Efforts to Restrict Corporate Speech

Efforts to Restrict Corporate Speech

Special interests are attempting to force the disclosure of corporate public policy expenditures through multiple avenues:

FEDERALLEGISLATION

AGENCY PRESSURE

STATE LEGISLATION

SHAREHOLDER PROPOSALS

Ample evidence suggests that greater corporate disclosure is not the end goal of political activists, but merely part of a broader effort to influence company decision-making, undermine opposing

viewpoints, and harm long-term economic value for all shareholders.

20132012 Present

DISC

LOSE Act

FCC

PetitionD

raft Executive Order

FEC Suit

SEC Petition

Constitutional

Amendm

ents

State Regulatory

Actions

8 Del C

. § 220

(Qualcom

m)

Citizens United v. FEC

2010 2011

Rulemaking Added

to SEC Agenda

State Level

Legislation Proposed

The Goal: Exclude Business Community from Public Policy Debates

Media Matters’ Three Year Campaign Document Revealed its Plan to Attack Corporations That Participate in Public Policy Debates

The Three-Step Plan

(1) “[L]aunch shareholder resolution campaigns”

(2) Use the data gained to “provoke backlashes among companies’ shareholders, employees, and customers, and the public-at-large”

(3) “[M]ake the case that a corporation’s political efforts have the potential to irreparably damage its brand and bottom line”

Efforts to Create an Uneven Playing Field

“[Center for Political Accountability] and our partners are putting pressure on companies to adopt political disclosure, to curb the independence of trade associations, and to change the behavior of companies and trade associations in their political spending. I think what’s critical to remember is that the CPA strategy is not vulnerable to political obstruction or legal challenge. What we’re finding is that corporate governance offers a route that allows the issue to be addressed almost unimpeded.” - Bruce Freed, Center for Political Accountability

“The latest ploy is an effort to convince American businesses to voluntarily disarm and leave the playing field to unions and foundation-funded lobbying groups. Leading this effort is an organization called the Center for Political Accountability (CPA)”

- Bradley Smith, Former Federal Election Commission Chairman

Partisan Interests are Seeking to Impose Burdensome Disclosure Requirements Solely on Public Companies

Send Letters to S&P 500 CompaniesAn activist or group of activists approach a company to request that it “voluntarily” adopt particular disclosures.

File Shareholder ProposalsActivists submit shareholder proposals seeking to force the disclosure of, and to place additional limits on, corporate participation in the public policy debate.

. . . To Leverage NegotiationsSome companies, eager either to avoid a resolution or to get a resolution withdrawn, feel it necessary to negotiate with activists.

Companies “often are dismayed to find that reforms made one year invite further demands the next year.”

- Jonathan R. Macey, Yale Law School

➡ ➡

➡

Pressure to Disclose Political and Lobbying Engagement

The Political Activists’ False Narrative:Corporate Engagement is “Risky” and Bad for Investors

The Center for Political Accountability (“CPA”) and its allies seek to influence public perception with faulty statistics and dishonest reports.

“A word to company officers and shareholders: Ignore the [CPA-Zicklin] index . . . [I]ts ranking system is deeply flawed. The design and metrics are outcome-oriented, reflecting the subjective and political biases of the index’s sponsors.”- Jonathan R. Macey, Yale Law School, October 21, 2013

Manipulate Outcome-Oriented Surveys

➡ Annually change the scoring methodology of the CPA-Zicklin Index

Inflate Levels of Support ➡ Disregard abstentions when calculating overall levels of shareholder support for

disclosure

➡ Mischaracterize the support of major mutual funds by emphasizing the votes of minority sub funds

ACTIVISTS’ CLAIM

“Political expenditures/lobbying hurt shareholder value”

FACTS

Rationale for Disclosure Makes No Sense

A June 2012 study by economist (and former Clinton Administration official) Robert J. Shapiro found that “[e]xtensive analysis and evidence . . . support the view that corporate participation in the political process yields generally positive returns to firms and their shareholders” and that “[c]orporate political activity appears to have a generally positive effect on firm value, as reflected in excess market returns.”

Strategas Research Partners' Lobbying Index, which measures the stock performance of the 50 companies that spend the most money on lobbying, “has outperformed the S&P 500 for 15 consecutive years.” The Lobbying Index generated an average annual return of 17.4 percent in 2012 and 2013, compared to 6 percent for the S&P 500.

Jason Trennert, Managing Partner of Strategas, has stated that companies are “understanding better the idea that [lobbying] is important… that it is a fiduciary duty to spend money and make sure your voice is heard.”

Pressure on SEC to Force Disclosure of Public Policy Expenditures

Despite such pressure, SEC Commissioners recognize that materiality is the SEC’s governing standard and have warned against straying from the SEC’s mission to appease special interest groups:

The SEC makes its “decisions based on an impartial assessment of the law and the facts and what we believe will further our mission – and never in response to political pressure, lobbying, or even public clamor.” - Chair Mary Jo White

“Requiring disclosure of all corporate political contributions adds a pile of inherently non-material information to the mountain of disclosure already mandated at considerable cost.” - Commissioner Daniel Gallagher

Political activists have spearheaded an “Astroturf” campaign to send thousands of letters to the SEC in support of mandatory disclosure of corporate lobbying and public policy expenditures.

Types of Shareholder Proposals

85%

15%

2011

3%

55%

42%

2012

8%

44%48%

2013

POLITICAL SPENDING

DISCLOSURE

LOBBYING DISCLOSURE PROPOSALS

BAN LOBBYING OR POLITICAL

SPENDING

Political Activists are Increasingly Focusing on Lobbying Disclosure

Source: The Manhattan Institute

Increasing Demands for the Disclosure of Corporate Lobbying Expenditures Expose Activists’ True Intentions to

End Corporate Participation in Public Policy

Shareholders Have Overwhelmingly Rejected Proposals for Disclosure of Corporate Lobbying and Public Policy Expenditures

Shareholder Votes Related to Public Policy or Lobbying Expenditure Proposals, Fortune 250

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014 (to date)

FORAGAINST / ABSTAIN

The Manhattan Institute

Receiving on average support from only 19 percent of shareholders among Fortune 250 companies.

In 2013, the five largest mutual fund families — Vanguard, Fidelity, PIMCO, American Funds, and T. Rowe Price — supported only two percent of proposals related to corporate public policy expenditures.

Received on average support from only 18 percent of shareholders in 2013 among Fortune 250 companies.

Received on average support from only 18 percent of shareholders in 2013 among Fortune 250 companies.

2%

98%

AGAINST / ABSTAINFOR

Mutual Fund Votes Related to Public Policy or Lobbying Expenditure Proposals