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December 28, 2012

Top Sustainable Investment Stories of 2012, Part 2
    by Robert Kropp

As growing numbers of corporate governance advocates call on the Securities and Exchange Commission to regulate disclosure of corporate political spending, Walden Asset Management leads a shareowner campaign for disclosure of lobbying expenditures; and Wal-Mart faces investor criticism following allegations of bribery in Mexico.

SocialFunds.com -- In 2011, the Center for Political Accountability (CPA) and the Zicklin Center for Business Ethics Research at the Wharton School collaborated on the first publication of the CPA-Zicklin Index of Corporate Political Accountability and Disclosure. The Index was updated in September of this year, and CPA and Zicklin have expanded their research to include the top 200 companies in the S&P 500 by market capitalization.

Index of Corporate Political Spending Updated

The shareowner campaign to pressure corporations to disclose their political spending activities was galvanized by the US Supreme Court's Citizens United decision in January, 2010. Early in 2012, CPA announced that the number of corporations agreeing to disclose their direct political contributions has reached 100. "The companies have agreed to disclose their direct corporate political contributions, indirect political spending through trade associations and other groups such as 'social welfare' 501(c)(4)s and to implement board oversight," the organization reported.

And according to As You Sow's annual Proxy Preview, published in advance of the 2012 proxy season, shareowners filed 47 resolutions requesting that companies disclose their political expenditures as well as payments to trade associations, and provide board oversight of political spending activities.

As You Sow Publishes Proxy Preview

A new development in the shareowner campaign occurred this year, when Walden Asset Management led a coalition of 40 institutional investors that called on 40 corporations to report on lobbying expenditures. The resolutions filed by the investors also call for disclosure of indirect funding of lobbying through trade associations.

In 2010, more than $1 billion was spent by corporations to influence the political process. Of that amount, 87% was expended on lobbying activities.

"Whether the issue is environmental impact, consumer protection, financial reform or shareholder rights, it is important for investors to understand how company dollars are spent to influence our laws and regulations by lobbying activities," Timothy Smith, Director of Environmental, Social and Governance (ESG) Shareowner Engagement at Walden, stated. "While many companies have modest government affairs budgets, others spend tens of millions of dollars annually on lobbying directly and through trade associations. We believe it is timely and appropriate for companies to be much more transparent."

Shareowners File 40 Resolutions on Lobbying Expenditures by Corporations

Meanwhile, pressure on the Securities and Exchange Commission (SEC) to regulate disclosure of corporate political spending grew, as a petition by a group of academics calling itself the Committee on Disclosure of Political Spending attracted an unprecedented 300,000 comment letters to the SEC on the issue, most of them in support of disclosure.

In November, SEC staff indicated that the Commission is now considering a rule on the issue. Support for disclosure "was further evidence that shareholders' demands for corporate political disclosure were beginning to resonate at the SEC," CPA stated.

Growing Pressure on SEC to Regulate Corporate Political Spending

In April, the world's largest retailer was found to have engaged in an extreme form of corporate political spending, when it was reported that Wal-Mart's Mexican subsidiary fueled its expansion in that country through a campaign of bribery. Upon learning of the bribes, executives at Wal-Mart's Arkansas headquarters "focused more on damage control than on rooting out wrongdoing," the New York Times reported.

Responses from sustainable investors and other corporate governance advocates were swift. GMI Ratings awarded the retail giant with its worst governance rating. "Wal-Mart missed the chance to clean up its alleged bribery problems in Mexico," GMI wrote in its analysis, "Just as it also turned a deaf ear to warnings about the mistreatment of its workers."

Wal-Mart Gets ESG Rating of F After Bribery Allegations

Members of the Interfaith Center on Corporate Responsibility (ICCR), who have engaged with Wal-Mart on social issues for decades, expressed their dismay over the allegations and called on the company's management to specifically endorse the Foreign Corrupt Practices Act (FCPA).

Sr. Barbara Aires, of the Sisters of Charity of Saint Elizabeth, New Jersey, said, "We have a tremendous investment in this company in terms of our time, expertise and yes, capital, and find these allegations deeply disturbing on so many levels. Should these reports be confirmed, we deem this a significant breach of trust and a loss of management credibility."

"We are most concerned about reports that management participated in impeding a more thorough, independent investigation into these allegations of corruption," she continued.

Investors Speak Out on Wal-Mart Bribery Allegations

A number of pension funds filed shareowner lawsuits against Wal-Mart as well.

Pension Fund Wants Wal-Mart to Come Clean on Bribery Allegations

Wal-Mart stated earlier this month that its internal investigation into the bribery allegations is continuing.

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