If large mutual fund companies like Vanguard step up to support political spending disclosure we could see big change.
Co-authored by Sonia Kowal.
In the ongoing battle to roll back the effects of the Supreme Court's 2010 decision in Citizens United (the notorious case that opened the flood gates for corporate spending in elections) major mutual fund companies can and should play a pivotal role.
Americans know that secret money is being funneled into our elections every cycle, and they are not happy about it. In fact, almost two thirds of Americans are dissatisfied with the outsized influence of corporations in this country, and 78% want to see the Supreme Court's decision in Citizens United overturned.
Right now, publicly traded companies can take steps toward restoring democracy by voluntarily revealing the money they spend on political activity. While this is vital for the democratic process in this country, disclosure of political contributions by companies is also valuable for shareholders. Investors have a right to know how companies they invest in are playing in politics, as it could come back to bite them. Some companies (more than half of the S&P 100) have moved to voluntarily increase transparency around their political spending, but many companies prefer to spend in the dark. For years shareholders have been introducing resolutions at major companies asking for transparency in political spending. In fact, this month shareholders showed how much they value transparency by approving political spending disclosure resolutions and Fluor Corporation (61.9%) and NiSource Inc. (50.3%). While these majority votes are meaningful victories for shareholders they are outliers in a trend where political spending disclosure resolutions rarely receive majority votes.
The reason?
Major mutual fund companies own a large percentage of the shares and choose not to support political spending or lobbying disclosure.
For example, Vanguard owns about 5% of almost every company it has holdings in, a position of tremendous individual influence controlling trillions of investor dollars. With such significant ownership stakes, it has a lot of proxy voting power it could use to support political spending and lobbying disclosure. Instead, it chooses to defer to each company's management on this issue, and management generally prefers secrecy over transparency around political expenditures and lobbying influence.
Vanguard claims to act solely in its clients' best interest and to be guided by a simple statement: "Do the right thing." It would seem to back this claim up by signing on to the United Nations Principles for Responsible Investment (PRI). By becoming a signatory, institutional investors are committing to upholding six principles of sustainable investing, including the principle to "support shareholder initiatives and resolutions promoting ESG disclosure." ESG refers to "environmental, social, and corporate governance," and corporate spending in politics clearly falls under this category. Despite making these surface- level commitments, Vanguard does not support the efforts to encourage companies to disclose more information on their political spending and lobbying efforts with its proxy voting power.
Disclosure of political spending information is important to shareholders. Without all the facts shareholders of these publicly traded companies have no way of knowing how secret political spending and lobbying is affecting shareholder value. The wins at Fluor and NiSource prove that shareholders are seeking transparency.
This year, 65,000 current and prospective Vanguard customers have already told the company that they want to know whether their retirement dollars are supporting companies' efforts to influence politics with their spending.
As the largest mutual fund company in the country and an entity responsible for the savings of so many Americans, Vanguard should "do the right thing" and support political spending and lobbying disclosure with its proxy voting practices.
Lauren Compere is the Managing Director & Director of Shareowner Engagement at Boston Common Asset Management and Sonia Kowal is the President & Director of Socially Responsible Investing at Zevin Asset Management.