Lobbying Shareholder Proposals Proliferate, Suggesting Trust Gap
This piece originally appeared in The Deal. You can view the original piece here.
Investor measures continue to seek disclosure about political lobbying spending, as shareholders continue to push for transparency and accountability.
By Jean Haggerty
April 12, 2024
U.S. corporations entered April with almost as many political lobbying shareholder proposal submissions as all of last year.
In 2023, shareholders voted on 46 political lobbying-themed investor proposals, while there have already been 42 such measures, including some anti-ESG resolutions, submitted so far in 2024, according to proxy solicitor Georgeson LLC. And there are still a few more months of the proxy season left, for 2024 proposals to catch up, or surpass, last year’s numbers.
In some ways that’s not surprising, given that it’s an election year, explained Georgeson managing director and U.S. head of ESG Kilian Moote. However, incidents last year, including Silicon Valley Bank’s March 2023 collapse and Norfolk Southern Corp.’s (NSC) Feb. 3, 2023, derailment in East Palestine, Ohio, may also be factors, other market participants said. These incidents, particularly SVB’s collapse, can be seen as indicative of shareholder value destruction related to lobbying.
This year, prolific shareholder proposal filer John Chevedden, submitted or co-filed near identical lobbying disclosure-themed shareholder proposals at Bank of New York Mellon Corp. (BK), Goldman Sachs Group Inc. (GS), and embattled railroad company Norfolk Southern.
Chevedden’s lobbying-themed investor measures ask for increased disclosure of federal, state and “grassroots,” or general public, lobbying expenses, policies and procedures. The proposals also ask for details about a target company’s membership in and payments to tax-exempt organizations involved in creating so-called model legislation as well as a description of the management and board’s decision-making processes around lobbying. Special interest groups sometimes draft “model legislation” that they lobby lawmakers to consider.
Lobbying proposals have averaged 32% support in 2023, about the same as in 2022, according to a proxy preview report issued mid-March by ESG groups As You Sow, the Sustainable Investment Institute and Proxy Impact. At an annual meeting Tuesday, Chevedden’s lobbying proposal at BNY Mellon received support from about 31% of voting shares.
Proxy advisers can also help drive votes for lobbying-themed shareholder proposals. Institutional Shareholder Services Inc. and Glass, Lewis & Co. LLC both urged shareholders to vote for the proposal, and they backed a near identical lobbying resolution up for a vote at Goldman Sachs’ April 24 annual meeting. Last year, ISS also backed a similar proposal that called for a report on Goldman’s lobbying payments and policy — it received about 35% support.
In an April 3 ISS report obtained by The Deal, the proxy adviser noted that Goldman produces transparent disclosure of its lobbying oversight and policy priorities, but doesn’t provide sufficient information for shareholders to assess its direct or indirect lobbying payments, including to trade associations. As the bank mentioned that a comprehensive report of its trade association memberships is reviewed by certain members of management and the board’s public responsibilities committee annually, it’s reasonable to believe that preparing the information for disclosure to shareholders wouldn’t be burdensome, the adviser added.
In its April 2 report on BNY Mellon, ISS took a similar stance, noting that additional disclosure of the financial institution’s state level lobbying, indirect lobbying expenditures and board oversight mechanisms would help shareholders better assess risks and benefits associated with its participation in the public policy process.
Likewise, Glass Lewis, in a March 12 BNY Mellon report, said that although the company is relatively aligned with its peers on political contribution disclosures, it lags in respect to lobbying and trade associations disclosures. To make its point, Glass Lewis noted that while State Street Corp. (STT) provides information about all trade associations to which it has paid more than $50,000, BNY Mellon only provides a listing of its “principal trade associations.”
Addressing a Trust Gap
The Lobbying Disclosure Act requires that federal lobbying data must be disclosed. But, according to a Sustainable Investment Institute December report, 98% of S&P 500 companies don’t disclose state-specific lobbying totals to shareholders. The report also noted that, since 2010, investors have filed nearly 600 shareholder resolutions asking companies to provide more information about how they oversee lobbying activities directed at federal, state and local government, and how much they spend.
Generally, filers of lobbying shareholder proposals seem to take the view that if a company believes that an issue is material enough to spend corporate funds on, it is material enough to disclose to investors. Additionally, they contend that if a company is lobbying on a contentious issue that is aligned with its broader strategy, as any lobbying should be, then the lobbying itself highlights a risk in the company’s strategy that shareholders have a right to know about.
For companies, if it comes to light that lobbying spending is not aligned with its vision or strategy or with the risks listed in its regulatory filings, reputational risk can arise.
“In addition to dark money risks, lobbying misalignments remain a concern for investors when company lobbying contradicts company public positions,” wrote John Keenan, corporate governance analyst at AFSCME Capital in a proxy preview report released mid-March. This year’s shareholder proposals highlight lobbying misalignments on issues including climate, workers’ rights, rail safety, drug pricing, corporate taxation, antitrust, public health and voting rights — and banks, manufacturing, pharmaceutical, tech, telecom and utilities have been among the industries receiving proposals this season, he noted.
A handful of lobbying-themed proposals have passed in recent years. Notably, in 2021, the same year that the then ESG activist fund Engine No. 1 surprised the market by installing three dissident directors onto Exxon Mobil Corp.‘s (XOM) board, 55.6% of voting shares supported a lobbying proposal submitted at the oil major. Exxon now produces annual federal and state lobbying reports as well as an annual climate lobbying report.
Corporate lobbying disclosure has also come under scrutiny on Capitol Hill. In a Nov. 15 letter, five Democrats on the Senate Banking Committee urged the Securities and Exchange Commission to use its existing authority to issue rules requiring companies to disclose more details on their corporate lobbying expenditures and strategy to shareholders.
The Wrong Track?
Prior to its collapse, SVB lobbied for legislation, approved in 2018, to increase an asset size threshold that allowed it to potentially escape more stringent regulation. Similarly, Norfolk Southern reportedly lobbied against stricter safety regulations before last year’s derailment disaster in East Palestine, Ohio.
In addition to prompting an evacuation and multiple lawsuits, the railroad operator’s toxic spill near the Ohio-Pennsylvania border attracted the attention of Cleveland-based activist investor Ancora Holdings Group LLC.
The insurgent fund on Feb. 20 launched a change of control director contest and C-suite shakeup campaign aimed at installing eight board nominees and two executives onto Norfolk’s board. In its investor presentation on the proxy contest, Ancora asserted that Norfolk’s board failed to oversee management and operational risks that led to tremendous environmental damage, financial losses and value destruction for shareholders. It added that Norfolk’s insufficient response to the derailment that spilled hazardous materials represented a “microcosm” of the railroad’s “failed strategy, insufficient accountability and lack of oversight of leadership.”
In the decade before the Ohio derailment, Norfolk Southern spent more than $20 million on lobbying in Washington to influence Congress, the White House, and federal agencies, Jon Golinger, democracy advocate at non-profit advocacy group Public Citizen, pointed out in a January report. In the year after the derailment, Norfolk’s federal lobbying spending not only continued, but significantly increased, with the train operator reporting $2.3 million in federal lobbying in 2023, he added.
On Tuesday, Norfolk Southern announced that it reached a $600 million agreement in principle to resolve a consolidated class action lawsuit relating to the East Palestine derailment. If approved by the court, the agreement will resolve all class action claims within a 20-mile radius from the derailment and, for those residents who choose to participate, personal injury claims within a 10-mile radius from the derailment.
As investor support for shareholder proposals is indicative of whether they think a particular risk can impact a company’s value and reputation, this year’s votes on lobbying disclosure proposals may be telling.
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