Political spending disclosure is on the minds of many shareholders one year ahead of the 2020 elections and corporate boards should take notice. Directors may find themselves under pressure to reveal more details about money their company may be spending on lobbying and other political activities.
Hyper-partisan political views are generating greater interest in how corporate boardrooms are dealing with political spending than in the past, as evidenced by recently released statistics on political contribution disclosure from the 2019 proxy season. There was a notable increase in shareholder support for the Center for Political Accountability’s (CPA) model resolution on political spending disclosure this year, with more companies holding votes on political spending resolutions and vote totals in favor of the resolutions trending higher.
The CPA reports that 33 companies held votes on political spending resolutions this proxy season garnering an average vote total of 36.4 percent. That’s up from last year, when similar resolutions were voted on at 18 companies with an average vote total of 34 percent.
An additional 13 companies withdrew political spending resolutions prior to a vote this year. Instead, they reached disclosure agreements with shareholders that included board oversight and accountability policies to satisfy their concerns. By comparison, in 2018, only three companies reached such agreements.
Of the votes on political spending resolutions cast this year, two received majority support; 11 received support between 40 and 50 percent; and 12 received between 31 and 38 percent support. The trend of increasing shareholder support suggests that many of the companies that did not receive majority votes on these resolutions this year should expect to see political spending resolutions filed again next year. Political spending will be a major subject for boards to consider next year as shareholders will be concerned about the types of economic policies companies will have to operate under after the 2020 presidential election.
The board’s ability to determine how the policies of democratic and/or republican leaders can provide opportunities for their company’s future growth is extremely important. Boards must be flexible enough to map strategies to potentially deal with, for example, Donald Trump’s tariffs or a democratic candidate’s focus on climate change, depending on the actually results of the 2020 election.
Among the major considerations for boards:
• Should the company engage in political spending, and if so, what is the strategy and goal?
• How would the policies of a democratic or republican administration help or hurt the company’s current business strategy?
• What procedures will be used to authorize political expenditures by management and what are the oversight responsibilities of the board?
• How will the board factor in the political spending concerns of investors and stakeholders?
• How will the company disclose its political spending choices and how will it defend those choices if necessary?
Individual board members may have preferences involving which political entities the company should support financially. Boards will need policies and procedures in place to offset any hyper-partisan political views among directors that may make coming to consensus on these matters more difficult. They will have to find ways around their differences. Political spending can have long-term effects on the growth of corporations, so shareholders will be eager to hear which policies and causes companies are supporting in 2020.
Read more: Boardroom Strategies For The Election Season