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Is funding politics bad for stocks?

By Sheyna Steiner ·
Tuesday, May 28, 2013
Posted: 5 pm ET

The annual shareholder meeting for Chevron is Wednesday. Last year was a banner year for political spending by the oil company: It wrote checks for $2.5 million during the 2012 federal elections.

This year, Green Century Capital Management filed a shareholder resolution asking the company to refrain from any political spending.

"There is no proof that political spending increases the value for shareholders. And Chevron's record-setting contribution calls into question the value that this holds for shareholders," says Leslie Samuelrich, senior vice president of Green Century Capital Management.

"After we filed the shareholder resolution, we spoke with executives and asked how they evaluated the expenditure of the treasury funds. They were either not able or willing to offer an analysis and sufficient rationale. That's why we have gone forward to put this on as a resolution for shareholders to evaluate," she says.

In the post-Citizens United world, corporate spending on elections is par for the course. Citizens United is the 2010 Supreme Court ruling that found that political spending by corporations is protected speech under the First Amendment.

That decision helped in the creation of a new breed of political action committees: super PACs. They are organizations that exist independently of federal political campaigns and can take unlimited donations and make unlimited political expenditures.

As a result, the sky is the limit when it comes to corporate political spending. How does that work out for shareholders? Do political contributions pay off in the end? Not necessarily.

A 2012 story in The New York Times, "Get what you pay for? Not always," examined the studies on corporate political spending and found that shareholders can be harmed by political spending. Attempting to purchase a favorable political environment may not be the best allocation of capital and can indicate poor governance in general.

From the Times:

A study published last summer by scholars at Rice University and Long Island University looked at nearly 1,000 firms in the Standard & Poor’s 1,500-stock composite index between 1998 and 2008 and found that most companies that spent on politics -- including lobbying and campaign donations -- had lower stock market returns.

Another study published this year by economists at the University of Minnesota and the University of Kansas found that companies that contributed to political action committees and other outside political groups between 1991 and 2004 grew more slowly than other firms. These companies invested less and spent less on research and development.

It's important to note that as of now, there's no requirement that corporations disclose political contributions made to intermediaries such as trade associations or contributions to social welfare groups. For instance, donations to the Chamber of Commerce do not need to be disclosed, nor do donations to groups such as Crossroads GPS. PACs do have to disclose their donors, however.

There's still a lot of discontent about corporate political spending and not just at Chevron.

The number of shareholder resolutions requesting disclosure of political spending has more than doubled since 2010 – from 61 to 128 this year, the Washington Post and the Sustainable Investments Institute report.

In late April, the Shareholder Protection Act was reintroduced in Congress, sponsored by Rep. Mike Capuano, D-Mass., and Sen. Robert Menendez, D-N.J. If passed, the bill would require that corporate management hold a shareholder vote to authorize political budgets before spending general treasury funds and require a board of directors vote to authorize each expenditure of more than $50,000. Finally, it would require disclosure of corporate political spending to shareholders, the Securities and Exchange Commission, and the public on a quarterly basis.

Separately, the SEC is reportedly mulling over a request to require publicly held companies to disclose political spending.

As an investor, do you think companies should disclose political spending? Why or why not?

Follow me on Twitter: @SheynaSteiner.

Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.

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