Corporate Political Activity - Lobbying
The lobbying transparency campaign is coordinated by the American Federation of State, County and Municipal Employees (AFSCME) and Walden Asset Management.
The resolved clause for the main campaign resolution remains the same and has been filed at 47 companies, with 33 now pending and nine withdrawn (two are not yet public). Thirty-two are resubmissions and 18 are to new recipients. (See table above.)
The main proposal asks for an annual report that includes:
- Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications.
- Payments by [the company] used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient.
- [The company’s] membership in and payments to any tax-exempt organization that writes and endorses model legislation.
- Description of the decision-making process and oversight by management and the Board for making payments described in sections 2 and 3 above.
For purposes of this proposal, a “grassroots lobbying communication” is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or regulation. “Indirect lobbying” is lobbying engaged in by a trade association or other organization of which [the company] is a member.
Both “direct and indirect lobbying” and “grassroots lobbying communications” include efforts at the local, state and federal levels.
The report shall be presented to the Audit Committee or other relevant oversight committees of the Board and posted on [the company]’s website.
Eight of the resolutions—at Alphabet, Bank of America, Citigroup, ConocoPhillips, Eli Lilly, Emerson Electric, Ford Motor and General Electric—exclude the reference to groups writing model legislation.
Votes—Just three votes are available so far. Resubmissions have earned 39.6 percent at Emerson Electric and 12.0 percent at Tyson Foods; a first-time resolution earned 21.5 percent at Franklin Resources.
Withdrawals—Proponents have reached agreements and withdrawn at Atmos Energy, Consolidated Edison, Comcast, Goodyear Tire & Rubber, Eli Lilly, SCANA, Textron, and Travelers.
SEC action—Lobbying proposals have survived SEC scrutiny for several years. But companies this year are trying to use last November’s SEC Staff Legal Bulletin 14I, arguing for a possible reinterpretation of the “significantly related” section of the shareholder proposal rule the bulletin discusses. Citigroup, Eli Lilly, Goldman Sachs and Travelers each are contending that lobbying is not material to their businesses. Agreement from the SEC would mark a sea change in SEC interpretation and could significantly reduce the overall number of shareholder resolutions eligible for investor consideration. The SEC staff has yet to respond. Company arguments are as follows:
- Citigroup asserted in an initial letter on December 19 that the proposal relates to matters that account for less than 5 percent of its business and is not otherwise significantly related. It reports spending about $5 million annually on federal lobbying, equivalent to less than 0.05 percent of its total assets, net income and net revenues.
The proponents responded with an acerbic riposte on January 12, tartly suggesting the idea that lobbying has no relevance to the bank is belied by a long history of lobbying to further its interests in Washington, and noting that a provision of the Dodd-Frank financial reform law was dubbed “the Citibank provision” given work by the bank’s lobbyists. The bank responded in a second letter on January 26, clarifying its point that while it considers lobbying important, in the resolution “there is no nexus between social policy issues raised by contributions to trade associations and the Company and, indeed, the Proponent has not identified any social policy issues raised by the contributions to trade associations that are related to the Company.”
- Eli Lilly replicates much of Citigroup’s reasoning, arguing in a December 21 letter that it is not relevant to its operations since it concerns matters that account for less than 5 percent of its business. Lilly reports it spent $64 million on federal lobbying between 2010 and 2016, or about $9 million a year—a fraction of its total assets, net earnings and gross sales. Lilly also says the resolution “is not otherwise significantly related” to its business and concerns ordinary business. It describes in some detail how the board has considered the issues raised in the proposal.
- Goldman Sachs, likewise, says a reinterpretation of the “significantly related” rule is in order. Its 2016 lobbying expenditures accounted for less than 0.2 percent of its net earnings that year and a fraction of gross sales. It reports the board’s Corporate Governance and Nominating Committee met after receiving the resolution and affirmed management’s view that the proposal “does not...raise new or additional social or ethical concerns that are significant to the company’s business.”
- Faced with these arguments at Travelers, First Affirmative Financial Network withdrew. The resolution had earned 37.4 percent in 2017, down from 43.9 percent in 2016.
- First Affirmative also withdrew at Morgan Stanley after the company pointed out it had not properly substantiated its stock ownership. A similar proposal went to a vote twice before at Morgan Stanley, with mixed results—4.6 percent in 2015 and 16.8 percent in 2014.
- Another withdrawal is the result of a copy-cat resolution from the other end of the political spectrum. The conservative National Center for Public Policy Research filed a resolution that argues in favor of lobbying benefits at Duke Energy and praises the company’s membership in the American Legislative Exchange Council and the Business Roundtable. Duke said it will include that proposal in its proxy statement. Mercy Investments subsequently withdrew its lobbying proposal but met with the company. (More on the NCPPR proposal here.)
The New York City pension funds want four companies to report about both lobbying and election spending. The resolution seeks disclosure of all recipients and contributions from company funds with any non-tax- deductible expenses for political activities incurred related to:
a) influencing legislation, (b) participating or intervening in any political campaign on behalf of (or in opposition to) any candidate for public office, and (c) attempting to influence the general public, or segments thereof, with respect to elections, legislative matters, or referenda. Shareholders request that the report detail any:
- contributions to, or expenditures in support of or in opposition to, political candidates, committees, and parties;
- dues, contributions, or other payments made to tax-exempt organizations operating under sections 501(c)(3), 501(c)(4), and 527 of the Internal Revenue Code, respectively, including tax-exempt entities that write model legislation, and non-profit groups organized to promote “social welfare”;
- portion of dues or other payments made to tax-exempt entities that are used for an expenditure or contribution and that would not be deductible under section 162(e) of the Code if made directly by the Company.
The resolution is pending for the first time at Allegiant Travel and is a resubmission at Alliant Energy, where it earned 38.6 percent last year, Great Plains Energy (24.7 percent) and NRG Energy (30.7 percent).
SEC challenge—Alliant Energy is making the same arguments noted above about “significantly related” and says its political expenditures to political groups are insignificant compared to its total assets, net income and gross sales. It points out its board met and agreed these expenditures do not raise public policy concerns significant to its business. It reports its current oversight and reporting procedures for political activity, and says the proposal is concerned primarily with contributions to non-profit groups, which it says are particularly insignificant to it and have raised no concerns outside its ordinary business. It also contends investors are uninterested in the topic.
Another resubmission, in its fourth year, asks Devon Energy to
commission a comprehensive review of Devon’s positions, oversight and processes related to public policy advocacy on energy policy and climate change. This would include an analysis of political advocacy and lobbying activities, including indirect support through trade associations, think tanks and other nonprofit organizations. Shareholders request that Devon prepare (at reasonable cost and omitting confidential information) a report summarizing the completed review.
The resolution earned 26.6 percent support last year, up from 21.2 percent and 19.3 percent support in the two previous years, as well as 16.3 percent the year before.