This spring, shareholders of Minnesota's most well-known companies will vote on board members and various proposals from shareholders — standard annual meeting fare.
But for at least five local companies, the hot topic will be political spending and lobbying disclosure.
In the lead-up to the 2012 presidential election, the theme at this year's annual meetings isn't just how much companies are spending, said Tim Smith, who is senior vice president for Walden Asset Management, a small Boston-based firm.
It's how they're using those dollars to influence public policy.
"We're seeing shareholders who understand that when companies make contributions to controversial candidates or channel monies into trade associations or other organizations that are highly controversial, it can hurt the company's reputation," Smith said.
Smith's company describes itself as a leader in socially responsible investing that pushes for "political spending accountability to foster disclosure of direct and indirect lobbying."
Smith is among a group of investors asking 3M, UnitedHealth Group, Travelers and Ecolab to disclose more about how — and how much — they are spending on elections and lobbying. The resolutions are being circulated by the American Federation of State, County and Municipal Employees, a public employee union, and firms like Walden, that cater to investors who want to invest in corporations that are environmentally and socially responsible.
In Target's case, investors are asking the company to eschew political spending altogether. Such resolutions are becoming more popular at annual meetings and are securing more votes among shareholders. In some cases, Minnesota corporations have decided to be more transparent without pressure from shareholders.
That's because investors increasingly make decisions based on how socially responsible a company is, not just how profitable it is, said Rohan Williamson, a finance professor at Georgetown University's McDonough School of Business.
"The investors, especially the large institutions are saying, 'this politically doesn't look good, so you shouldn't do this. You should act like you care,'" Williamson said.
IT'S ALL ABOUT RISK
Some information about corporate political spending is publicly available. In Minnesota, for instance, outside spending groups funded by private firms must say where those dollars are coming from.
Resolutions filed with Travelers Companies and UnitedHealth Group go further. The proposals would require the companies to detail they're spending to fund trade associations and so-called social welfare organizations, which can weigh in on elections and issues without having to disclose their donors.
While such resolutions have been floated for almost a decade, they've become more prolific in large, partly due to a 2010 Supreme Court decision that allowed corporations and unions to pay for advertisements calling for the election or defeat of candidates.
The resolutions are getting more shareholder votes, too. In 2011, average support for transparency policies increased from 30 percent to 33 percent, and eight resolutions got more than 40 percent of the shareholder vote, according to the Sustainable Investments Institute, an organization that tracks efforts to make companies more socially and environmentally responsible.
Some companies are voluntarily sharing more political spending information, and in some cases limiting where their money goes. Among them is Wells Fargo, which, in 2005, decided not to give any corporate money to candidates, parties or other political funds.
Bruce Freed, president of the Center for Political Accountability, a non-profit that works with shareholders to make corporate political spending more transparent, has been pushing political spending disclosure resolutions for years.
He says the trend demonstrates that investors believe political giving is risky because companies can end up giving cash to organizations that support candidates or issues that conflict with the values of the company or its customers.
"I think investors see political spending now as posing a very broad risk to companies," Freed said. "They're really looking for consistency in company behavior."
That's precisely the trap Target fell into in 2010 when it gave $150,000 to MN Forward, a fund that supported Republican gubernatorial candidate Tom Emmer, said Michael Greenberg, director of RAND's Center for Corporate Ethics and Governance.
The contribution prompted a large, public backlash from the gay community and others because Emmer opposed same-sex marriage. The donation resulted in a boycott and a lot of bad press for Target.
"It seems hard to imagine Target had it in mind to alienate its consumers and community in the way that it did," said Greenberg. "The fact that [Target] can nevertheless find itself in trouble sort of showcases the challenges and problems and risks that are associated with campaign contribution spending."
During and after the 2010 elections, Target reevaluated its policies on political engagement and decided to put more information on its website, including which trade organizations Target supports, but not how much it gives each group.
But Larisa Ruoff, director of shareholder advocacy at Green Century Capital Management in Boston, says Target should end all political spending.
"It is incredibly difficult to determine what contributions will be controversial," Ruoff said. "To eliminate risk and reduce the opportunity for controversy, we believe it's safest to just eliminate the risk entirely."
A FOCUS ON LOBBYING
When it comes to politics, firms actually spend the vast majority of their dollars on lobbying, not campaigns, according to the Sustainable Investments Institute.
That's why Walden Asset Management and other supporters of political disclosures are asking 3M and UnitedHealth Group's shareholders to support a resolution that would require companies to state which issues they're lobbying on and which trade associations they're a part of.
For instance, when a company that wants to be viewed as an environmental steward pays dues to a trade group fighting environmental regulation, it can damage the company's reputation, Smith of Walden said.
Corporate political contributions should be disclosed because they are sometimes perceived as bribes, says Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. But he stops short of calling for lobbying disclosure, saying it is a legitimate corporate activity that investors see as important to a company's success.
"It's like 'should you disclose the secret formula for Coke?,' " Elson said.
David Heupel, an analyst at Thrivent Financial, says that as a shareholder lobbying disclosure isn't all that important to him.
"The concept that [companies] lobby shouldn't come as a great surprise, at least not to me," he said. "I would hope that the company, its industry, would make sure its voice is heard as it relates to issues."
Lobbying disclosure could have a chilling effect, said Greenberg.
"Clearly companies do have some legitimate interests," he said. "Do we really want to say that those things are suspect or to create a disclosure framework that makes it very difficult or impossible for businesses to be able to do those things?"
Ultimately, by making this information public, corporations will be forced to be more thoughtful about how they're spending politically, Bruce Freed said.
"All of these things are aimed at greater accountability," he said.
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