Investors Push For More Politics In The Boardroom

A movement by investors to pressure companies into divulging political policies and ideologies appears to be gaining traction. Boards need to be ready.

CQ Roll Call reported this week that a group of 36 investors with combined assets of $236 billion sent letters to the CEOs of more than 30 companies asking for more transparency on their positions related to abortion, contraception and other matters of sexual and reproductive health care. Already, five proxy proposals slated for 2020 annual meetings have been filed.

Macy’s and Progressive are among the companies that received proposals according to the report. Both have been asked to report on “the risks and costs that could result from proposed or enacted state policies impacting reproductive rights, as well as any strategies they have developed to minimize or mitigate these risks, including through lobbying,” by December 1, 2020.

Essentially, these proposals are asking corporate boards to determine the financial impact that political positions will have on a company’s bottom line. Deciding whether specific policies regarding reproductive rights have a material effect on a company’s core business is uncharted territory. However, publicly announcing a decision one way or another could affect the company financially if it leads to boycotts by customers who don’t agree with the board’s position or walkouts by employees who could lose reproductive rights or health benefits due to the board’s decision. It will be interesting to see how the boards of the companies that have received proposals respond.

Another effort to bring politics into the boardroom surfaced in January. A shareholder resolution to have Costco’s nominating and governance committee consider and then disclose “viewpoint diversity” when seeking new board candidates was presented at its annual meeting. The National Center for Public Policy Research’s Free Enterprise Project, which supported the resolution, argues that having a board that represents both sides of the political spectrum would be better able to help directors avoid groupthink. Although the resolution advocating disclosure of board ideology was not approved, it illustrates the level of belief some shareholders have regarding whether politics influences decision-making in the boardroom. Expect to see more efforts like this in the future.

While there are legitimate concerns over how the board taking a political position may affect a company’s bottom line, many times the board has no choice but to simply comply with the law. As it would with any new or long-standing regulation that can have an effect on company sales and manufacturing, running a financial analysis to determine any risks and costs the company might incur is standard procedure. Political affiliations really shouldn’t impact those calculations.

However, shareholder proposals that pressure boards to weigh in on issues that are political hot buttons could significantly impact relationships on the board. Such proposals will test each director’s ability to avoid political bias as they attempt to evaluate the proposal. Boards must present a unified response to all proposals and be able to continue to operate with a spirit of cooperation after the decision is made. All shareholder proposals should be taken seriously and responded to with respect and thoughtful answers that are backed up with facts and relevant statistics. Any decision regarding politically charged debates can place directors in a “no-win” situation, so they will have to accept that and move on. The last thing a board needs is to have politics affect its ability to make good business decisions in the future.