The ‘Transparency’ Agenda
It’s a murky business.
May 13, 2013, Vol. 18, No. 33 • By MICHAEL WARREN
Last September, Ronald Robins Jr., a senior vice president at Abercrombie & Fitch, received a letter urging the company “to join with over a hundred major companies and make political spending disclosure and accountability a corporate practice.” The Ohio-based clothing retailer isn’t particularly political. It doesn’t have a political action committee, nor is it a member of the more politically involved trade groups like the Chamber of Commerce. Any politics they have lean slightly left. In 2012, the company spent a bit more than $5,000 in donations, to Barack Obama, Ohio Democratic senator Sherrod Brown, Ohio Republican congressman Pat Tiberi, and others. The previous year, Abercrombie spent a measly $120,000 on lobbying, less than 0.1 percent of its operating budget that year. What’s more, all that information is public under current disclosure laws.
Nevertheless, the letter informed Robins that companies like his “face increasing pressure” to support political groups and candidates that “threaten corporate reputation, bottom line and shareholder value.” This “secret political spending,” the letter continued, “threatens not only the health of our democracy but also the reputation and integrity of companies.” Half the companies on the S&P 100 stock market index, the letter said, have “recognized the dangers” and have “demonstrated leadership by disclosing the details of and implementing board oversight of their spending.” The signers added that they “hope” Abercrombie will follow the lead of these exemplary companies.
None too subtle, the message was: Disclose, or we can make things very difficult for you.
Hundreds of executives at corporations like Abercrombie received letters like this one last year. They were signed by various people, many with titles like “director of shareholder advocacy” at left-leaning investment funds. But like the letter to Robins, all were signed first by the same man, Bruce F. Freed.
Freed may be the most important figure in American business you’ve never heard of. He isn’t a businessman or CEO, an innovator or entrepreneur or even investor. In fact, he has little business experience beyond a few years owning his own Washington, D.C.-based public affairs consulting firm.
A former journalist and Democratic congressional staffer, Freed (who declined to reveal his age) is the founder and president of the Center for Political Accountability, a nonprofit, “nonpartisan organization . . . formed to address the secrecy that cloaks much of the political activity engaged in by companies and the risks this poses to shareholder value.” Since it began in 2003, CPA has received $1.2 million in seed money from the Open Society Foundations, funded by left-wing billionaire George Soros. In collaboration with other Soros-backed groups like MoveOn.org, Common Cause, and Media Matters for America, as well as the large unions, CPA is leading a coordinated effort to get some of the country’s biggest and most profitable publicly traded corporations to disclose all spending related even tangentially to politics. Freed has the attention of these companies’ executives—and he’s trying to convince (some might say force) them to get out of politics entirely. Take it from Freed himself.
“CPA 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,” he told a group of anti-corporate spending activists in 2011. “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.”
Freed and company are currently pressing their case during corporate America’s “proxy season.” Every spring, companies are required by the Securities and Exchange Commission to inform their shareholders of the issues pending at the annual shareholder meeting. Generally, these are mundane matters of corporate governance, and few shareholders bother to show up, allowing the corporate board to direct their “proxy” votes. Shareholders who do show up have the opportunity to offer their own proposals, and in recent decades, proxy season has been a time for activist shareholders—labor union pension funds, “socially responsible” investment funds, and corporate gadflies—to raise whatever issues they wish.
Activist shareholders used to agitate for companies to rein in executive compensation or divest from apartheid-era South Africa. Their proposals rarely won the support of even a plurality of shareholders, but internal support was seldom the goal. Stirring up controversy—and headlines—could generate public pressure. To avoid PR headaches, companies sometimes acceded to the activists’ demands, even when majorities of shareholders were not won over.
This is where Freed saw his chance. In recent years, CPA and its allies have used the proxy process aggressively to hassle corporate boards to adopt more sweeping disclosure of their political spending. According to As You Sow, an umbrella group for activist shareholders, at least 125 proposals related to political spending are expected in the 2013 proxy season, a figure that has more than doubled in three years. Most of those filing these proposals are either pension funds, like the New York State Common Retirement Fund and the California State Teachers’ Retirement System, or “socially responsible” investor groups.
One of these is Trillium Asset Management, which last year extracted a major concession from Boston-based financial firm State Street. After a Trillium-backed disclosure proposal received 44 percent shareholder support, State Street reversed course. “State Street made a number of significant improvements to its disclosures and policies, including prohibiting its trade organizations from using its membership dues for political contributions and activities . . . and agreeing to disclose its political contributions to 527s and tax-exempt organizations,” the Trillium press release trumpeted.
To an outsider, it might seem that shareholder interest in political disclosure is increasing. Freed and company foster this belief, arguing in their letter to Abercrombie, for instance, that proxy advisory firms ISS and Glass Lewis “recommend voting for proxy proposals” expanding political disclosure. (The AFL-CIO is one of ISS’s largest clients, and Glass Lewis is owned by a teachers’ union fund in Ontario, Canada.) And Freed claims that “the average vote for these resolutions has topped 30 percent in the past three proxy seasons.” But these activists are stacking the deck. The conservative Manhattan Institute discovered that Freed’s 30 percent figure discounts abstentions, which most corporate rules consider “no” votes on shareholder proposals. The actual shareholder vote for disclosure proposals, Manhattan says, was just 17 percent across Fortune 200 companies in 2012, a seven-year low. In an interview, Freed said the Manhattan Institute’s methodology is “deeply flawed” and that the SEC’s own formula discounts abstention votes.
But internal pressure from proxy proposals is just one part of Freed’s strategy; another is “peer pressure.” The letter to Abercrombie cites Aflac, Exelon, Merck, Microsoft, and Wells Fargo as companies with “sound political disclosure.” CPA has developed its own (rather inquisitorial) index of major companies’ disclosure policies in conjunction with the Zicklin Center for Business Ethics Research at the University of Pennsylvania’s Wharton school of business (where Freed serves on the advisory board). The index scores the top 200 companies of the S&P 500 across 25 indicators, for a maximum of 72 points. The 2012 index ranks pharmaceutical giant Merck first, with a score of 70. The most improved company from 2011 was Costco, with an impressive 61. Meanwhile, 18 companies scored zero points, including Berkshire Hathaway, T. Rowe Price, and Priceline.com.
Freed’s letter to Abercrombie cites the CPA-Zicklin index as demonstrating that “political disclosure and accountability [is] becoming a mainstream corporate practice.” The fact is, no corporation with a brand to uphold wants to find itself out of the mainstream—or cited by any corporate watchdog. It’s worth noting that four companies—IBM, Colgate-Palmolive, Goldman Sachs, and Praxair—were left off the CPA-Zicklin index because they were wise enough to engage in no political spending. Freed says they were left off at the request of other companies so as not to “skew” the index.
All of this is only the start. Two weeks ago, officials at the SEC announced they were considering a new rule to require all publicly traded companies to disclose their political spending. Consideration for the rule came after an overwhelming petition drive from Soros-funded groups like Common Cause, Public Citizen, and Citizens for Responsibility and Ethics in Washington. In the New York Times story on the announcement, Freed’s second-in-command and CPA’s counsel, Karl Sandstrom, gets the last word.
“I think the SEC staff is very sympathetic to the petition itself, and a lot of the comments have referenced Justice Kennedy’s opinion in Citizens United,” said Sandstrom. “But they have so much on their plate, they have to decide what’s going to come first.”
Freed insists that CPA’s goal isn’t to discourage companies from spending money on politics. As he explained to activists in that 2011 talk, he aims to “solidify” disclosure “as a corporate governance standard and . . . really lock in place best practices.” This “will place increased pressure on laggards to adopt political disclosure.”
Freed’s appropriation of corporate jargon—best practices, corporate reputation, bottom line, shareholder value—is deft. Ultimately, Freed argues that not disclosing political spending creates unnecessary “risk” for a corporation. In business, avoiding unnecessary risk is a no-brainer.
Yet the risk Freed warns of is actually manufactured by the very groups sounding the alarm. Consider the “corporate transparency” strategy outlined in a leaked 2012 memo from the Soros-funded Media Matters to its allies on the organized left. Media Matters said its goal was to “make the case that political spending is not within the fiduciary interest of publicly traded corporations and therefore should be limited.” How to do this? When a business backs a conservative candidate, the memo said, Media Matters will “portray it as a complete endorsement of everything that a politician has said or done.”
That’s what happened to Target, the Minneapolis-based mega-retailer, when it contributed $150,000 to the political group MN Forward in 2010. MN Forward says it supports “pro-business” candidates and gave money to Republican gubernatorial candidate Tom Emmer. Emmer also backed a state constitutional amendment banning gay marriage. When Target disclosed its contribution to MN Forward, all hell broke loose. MoveOn.org, another Soros-backed entity, organized gay-rights protests at Target stores across the country and, as the Wall Street Journal reported, delivered to the retailer a petition promising a boycott signed by 24,000 people.
Soon after, Target CEO Gregg Steinhafel wrote a letter to employees ensuring that the company would “begin a strategic review and analysis of our decision-making process for financial contributions in the public policy arena” and initiate a “dialogue” on workplace diversity and LGBT issues. Target executives had learned their lesson. In 2008, Target spent $575,000, a company record, in disclosed political donations, according to OpenSecrets.org. That number dropped to $490,000 in 2010 and just over $400,000 in 2012, with a significantly larger share going to PACs and thus not directly supporting individual candidates.
Chalk up a victory for Freed.
Michael Warren is a reporter at The Weekly Standard.
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