The groups the left rely on to really make progress with proxies are union pension funds. Groups like Walden and NorthStar keep raising the bar for what they want from companies, but they lack clout. Walden’s senior vice president in September 2011 sent a form letter to corporations laying out his group’s ultimate wish list. It wanted not just the names and amounts of donations, but details of “direct or indirect lobbying,” as well as the “decision making and oversight processes related to direct, indirect and grassroots lobbying activity.” Yet these activist investment firms often hold the minimum number of shares necessary to participate, which makes them easier to ignore.
The unions are a different story. Groups like the California Public Employees’ Retirement System (CalPERS) or the California State Teachers’ Retirement System (CalSTRS) are investment giants, with hundreds of billions of dollars under management. These groups are also usually overseen by liberal state politicians, who are on board with the activists’ strategy and have the pension-fund money and proxy votes to force change.
The politicians who run those huge pension funds began in 2011 by exerting pressure on companies from the investment side. In June 2011, California state treasurer Bill Lockyer and New York City public advocate Bill de Blasio—both die-hard Democrats and both charged with overseeing the investment of pension-fund money—wrote letters to their respective pension funds calling on them to use their heft to demand corporate political spending disclosure. Both CalPERS and CalSTRS quickly moved to formally adopt policies to do just that.
De Blasio went even further, delving back into the Target fray. The pol was a trustee of the New York City Employee Retirement System, which owned shares in Target. The left had already forced Target to cease using money in campaigns via trade associations. Yet the retailer hadn’t been able to shake the assault; activists sought to continue making an example of it. They scored a particular hit in 2011, when pop star Lady Gaga very publicly ended a deal with Target for her newest album due to its “continued political activity.” Target’s share price kept dropping.
De Blasio skipped all the preamble about disclosure and went right to the Media Matters chase. He wanted Target—and all companies—out of politics altogether. And so he asked his $40 billion fund to directly vote against any Target director in the absence of Target’s promise that it voluntarily cease all political donations. No more politics, period. The de Blasio demand came on the eve of Target’s annual meeting, which was being held at a store in Pittsburgh. Common Cause, the United Steelworkers, and a pro-gay-rights group helped organize a rally outside, while activist shareholders mobbed the meeting, to demand more changes. The activists so overwhelmed the event that at one point Steinhafel asked, “Does anybody have a question relating to our business that is unrelated to political giving? I would love to hear any question related to something else.”
The unions also began to pressure support sectors in the financial industry, groups like Institutional Shareholder Services, an influential and otherwise well-respected firm that advises hedge funds and mutual funds on proxy resolutions. ISS usually evaluates proxies on a company-by-company basis. But in 2011, under torturous pressure from unions, it issued a general guideline recommending that shareholders vote in favor of proposals to disclose political activity. Having ISS out on the side of the activists only increased pressure on companies to make concessions.
Danhof’s job is to halt the concessions, to fight the proxies—and to do it by beating the left at their own game. Through FEP, he also buys shares in companies that are under assault, thereby giving him a voice at shareholder meetings. FEP is tiny—it has nowhere near the funds of a Walden—and Danhof admits that sometimes his organization is forced to draw on the individual portfolios of its handful of NCPPR employees in order to meet the share requirement.
FEP then begins to educate. It distributes information designed to inform the board, shareholders, and consumers about the left’s tactics. “We put out a press release, we alert investors. We explain that this has nothing to do with good governance. We explain what it is all about—silencing free speech. We’re trying to change the narrative,” he says.
Every spring proxy season, Danhof is on airplanes crisscrossing the country to show up at annual meetings in person. At them, he tries to encourage corporate boards and shareholders to ignore the disclosure proxies and think about what does matter—public debate, good economic policy, a return on investment.
He takes special care trying to get through to the corporate executives. “Inside the FEP, we call it the Backbone Project. We’re trying to get them to man up. You kind of feel for them. The left is always coming, saying that if you keep doing what you are doing, we’ll be running ads against your board members. It nerves them out.” Danhof remembers one moment a few years ago when he got a phone call from an executive of a major company. Danhof had planned the next week to go to that company’s annual meeting and applaud the leadership for sticking to its political guns. The executive thanked him, but also begged Danhof to stay away, stay quiet. “He basically said, ‘Please. We don’t need the attention,’” and that if the firm received any more focus, it might have to cave.
Danhof feels for them, but only to a point. The free market is under assault. Organizations like his have worked tirelessly to uphold the constitutional right of these corporations to speak. To not do so is civic and business malpractice.
And a lack of corporate backbone isn’t the only problem. Some companies perform a very simple, if cynical, cost-benefit analysis. Target will never know what benefits might have accrued to it had Emmer been elected governor (he lost). But it was able to look at its pummeled stock price and see very clearly the up-front cost of its donation. Companies also build into that cost-benefit analysis groups like Danhof’s, or the chamber, or other free-market advocates. “They know that we won’t stop, that we’ll keep fighting for a free market, keep fighting on their behalf. And if they don’t even have to put any money into us doing it, why take that risk? That’s the tricky part. It’s where our fight gets particularly hard,” he says.
FEP might be a lonely voice, but it’s been an effective one. For all the drama, the left’s proxy strategy has broadly been a flop. Big institutional investors have generally continued to support an investment in smart policy and economic growth, as well as speech. While corporate management tends to get freaked out by activist campaigns, shareholders are a step removed, and a bit steadier.
Every one of the shareholder proposals on political disclosure in 2011 failed. The left ramped up its efforts in 2012. Among the 150 Fortune 200 companies that had held their annual meetings by the end of May, 21 percent of shareholder proposals were related to political disclosure or lobbying—the largest proxy category. That number of proposals was up 50 percent from the prior year. Yet again, the effort failed. The average proposal received about 20 percent of the vote, down from 22 percent the year before. Not a single resolution passed.
While liberal activists would undoubtedly like to win some of these proxy fights, they are also sanguine about losing them. They know that, at the very least, they have managed to harass companies, eat up executive time, worry corporate boards, and send a chilling message of what may come. And they know the real fight doesn’t happen in public. It happens in back rooms. The left is sophisticated about corporate pressure. The proxy fights are in aid of building up what can only be described as a behind-the-scenes protection racket.
* * *
At the epicenter of this is a 501(c)(3) charity (also never targeted by the IRS) called the Center for Political Accountability. CPA was founded in 2003 and these days is run by Bruce Freed, a former Democratic staffer. Freed sits back and lets the activist thugs rough up companies, mob their meetings, threaten boycotts. Then the man in the suit, representing an organization with an anodyne name, slips in to make the deal. Freed explains to CEOs that it really is good “corporate governance” to disclose political spending. He shows them a little li
st—called the Zicklin Index—that CPA maintains with the Wharton School of Business. That index benchmarks the best “political disclosure” and “accountability” practices of big U.S. companies.
He points out the names of other big firms that have “voluntarily” decided to adopt “best practices.” He points out how lovely and pleasant life is for these corporate “leaders.” No raucous shareholder meetings. No protests. No ugly ads. No boycotts. Freed smiles his smile and encourages them to get on board. Because, well…if they don’t, there’s just no telling what his friends at Common Cause, and the unions, and As You Sow, and MoveOn.org, and Media Matters will do in response.
Tony Soprano couldn’t do it better, and Freed gets results. While most of the news media spent its ink on the proxy fight battles raging in 2011, the far more interesting fact was this: Going into that proxy fight year, fifty-seven of the S&P 500 companies had already chosen to forgo political spending or to disclose their political spending on their websites. They’d already been gotten to.
That number has grown. The CPA’s 2015 report on its Zicklin Index proudly announced that 124 of the S&P 500 companies, or 25 percent, these days place some form of restriction on their political giving—including restrictions on issue ads, on contributions to candidates and parties, on money for 527 groups, nonprofits, and trade associations, and on support for ballot initiatives. It also bragged that “most” companies now have policies addressing political spending, and that more than half maintain a dedicated web page addressing the topic. A lot of this is Freed’s doing.
The Zicklin Index is Freed’s favorite tool. He gives his spiel to a company and gets them to voluntarily give up their speech rights. He then flags them on the index and uses it to gull yet more companies into following suit. Everybody is doing it, says Freed, and if you don’t, you risk looking like a corporate-governance Neanderthal. “Once again, the CPA-Zicklin Index demonstrates a growing trend among major American companies to disclose their political-giving activities,” bragged the most recent report.
In 2013 the Weekly Standard’s Michael Warren wrote a piece featuring a letter sent to Ronald Robins Jr., a senior vice president at Abercrombie & Fitch. The Ohio-based clothing retailer barely spends a dime on politics. Warren wrote, “Nevertheless, the letter informed Robins that companies like his ‘face increasing pressure’ to support political groups and candidates that ‘threaten corporate reputation, bottom line and shareholder value.’ This ‘secret political spending,’ the letter continued, ‘threatens not only the health of our democracy but also the reputation and integrity of companies.’ Half the companies on the S&P 100 stock market index, the letter said, have ‘recognized the dangers’ and have ‘demonstrated leadership by disclosing the details of and implementing board oversight of their spending. The signers added that they ‘hope’ Abercrombie will follow the lead of these exemplary companies.” The letter was signed by Freed.
What Freed presumably doesn’t admit is that the process is rigged. The index has Wharton’s backing. But both Freed and his group’s general counsel, Karl Sandstrom, have enormous influence over the process. They both sit on the advisory board of the Zicklin Center and help craft the index. The index alters its scoring procedures from year to year, and companies that scored high drop lower—which gives the impression that everybody ought to be providing yet more disclosure.
Nor does Freed admit that his organization is a left-wing shop masquerading as a good-governance, nonpartisan watchdog. CPA, like everything, has lived off Soros money. Freed came out of Democratic politics. Sandstrom once served as general counsel for the Democratic National Committee. CPA’s chief financial officer, Michael Novelli, was an Obama campaign director in Maryland in 2008. Peter Hardin, one of CPA’s writers and editors, also works at the Soros-funded Justice at Stake.
Companies that don’t take Freed’s advice are left to the tender mercies of his friends. In 2011, Trillium, another “social” investment fund, put particular emphasis on a disclosure proxy it had filed with the Boston financial firm State Street. The proxy ended up getting a surprising 44 percent of the vote, and State Street lost its nerve. Trillium and As You Sow later bragged that the activists had graciously withdrawn their proposal after the firm agreed to prohibit its trade associations from using company dues for political purposes and to reveal any giving to 527s and nonprofits.
Proxy season 2013 brought yet new record numbers of shareholder disclosure proposals, many of them filed by unions like the American Federation of State, County and Municipal Employees. Among the arguments activists make for these is that shareholders ought to know—and have some say—in whether and how a company spends on politics. It’s a demand the unions have never imposed on themselves. AFSCME is estimated to have spent $50 million in 2012. Its thousands of union members had no voice in this decision, and no input over how the money was spent.
Proxy season 2013 also brought a new, far more disturbing tactic. Liberals have lots of friends, and many of them in high places. Among the most powerful are Democrats with the power to sue—state attorneys general or state comptrollers, for instance. One such person is Tom DiNapoli, a Long Island Democrat who became New York state comptroller in 2007—a position that makes him a trustee of the New York state pension fund. In early 2013, DiNapoli filed suit against telecommunications company Qualcomm, demanding to view its private records of political donations.
Qualcomm’s founder, Irwin Jacobs, and other Qualcomm leadership were big-time Democratic donors. In 2012 alone, Jacobs poured some $2.3 million into Democratic super PACS, including one to reelect Obama. And he was transparent about it. But DiNapoli wanted proof that the company wasn’t fraternizing with the political enemy on the sly, giving money to trade associations or conservative nonprofits. He claimed that as the sole trustee to the pension fund, which was a big investor in Qualcomm, he had a right to see any donations, since they might pose “financial risk” for shareholders.
The suit relied on a Delaware “books and records” law that gives shareholders some rights to inspect corporate documents, but that is usually used to prove mismanagement. The New York Times crowed that it was a “novel and potentially significant tactic in the running battle over corporate political spending in the post–Citizens United era.” As if offering proof for why this suit was necessary, the Times noted that Qualcomm scored “relatively” low on the CPA-Zicklin Index, which the newspaper innocently described as a product of a “nonprofit watchdog organization.”
Up to now, corporations faced risk from angry liberals, or consumers, or maybe shareholders. DiNapoli made clear that they also risked legal jeopardy from the state. DiNapoli unleashed the most powerful tool of government—prosecution—on Qualcomm, with all its prospects of legal costs and adverse consequences.
Qualcomm did a State Street. It folded. DiNapoli a month later “was pleased to announce” that he had “decided to withdraw the lawsuit” following Qualcomm’s decision to “implement a revised political spending disclosure policy,” in which the company would now make public all contributions to political candidates, parties, trade associations, nonprofits, and ballot measures.
Qualcomm’s crumble was especially unfortunate given the DiNapoli argument that disclosure mitigates corporate risk. That has it backward. “All it does is increase it,” says Danhof. “Now the details are out, and the left has a game plan for attack. And by virtue of the fact a company gave in, the left also knows that it is susceptible to pressure. So disclosure is an invitation for them to come back again and again.”
The stats prove it. And they come courtesy of that very same CPA-Zicklin Index. A 2014 analysis by the Center for Competitive Politics (Brad Smith’s organization) found that about 36 percent of companies whose disclosure “scores” ranked in the top quarter of the 2013 CPA-Zicklin Index received activist proxies. By contrast, only about 23 percent of companies ranked in the lowest quarter of the index received activist proxies. The better a score on the index, the more lik
ely a company was to get hit again. That pattern holds, year after year. These companies aren’t “rewarded” for their “best practices”; they are teed up for further abuse.
Conversely, there is zero proof that voluntarily adopting a disclosure provision helps a company in any material way. Research in 2011 by Roger Coffin, the associate director of the Weinberg Center for Corporate Governance, looked at companies that had voluntarily signed an “anti–Citizens United pledge” in the aftermath of the 2010 Court decision. They did not see a material increase in their firm’s value. They did, however, lose their ability to take part in public debates that might grow their business and share prices in the long run. When government of one kind or another controls 40 percent of the private economy, any business that doesn’t participate directly or indirectly is begging for financial and economic harm.
After I wrote a column about Freed and his racket in 2012, the Wall Street Journal received a surprising letter, which we published. It came from John C. Richardson, who was a cofounder of CPA, and had led the group until 2007, when he left in disgust. “While I reluctantly concur with Ms. Strassel’s depiction of the corporate shakedown that the CPA has essentially become, I am less bothered by its venality than by its irrelevance,” Richardson wrote. The real problem out there, he said, was corporate corruption that was “dressed up as free speech.” He cited the example of corporations that transfer huge sums of money to politicians who regulate them. “I fought to keep the CPA focused on its core objective but left in 2007 when it had become clear that substantive solutions took a back seat to showboating.…My former colleagues at the CPA have sadly chosen to pick the low-hanging fruit of corporate shakedowns, wrapped in the dogma of good governance,” he wrote. Richardson is a rare soul these days: a man who believes that disclosure is supposed to provide some public good, not provide a means by which to silence debate.
The Intimidation Game Page 25
