Political donations grow as governance issue: disclosure of corporate political contributions comes second only to climate change as an activist shareholder cause. As the next major U.S. election draws closer, the issue is certain to get more top management attention.

• Author: Millman, Gregory J.
• Position: GOVERNANCE

Political spending and disclosure are becoming a major corporate governance issue for American corporations. Shareholder resolutions demanding disclosure of political contributions are garnering more votes, and, even before resolutions come to a vote, some companies are meeting privately with shareholders and responding to their concerns.

"Shareholders are interested because they see it as a risk issue that can affect corporate reputation and shareholder value," says Timothy Smith, director of socially responsive investment at Walden Asset Management. Although so-called social responsibility investors may have idealistic reasons for supporting disclosure, Smith sees capital value concerns as the driving force behind the growing shareholder attention. "Most big investors aren't going to vote for something unless it's in their business interest," he says.

During the 2007 proxy season, there were 60 resolutions calling for disclosure of political contributions, up from 40 the prior year. Political disclosure resolutions ranked second among social issues, behind only climate change, according to the Risk-Metrics Group. Moreover, support for political disclosure is apparently growing among shareholders. In 2004, resolutions calling for disclosure of political contributions on average garnered around 10 percent of the vote, but by 2007, support was approaching 25 percent, according to data from the Center for Political Accountability (CPA).

So, what is "political" spending? It isn't direct spending on leading political candidates: Thanks to the McCain-Feingold campaign spending law of 2002 barring direct contributions at the federal level, a company couldn't issue a check tomorrow, say, to GOP Presidential candidate Rudolph Giuliani. But it could, as Verizon Inc. does, contribute to state candidates or to political action committees (PACs) that support candidates or issues the company favors--contributions it has posted on its website.

Based on a sampling of major companies interviewed for this article, "transparency" is frequently a stated rationale for such disclosure. Yet certain companies have concluded that being transparent here isn't a positive, and are fighting resolutions seeking it--regardless of their level of political spending.

At some critical point, however, decisions about political spending and how it will be disclosed becomes a governance issue. "We haven't argued that companies should not engage in this spending," says Bruce Freed, executive director of the CPA. "Our point is that when they engage in it, there needs to be accountability for the decisions in the company and at the board level."

Verizon Posts Report on Web

While proxy votes against company policy usually fall short of a majority, in a number of cases, even the minority support has been strong enough that companies are responding. About 20 companies adopted disclosure policies in 2007, the CPA says.

At Verizon, support for a shareholder resolution mandating disclosure of...