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Wall Street Journal


The Sunshine of Disclosure And Some Intimidation, Too

October 29, 2013

By James R. Copland


The growing acceptance of corporate political disclosure by leading American businesses speaks for itself.

Regarding Jonathan Macey’s "Using ’Disclosure’ to Silence Corporate America" (op-ed, Oct. 22): The growing acceptance of corporate political disclosure by leading American businesses speaks for itself. Companies understand that secret political spending is fraught with risk—legal, business and reputational—and exposes them to shakedowns by powerful political figures. Beyond these risks, corporations are increasingly seeing transparency in corporate political spending as both good governance and a responsibility. Advocates of secret political spending would have companies ignore the risks of secrecy and dismiss the benefits of transparency. The Supreme Court rejected their arguments in the Citizens United case. Writing for an 8-1 majority, Justice Anthony Kennedy noted that disclosure enabled shareholders to "determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are ’in the pocket’ of so-called moneyed interests." In other words, the Court found that disclosure served the interests of our capital markets and the greater interests of our democracy.

The CPA-Zicklin Index, which benchmarks the political disclosure and accountability policies of America’s leading companies, was developed by a distinguished committee that guided the setting of standards and metrics and with the input of companies. It is not surprising that a handful of policy advocates and academics still attack the index. There will always be some who prefer secrecy in corporate political activity. For the rest of us, an increasing majority, we take solace in watching a steadily growing number of corporations endorse transparency, responsibility, good governance and the careful management of business risks.

Jonathan Macey is right that shareholders and investors should "ignore" the widely hyped CPA-Zicklin Index, which is methodologically flawed and inconsistent year over year. Fortunately, shareholders have been getting this message. Not only have 82% of shareholders in Fortune 250 companies voted against political-spending-related shareholder proposals in the last two years, but between 75% and 77% have rejected the CPA’s own "model shareholder proposal" for political-spending disclosure. No such proposal has received majority support over board opposition at a large American company.

Those shareholders voting in favor of the CPA’s proposal are largely labor-affiliated pension funds and "social investing" funds, whose interests depart from the average diversified investor’s, or institutional investors blindly following the recommendations of proxy advisers like Institutional Shareholder Services, which receives significant revenues from those same special-interest investors and generally backs many more "social policy" shareholder proposals than the average investor.

Bruce Freed, the former Democratic congressional staffer who heads the CPA, regularly "reports" inflated shareholder support for his proposals by ignoring institutional investors’ abstention votes, contrary to corporate bylaws, and he attempts to create bandwagon effects by listing companies that offer certain disclosures (without clarifying that many such companies don’t disclose what Mr. Freed is asking from others). Rather than getting on that illusory bandwagon, corporate leaders should listen to the vast majority of their shareholders and preserve their important ability to play an active role in the political process.

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