Two years ago, the US Supreme Court issued its infamous Citizens United ruling that permits US companies to decide how to spend corporate funds to influence elections at the federal level. The landmark decision has since ushered in what some call a new era of secret political spending. Given that the money comes from the corporate till, shareholders may want to know the extent to which this spending is disclosed.
And so, an index finds that many of the top 200 companies in the S&P 500 Index expanded the scope of disclosure. In fact, Merck (MRK) ranked at the top for the second consecutive year. The drugmaker set an example by voluntarily disclosing its policy priorities for lobbying in and outside the US, as well as grants given to organizations that represent elected officials to support public policy advocacy, according to a report from the Center for Political Accountability.
The index was developed by the CPA, a non-profit that was formed to address the secrecy surrounding political spending by companies, in conjunction with the Zicklin Center for Business Ethics at the Wharton School of the University of Pennsylvania. The idea is to pull back the curtain on spending so that shareholders can better determine how these actions affect the value of their stocks.
"Shareholders need to know how their money is used to influence elections so they can assess possible risks and hold a company accountable," the report states. "By channeling contributions through conduits, companies can leave shareholders unaware of political activity." The non profit also notes that many companies are unaware of how their trade associations, or other tax-exempt groups to which they contribute, use their funds for political purposes.
Overall, almost 60 percent of companies in the top echelon of the S&P 500 are now disclosing some political spending information, according to CPA. Of 196 companies, 93 - or 47 percent - made some disclosure of direct political spending, which included donations to candidates, parties or groups. And 22 companies, or 11 percent, reported their policy is not to participate in such political spending.
And two out of five companies in the top echelons of the S&P 500 are opening up about their payments to trade groups. Seventy of the 196 companies, or 36 percent, made some disclosure of payments, while 5 percent say they asked trade groups not to use their payments for political purposes, CPA writes. This latest index, by the way, gauges disclosure in the first full election cycle since the Citizens United ruling.
A biotech that rated highly was Gilead Sciences, which ranked fourth in the index. CPA found that Gilead discloses all of its direct political expenditures on a semi-annual basis, makes full disclosure of its trade association spending, and has extensive management and board oversight for accountability, according to the report. For the record, Gilead ranked 92 out of 100; Merck had a ranking of 97.
Both Pfizer (PFE) and Johnson & Johnson (JNJ) notched a 76, placing them among the 20 highest rated companies in the index. But not every drugmaker or biotech fared so well. Celgene (CELG), for instance, earned the proverbial big fat 0. And of the large drugmakers, Eli Lilly (LLY) did the poorest with a 37 ranking. You can read the full report here; please scroll down to page 30 to see how the results for specific companies.
To generate these rankings, CPA examines various policies and activities, such as whether companies provided a full political spending policy on their websites; political expenditures, in general; explained decision-making criteria for political spending, including public policy priorities; disclosed expenditures on ballot initiatives, and the extent to which there is oversight by the board of directors.