Political Spending Proposal Defeated at Home Depot
by James Hyatt
Shareholders of Home Depot Inc. rejected a closely watched shareholder proposal seeking to expand the amount of information investors may seek about corporate political spending.
Fred Blake, Home Depot chairman and CEO, reported the results at the company's annual meeting, based on preliminary figures, but didn't announce any numbers; final figures will be filed next week, he said. (6/9/2011: See this update for final vote results.)
Although the measure was defeated, it is considered to be a template for similar proposals at other corporate annual meetings.
The proposal by NorthStar Asset Management, a Boston money manager, requested that the company annually report on its political policies and contributions, disclose future anticipated spending, and provide an analysis of how such spending matches company values or policy. It asked Home Depot to give shareholders an advisory vote on those policies and plans, although the vote would be non-binding.
Julie Goodridge, NorthStar CEO, told the Home Depot annual meeting that the resolution was "an opportunity to cast an historic vote" for shareholder democracy.
NorthStar's proxy material said the proposal was needed to minimize “risk to the firm’s reputation and brand through possible future missteps in corporate electioneering.” It noted that Target Corporation last year was threatened with boycotts and received negative publicity after donating $150,000 to a Minnesota political group that backed a Republican candidate for governor who opposed same-sex marriage. Target, which said it made the contribution to support economic growth and job creation, apologized and revised its policies for approving political contributions.
Sanford Lewis, a Massachusetts attorney who represented NorthStar, told the Securities and Exchange Commission that while Home Depot has a “clear and firm non-discrimination policy,” political contributions by the Company or its PAC have gone to candidates who oppose same-sex marriage or various policies protecting gay individuals.
The SEC’s division of corporation finance in March rejected Home Depot’ s effort to exclude the proposal; the company said the proposal was vague and indefinite, sought seeks to micromanage the company, and declared the company has substantially implemented the proposal – all arguments companies often make in
justifying exclusion of shareholder proposals.
Asked about the significance of the SEC ruling, Mr. Lewis said “Although disclosure proposals are routinely filed and found nonexcludable, to our knowledge this was the first time the SEC ruled directly on a proposal providing an annual shareholder advisory vote on electioneering spending…This first time decision has cleared the way for further efforts, building upon the model established by the Home Depot proposal.”
The website CampaignMoney.com, which tallies records filed with the Federal Election Commission, says that in 2010 the Home Depot PAC raised $2.2 million and distributed $1.99 million. Political action committees raise money from individual contributions.
Shareholders have voted on political disclosure resolutions at 28 companies this year, according to Bruce Freed, president of the Center for Political Accountability, receiving an average of more than 30% support.
In May, New York City Comptroller John C. Liu claimed a victory on the issue when 53% of the votes cast at the Sprint Nextel annual meeting endorsed the NYC Pension Funds’ proposal that the company report its policies and procedures for political contributions and identify the people who make the decisions. (However, the company – which counts abstentions as “no” votes – says the resolution lost by 59% against and 41% in favor.)
The Home Depot proposal was crafted as part of the national response to the 2010 Supreme Court Citizens United decision finding that limits on independent corporate and union political spending violate free speech provisions of the Constitution.
The decision involved spending by corporations on advocacy campaigns; corporate contributions to federal candidates is still illegal, although a federal judge in late May in Virginia threw out an indictment against two people charged with illegally reimbursing donors to Hillary Clinton campaigns, citing Citizens United as his reason. Judge James Cacheris seems to be having second thoughts, however; he has asked the parties to submit additional briefs on whether he should reconsider his ruling, the Associated Press reported.
Democrats in Congress last year tried to lessen the impact of the Citizens United ruling via the DISCLOSE Act – Democracy is Strengthened by Casting Light on Spending in Elections Act -- which would require that donors to political campaigns and political advertising be identified. It passed the House, which at the time had a Democratic majority, but failed in the Senate. Some politicians have proposed a Constitutional amendment to reverse the decision.
Earlier this year, President Obama proposed an executive order requiring that federal contractors disclose their political contributions, a move Republican leaders said would intimidate contractors.
Political observers, meanwhile, expect the Citizens United case to result in an unprecedented flood of political spending between now and the 2012 elections – much of its done invisibly through aggregated contribution sites or through trade associations.
GOP strategist Karl Rove has set up a pair of fund-raising entities, American Crossroads and Crossroads Grassroots Political Strategies; Crossroads GPS will accept contributions while keeping donor identifies secret. Federal filings record more than $15 million of spending by Crossroads GPS last year. In response, Democrats are organizing similar groups called Priorities USA and Priorities USA Action
John C. Bogle, founder of the Vanguard Group of mutual funds, widened the debate in a May 14 New York Times column, declaring: “Shareholders – not self-interested corporate managers – should, and can, decide policies on corporate political contributions.” In view of the Citizens United case, he said, “the institutional investor community has an obligation to act,” and urged that that corporations have shareholders vote on a resolution that “the corporation shall make no political contributions without the approval of the holders of at least 75 percent of its shares outstanding.”
He said the Home Depot and other votes “this proxy season will be a powerful indication of whether our money managers are observing their fiduciary duty and putting the interest of the small investors and pension funds that are their clients before their own.”
Photo by Ildar Sagdeje via Wikimedia