In 2010, the United States Supreme Court’s decision in the now-infamous Citizens United case opened the door to unlimited “independent political spending” by corporations. Justice Anthony Kennedy, who authored the court’s opinion, justified this change to precedent with two key assumptions. First, Kennedy wrote that “[b]y definition, an independent expenditure is political speech . . . that is not coordinated with a candidate.” Second, Kennedy assumed that any new political spending would be fully transparent.
Both assumptions have proved dramatically incorrect. Political organizations using IRS code 527, commonly known as PACs (along with the new, so-called “super PACs” that arose from the decision), quickly became notorious for their backdoor coordination with campaigns. And those same groups were now allowed to take contributions from so-called “dark money groups,” typically 501(c)(4) social welfare organizations or LLCs, which are not required to disclose their donors. With more than 45% of reported 527 donations from 2009-2018 suddenly coming from publicly traded companies and their trade associations, an age of rampant corporate political spending had begun.
Fast forward to 2023, however, and the picture has begun to brighten. The annual corporate index published by the Center for Political Accountability (CPA) has seen gains in the average overall score of S&P 500 companies every year from 2015-2022 (scoring is based on disclosure, policy and oversight). In 2022, fully three-quarters of S&P 500 companies at least partially disclosed their spending, or prohibited at least one type of spending. In the upcoming 2023 report, we expect to see further gains, including an average score approaching 60 (out of 100) for S&P 500 companies, and more than 100 companies in the CPA-Zicklin Index scoring 90 or above.
Why is this progress important? While some view corporate political spending as a logical corollary to delivering shareholder value, studies indicate the opposite is true: corporate political spending heightens risk. Companies making political contributions may act in opposition to shareholder interest, or to their own stated values (creating further reputational risks). The 2021 US Capitol attacks provided a stark example, as many companies responded to that even by pausing or halting political spending entirely. But risks can also be operational: for instance, management may waste significant time deciding how to allocate political expenditures with returns that are, at best, difficult to measure.
Shareholder proposals have reflected wider concerns over political spending. More than 100 proposals submitted for consideration at corporate annual meetings in both 2022 and 2023 related to disclosure around political contributions, lobbying or charitable contributions—or to the alignment of political and lobbying expenses with publicly stated corporate values. The rise of resources such as OpenSecrets also helps shareholders, customers and other stakeholders better track corporate spending.
At Prentiss Smith & Company, our position on corporate political spending follows a simple framework. We believe the Citizens United case was wrongly decided, and that corporate money does not belong in politics. We therefore give preference to companies that do not make political donations of any kind. Among those that do make political donations, we seek transparency, not just via legally mandated disclosures, but via additional, voluntary disclosure of spending with trade associations, 501(c)(4)s, or state and local political campaigns that do not carry mandatory reporting requirements. We also consistently support shareholder proposals seeking greater disclosure of political spending. Widely adopted, we believe these actions can point us firmly toward a civic society free of corporate influence.
