According to the Center for Responsive Politics, the 2012 election was the most expensive election in U.S. history, with spending totaling $6 billion, more than $700 million more than any previous election. With an unknown amount of this spending coming from corporate treasuries, it is unsurprising that investors are increasingly engaging with companies to improve disclosure of political spending. This heightened engagement is evidenced by the fact that, during the 2011 and 2012 proxy seasons, more shareholder proposals requesting disclosure of political spending were put forth on U.S. ballots than any other proposal topic.

The 2010 Citizens United Supreme Court ruling found political donations to be protected under companies’ First Amendment rights, thus removing many of the restrictions previously imposed on corporate political activity by laws such as the McCain-Feingold Act. However, now that companies have been granted this free speech right, are they speaking up about it? It appears that the answer may be yes and no.

Currently, corporations required to disclose only limited amounts of information regarding their political spending. Companies must submit Lobbying Disclosure Act reports, which require them to provide semi-annual, good-faith estimates, rounded to the nearest $20,000, of all lobbying-related expenditures; however, companies face no other mandatory disclosure regarding how they spend treasury funds for political purposes. As such, companies vary widely on the amount of disclosure that they provide to shareholders. On an October 31st Glass Lewis Proxy Talk with representatives from the Center for Political Accountability (“CPA”), Bruce Freed, the president and founder of CPA, discussed the release of the 2012 CPA-Zicklin Index of Political Accountability and Disclosure, which highlights and rates the disclosure regarding political spending by large U.S. companies. According to this Index, since 2011, many large U.S. companies have expanded their political spending disclosure, which the CPA argues could pressure and incentivize other companies to follow suit. However, despite this expanded disclosure, nearly 42% of companies reviewed by the Index do not provide disclosure regarding their direct political spending.

While there have been several legislative attempts at increasing companies’ disclosure of corporate political spending, including the DISCLOSE Act and the Shareholders Rights Act, none of these measures have been signed into law. However, the SEC may take up this issue in the near future. As recently reported by the Wall Street Journal, the SEC’s corporate finance division is considering recommending that the SEC propose rules mandating disclosure of corporate political spending and lobbying activities. This move stems from the submission 2011 rulemaking petition filed by several law professors including Lucian Bebchuk and John Coffee. This petition ultimately received over 300,000 comment letters, which is a higher than average response to such a petition. In addition to this potential recommendation, the SEC is receiving pressure from other sources. For example, in February 2012, the Wall Street Journal reported that SEC Commissioner Luis Aguilar urged the commission to begin rulemaking on corporate political spending disclosure, stating that “

[w]itholding information from shareholders is a fundamental depravation that undermines the securities regulatory framework, which requires investors receive adequate and appropriate information so that they can make informed decisions about whether to purchase, hold, or sell shares-and how to exercise their voting rights…Investors are not receiving adequate disclosure, and as the investor’s advocate, the Commission should act swiftly to rectify the situation by requiring transparency.”

Given this widespread push to increase transparency in political spending, it is likely that, without some sort of rule requiring increased disclosure, we will continue to see a large number of shareholder proposals aimed at this issue; however, shareholder support for such initiatives may be decreasing. For example, while the number of shareholder proposals requesting actions or increased disclosure increased substantially between 2011 and 2012, shareholder support for such initiatives was slightly lower on a year-over-year basis. In 2011, these proposals received an average of 28% shareholder support, with 26 resolutions receiving higher than 30% shareholder support. In contrast, in 2012, all such shareholder resolutions received 21% shareholder support, with only 21 resolutions receiving over 30% shareholder support. This decreased support could have several explanations. It is possible that, as companies voluntarily adopt better disclosure practices regarding their political spending, investors see less of a need to support resolutions for increased disclosure. Alternatively, shareholder proponents may have been less discriminating in their targets for these resolutions, placing them at a wide variety of companies, many of which may not require increased disclosure. Finally, some of the decrease in overall shareholder support could be explained by the increase in the number of proposals requesting more drastic actions, rather than increased disclosure. These proposals, which requested that companies prohibit corporate political spending or that they adopt a shareholder vote on political contributions and expenditures, typically receive much lower levels of average shareholder support.

Regardless of the slightly lower support seen for these resolutions, we do not believe that this is a waning issue. To the contrary, corporate political spending will likely continue to be one of the most pressing issues facing companies in the upcoming proxy season.