United States: CPA-Zicklin Index To Cover Russell 1000 Companies

The CPA-Zicklin Index of Corporate Political Disclosure and Accountability (from the Center for Political Accountability and the Zicklin Center for Business Ethics Research at the Wharton School of the University of Pennsylvania) annually benchmarks public companies' disclosure, management and oversight of corporate political spending. The Index also includes specific rankings for companies based on their Index scores, as well as best practice examples of disclosure and other helpful information. (See this PubCo post.) CPA launched the Index in 2011 following the decision by SCOTUS in Citizens United, benchmarking only the S&P 100. In 2015, it began to benchmark the S&P 500. The Index has just announced that, beginning this fall, it will expand its coverage to the Russell 1000. As reported in MarketWatch, the President of CPA observed that, “[w]ith companies under much greater scrutiny on their election-related spending, it really is incumbent on them that they have strong [governance] policies that they adhere to. They face the threat of boycotts. They face the threat of employee morale problems….They face the threat of very harmful publicity. Bottom lines can be adversely affected by the way companies engage in political spending.”

SideBar

In case you were thinking that, given the recent proliferation of prescriptive SEC rulemaking proposals, we would soon be seeing a proposal for political spending disclosure, think again. In the 2022 budget bill (Section 633), Congress once again prohibited the SEC from using any funds for political spending disclosure regulation. That means that, for now anyway, private ordering—through shareholder proposals at individual companies and other forms of stakeholder pressure, including humiliation—will continue to be the pressure point for disclosure of corporate political contributions. (See this PubCo post.)

These proposals had grown increasingly successful in the last couple of years. For 2021, CPA, together with its shareholder-proposal partners, submitted about 30 proposals. Of the 12 that went to a vote, six received majority votes, including two at 80% and one at 68%. CPA and its partners also withdrew 13 proposals; 10 were agreements with companies regarding disclosure and three were strategic withdrawals where the company made substantial improvements but not enough to merit an agreement. According to CPA, 2021 was “the strongest proxy season” they'd had. Their average vote steadily increased in the prior three years from 36.4% in 2019 to 41.9% in 2020 and 48.1% for 2021. According to CPA, reported here, “two of the largest institutional investors, BlackRock and Vanguard, voted for CPA's resolution for the first time last year. BlackRock did so for six of the 12 CPA resolutions and Vanguard for three.”

However, according to the 2022 Early Proxy Season Review from proxy solicitor Georgeson, examining shareholder proposals submitted through mid-May to companies in the Russell 3000, “shareholder support for the 137 proposals specifically relating to environmental and social (E&S) issues voted upon so far this year has been more muted.” (See also this PubCo post regarding declining BlackRock support for E&S proposals.) The review reported that, in 2022, proposals related to political spending accounted for 26% of the 399 social shareholder proposals submitted, representing an increase from the 23% submitted for 2021; however, “average support for political contribution proposals has dropped from 40% average support in 2021 to 26% average support in 2022.” In addition, through mid-May, no political contribution proposals won majority support, compared to six passing in 2021. With regard to political lobbying proposals, support increased only slightly from 38% to about 40%.

Notably, it appears that many of the proposals have emphasized apparent conflicts between stated company policies and values and the beneficiaries of those political contributions. For example, Georgeson reports that at least three shareholder proposals were submitted “questioning how companies' political contributions align or conflict with stated racial justice commitments.”

According to an April statement issued by CPA, the Index was created “to measure how transparently companies report and oversee their election-related spending.”

Specifically, the Index examines the following: 

After conducting a thorough review of company policies and practices in 24 areas, the Index then calculates a score for each company. Companies with a score of 90 or above are identified as “Trendsetters,” which reflects “robust disclosure and oversight.”

The CPA statement was issued because companies were “citing their Index scores as arguments in opposition to shareholder resolutions calling for lobbying disclosure or company reports on the alignment of their political spending with core values and positions.” However, the statement indicated, the “Index does not make a value judgment on a company's political spending or alignment with its publicly stated values and does not cover company lobbying spending or activities.” Rather, as reported by Bloomberg, CPA's president maintained that the Index “only looks at how the company governs and manages its election-related spending. Still, once the dollar figures are known, money managers and their investors can better decide if they align with a company's stance.”

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