A coalition of at least 74 investors has filed resolutions at 50 US companies asking for more disclosure of payments for lobbying, including to trade associations. The resolutions have been coordinated by Walden Asset Management and American Federation of State, County and Municipal Employees (AFSCME).

Walden and the AFSCME said the 2018 resolutions had been filed at companies that had some or all of the following characteristic: significant lobbying spending, lack of trade association disclosure and controversial lobbying. Companies targeted include Walt Disney, Exxon Mobil, BlackRock, Citigroup and Morgan Stanley.

Investors are concerned lobbying can pose reputational risks if it contradicts a company’s publicly stated positions, according to Walden and the AFSCME. The investors that have co-signed the resolutions believe that a company’s reputation is an important component of shareholder value and that those with a high reputation rank perform better financially than lower ranked companies.

A major focus for the investor coalition is undisclosed payments for trade association lobbying.  Walden and the AFSCME said in some cases, a trade association may actively lobby for issues that are contrary to a company’s public statement or values. The investors proposing the resolutions said they believe management needed to review trade association memberships to assess whether a trade association was accurately representing their company’s interests and policy positions and should have procedures in place to manage conflicts when a trade association’s position strongly differed from the company on a priority issue.

Walden and the AFSCME said climate change, drug pricing and tobacco were issues where companies often had different policies to those of the trade associations to which they belonged. For example, many companies had programmes to address climate change, yet were also members of the US Chamber of Commerce, which had consistently opposed legislation and regulation to address climate change.
Additionally, many pharmaceutical companies, they said, publicly supported a patient’s access to affordable medicines, yet also funded the Pharmaceutical Research and Manufacturers of America’s $100 million campaign that defeated a California lower drug price initiative.

These resolutions follow recent moves by institutional investors to stop the membership of particular trade associations at mining companies Rio Tinto and BHP Billiton which they argued had climate change policies that were at odds with the companies’ public statements. Following a review, BHP Billiton decided to withdraw from its membership of the World Coal Association.

Council of Institutional Investors voices opposition to proposed legislation

The Council of Institutional Investors wrote to the Senate Committee on Banking, Housing, and Urban Affairs recently to voice its continuing opposition to the Corporate Governance Reform and Transparency Act of 2017 which was passed by the House of Representatives in December and is now due for consideration by the Senate.

The CII is particularly opposed to the proposals in the bill relating to proxy advisers. The letter stated that many CII members and other institutional investors employ proxy advisory firms to obtain cost-effective independent research to help inform their proxy voting and engagement decisions and to execute votes based on funds’ own proxy voting guidelines. However the proposed law would threaten this independence the CII said by requiring, as a matter of federal law, that proxy advisory firms share their research reports and proxy voting recommendations with the companies about whom they are writing before they are shared with the institutional investors who are their paying clients.

“While the stated goal of the proposed legislation is the “protection of investors,” we believe the legislation would bias proxy advisory firms in favour of corporate management,” the letter stated.

The CII has also joined forces with responsible investment advocates to write to the Senate committee about the Economic Growth, Regulatory Relief and Consumer Protection Act which includes a proposal that they believe would change the Securities and Exchange Commission rules and thresholds that govern the inclusion of shareholder resolutions in company proxy statements. In the US the use of such resolutions have become an important method of changing corporate governance practice and putting pressure on companies to revise policies on issues such as climate change.

Additionally, the CII has recently published a report providing guidance for company boards on how they can address sexual harassment, and how investors can address the issue.

Last Updated: 16 March 2018
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