In the aftermath of the January 6 insurrection, nearly 190 US companies suspended contributions through their political action committees (Pacs) to the 147 US Congressmen and Congresswomen who voted not to certify the results of the US presidential election. Then in April 2021 hundreds of public company chief executives co-signed a letter that ran in both the New York Times and the Washington Post, opposing voter suppression efforts.
These actions by US corporate leaders drew ire from senior Republicans – including Senate and House minority leaders Mitch McConnell and Kevin McCarthy – and cautious praise from civil rights organizations and groups such as Citizens for Responsibility & Ethics in Washington. But as we’ve seen during the last couple of proxy seasons on issues like climate change, stakeholder capitalism and racial equity, investor advocate groups plan to hold companies accountable to their progressive messages and root out empty promises.
Toyota bore the brunt of a public backlash in early July, when campaign finance documents revealed that it has been the largest corporate donor to politicians who objected to the results of the 2020 presidential election. During the first six months of 2021, the Japanese car manufacturer, which did not announce any suspension of donations following January 6, donated $55,000 to 37 Republican politicians who voted not to certify the results of the election, according to a study by Axios.
In response to the backlash, Toyota acknowledged in a statement that its contributions had ‘troubled some stakeholders… and, at this time, we have decided to stop contributing to those members of Congress who contested the certification of certain states in the 2020 election.’
Investigations by other major US publications have uncovered instances of alleged donations by US public firms that contradict their messaging after January 6. In each case, the company has defended its contributions on technicalities: for example, that it said it would suspend donations to politicians who incited violence, not politicians who opposed the result of the presidential election.
In realistic terms, for many public companies it won’t be a matter of if but when they resume suspended contributions – either directly through Pacs or trade associations, or via other routes.
‘Given how the system is set up, most companies will logically contribute to both sides to help with their business model,’ says Mary Minette, director of shareholder advocacy at Mercy Investment Services. ‘But being transparent with that and allowing insight into the structure and who oversees it so it doesn’t get out of hand is really critical.’
This sets up a potential tug of war between the historical corporate approach to lobbying and political donations and the investor advocates who are planning to mount opposition to board directors whenever they believe there is a gap between their post-January 6 messaging and their subsequent political contributions.
Proxy season 2021: Growing opposition could be a sign of things to come
The deadline to file most shareholder proposals for the 2021 proxy season fell before January 6 in most cases. Looking at the number of filed proposals related to political lobbying and spending may paint a picture of decreased investor interest – with the number of proposals falling year on year between 2019 and 2021.
But investors cast their votes after January 6, and this year has brought the highest number of proposals related to political lobbying and spending that have received majority support. Speaking to IR Magazine in July, Peter Kimball, former head of advisory services at ISS Corporate Solutions, says this tells only half of the story. He notes that the number of proposals related to political lobbying or spending that receive majority support has been growing exponentially since 2019.
‘That’s not necessarily an indication that everyone voted differently after January 6,’ Kimball says. ‘It’s probably as much of an indication that shareholder scrutiny around corporate political spending has increased over a longer period of time. We’re seeing a continuation of a bigger trend in terms of greater scrutiny of political lobbying and spending.’
Proposals calling for greater transparency into political lobbying and spending aren’t particularly new – they’ve been filed for many years by John Chevedden and a number of public pension funds – but a new development is the willingness of some of the largest asset managers to support them.
This year, for example, BlackRock voted in favor of proposals at Lyft, Tyson Foods, Pfizer, Charter Communications and others, according to its proxy voting report, having faced significant recent pressure from Majority Action and 25 public pension funds.
As large asset managers show a greater willingness to vote against management on these proposals, and in light of the high number of corporate statements after January 6, we could be heading for a perfect storm in the 2022 proxy season.
‘We’ve already had our partners banging at the door asking for a list of companies that will be prime candidates to file proxy resolutions with,’ points out Bruce Freed, president of the Center for Political Accountability (CPA). ‘We’ve set a goal of having at least 50 resolutions filed for the 2022 proxy season, but hopefully we can exceed that. There’s great eagerness to file.
‘The companies that called a pause and are now going back to spending are fanning the flames. Folks on the outside thought there would be a change in the way companies approach election-related spending, but for a significant number of companies it’s going back to business as usual.
‘You have investors and consumers who are going to hold you accountable, and that can hurt the bottom line. The whole environment has changed: the polarized political environment has made political spending much riskier – and that means companies need to have policies in place to govern what they’re doing.’
Editor's note: This article was updated on October 8 to remove a reference to the number of proposals that have received majority support between 2019 and 2021.
This is an extract of an article that was published in the Fall 2021 issue of IR Magazine. Click here to read the full article.