jr., James David Nelson, and Roberto Tallarita (discussed on the Forum here); and The Politics of CEOs by Alma Cohen, Moshe Hazan, Roberto Tallarita, and David Weiss (discussed on the Forum here).

In our article, Corporate Political Spending is Bad Business, we explore the deep problems that corporate political spending poses for corporations and their management. In particular, we highlight the lack of legitimacy underpinning management decisions to spend treasury dollars on political causes as well as the “hypocrisy trap” for companies that donate to causes that undermine their stated values.

The legitimacy problem is easy to understand. Under the traditional division of power in U.S. corporations, managers decide how to allocate corporate assets, and shareholders are entitled to a say on those decisions only if they involve certain fundamental transactions. Thus, even as corporate political spending has soared since Citizens United, shareholders have had no real say in the matter. Corporate leaders have not chosen to seek their approval for political donations, and most have not even disclosed their contributions—despite the fact that shareholders are paying for them with their entrusted capital.

Even when it comes to traditional business decisions, academic research has focused for years on the reality that management does not always use its control of a company’s money to benefit the company and its shareholders, whether out of myopia or self-interest. In the fields of corporate finance and governance, this is referred to as an agency problem. Of course, the misalignment is especially pronounced when the decision is about which politicians or parties should benefit from corporate largesse—an issue on which shareholders have no common interest. Shareholders have diverse political views and—as we highlight—no interest in electing candidates just because they support one company’s preferred regulatory policies. The ability of corporate managers, who understandably have their own political views, to make contributions in a way that is faithful to their investors’ diverse interests and opinions is rightly suspect, and for that reason, demand is growing for shareholders to be given more information about and more say over corporate political spending.

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The Proposed SEC Climate Disclosure Rule: A Comment from Eight U.S. Senators

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Posted by Senator Brian Schatz (D-HI), Senator Elizabeth Warren (D-MA), and Senator Sheldon Whitehouse (D-RI), on Tuesday, July 5, 2022
Editor's Note:

Brian Schatz is U.S. Senator from Hawaii; Elizabeth Warren is U.S. Senator from Massachusetts; and Sheldon Whitehouse is U.S. Senator from Rhode Island. This post is based on a comment letter sent to the U.S. Securities and Exchange Commission by Senators Schatz, Warren, Whitehouse, and five other U.S. Senators.

Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain (discussed on the Forum here) and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) both by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita; and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy – A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr.

This post is based on a comment letter submitted to the SEC regarding the Proposed SEC Climate Disclosure Rule by Senator Brian Schatz, Senator Sheldon Whitehouse, Senator Elizabeth Warren, Senator Sherrod Brown, Senator Martin Heinrich, Senator Alex Padilla, Senator Tammy Baldwin, and Senator Jeffrey A. Merkley. Below is the text of the letter with minor adjustments to eliminate the correspondence-related parts.

We write to express our strong support for the Securities and Exchange Commission’s (SEC, the Commission) proposed amendments to its rules under the Securities Act of 1933 and the Securities Exchange Act of 1934, which would require registrants to provide climate-related information in their registration statements and annual reports. We thank you for your leadership in ensuring investors have the detailed, consistent, comparable, and reliable information they need to make informed capital allocation decisions.

This comment specifically addresses the Commission’s proposed new subpart to Regulation S-K, which would require disclosure of a registrant’s: 1) governance of climate-related risks; 2) material climate-related impacts on its strategy, business model, and outlook; 3) climate-related risk management; 4) greenhouse gas (GHG) emissions metrics; and 5) climate-related targets and goals. As the Commission notes, these disclosures are “fundamental to investors’ understanding the nature of a registrant’s business and its operating prospects and financial performance.” [1] It is therefore imperative that they be filed rather than furnished, and presented alongside other key information about a registrant’s business and financial condition.

We also strongly support the Commission’s proposed provisions under Regulation S-X that would require disclosure of climate-related financial metrics in a note to a registrant’s financial statements. Senator Reed is leading several of our colleagues in submitting a separate comment related to the proposed Article 14 of Regulation S-X, and we point your attention to that parallel effort as we focus on the provisions under Regulation S-K.

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Trends in Shareholder Proposals

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Posted by Nathan Williams, Jamie McGough, and Donald Kalfen, Meridian Compensation Partners, on Friday, September 1, 2023
Editor's Note:

Nathan Williams is a Lead Consultant, and Jamie McGough and Donald Kalfen are Partners at Meridian Compensation Partners. This post is based on their Meridian Compensation Partners memorandum.

Shareholder proposals are a common part of the governance landscape. It is useful to understand who gets them, how common they are, the various types of proposals and the magnitude of support.

Overall Prevalence

The large majority (70%) of shareholder proposals are received by S&P 500 companies. This is no surprise. Shareholders spend more time on larger investments than smaller ones. Also, to the extent shareholders are attempting to generate a change in certain forms of governance, larger, more prominent companies are much more likely to precipitate a trend in changes across companies than would smaller companies.

The number of Russell 3000 and S&P 500 companies receiving proposals from shareholders increased modestly between 2021 and year-to-date 2023. Over the three-year period, 10% of companies in the Russell 3000 and 40% of companies in the S&P 500 proxies included shareholder proposals.

Prevalence of Types of Proposals

Shareholder proposals generally fall into one of six categories – governance, social, environmental, lobbying, compensation and director elections. The graphic below depicts the distribution of relative prevalence of each type of proposal among S&P 500 companies (the prevalence is nearly the same among Russell 3000 companies).

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