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November 06, 2012
A Different Take on CSR Disclosure and Political Spending
by Robert Kropp
A report from two University of California professors determines that political contributions by
corporate managers, when viewed through the lens of corporate social responsibility disclosures,
can lead to excess stock returns, especially in states that vote Democratic.
The most expensive Presidential election campaign in American history ends today, when voters will
choose one of two starkly opposed paths forward for the next four years. A leading factor
contributing to the expense, of course, was the US Supreme Court's controversial Citizens United
decision in early 2010, which established the concept of corporate personhood and opened the
floodgates for the political spending that occurred this year.
What has been
decried as the abandonment of judicial restraint by the Roberts court is one of the most critical
issues of today's election. Four of the sitting Supreme Court judges are over the age of 70, and
there is a distinct likelihood that the winner will reshape the Court for a generation to come.
Led by the Center for
Political Accountability (CPA), sustainable investors, galvanized by Citizens United, have
engaged with many corporations in an effort to have them disclose their political contributions. By
March of this year, CPA reports, 100 large corporations have adopted the governance standards of
political disclosure and board oversight of political spending.
A recent report from two
University of California professors may be an outlier in the landscape of corporate political
spending, but its points make for interesting reading. Entitled Strange Bedfellows? - Voluntary
CSR Disclosure and Politics, the report seeks to determine if an association can be established
between a company's intensity of corporate social responsibility (CSR) disclosure and the
individual political contributions of corporate managers.
Using press releases published
on CSRwire, the authors determine that such an
association can indeed be established, especially "when Democratic individuals who work at
companies in states where the voting favors the Democratic presidential candidate make the
Furthermore, the authors continue, "Tests show a positive and significant
association between corporate political contributions and excess stock returns." Investing in
companies with high CSR disclosure intensity and political contributions by corporate managers
produces an excess stock return of 4.5% over the three-month period following disclosure.
"These results challenge the widely-held belief that money does not seem to curry favor with
politicians," the report states.
"Corporate individuals' political contributions have a
distinct impact on company shareholder value when viewed through the lens of the intensity of
companies' voluntary CSR disclosures," especially in states which voted for the Democratic
candidate in previous elections, the authors conclude.
Their study confirms the position
that investors treat CSR disclosure as an important contributing factor in their investment
strategies, the authors assert.
Much recent literature on the subject of corporate
political spending comes to the opposite conclusion about its effectiveness, however. A study published earlier this year, for example, found that corporate "donations are
negatively correlated with future excess returns."
"Political donations are symptomatic of
agency problems within firms," according to the report, whose authors concluded that better
corporate governance is associated with reduced political spending.
And Bruce Freed,
President of CPA, wrote to SocialFunds.com in an email, "Political spending poses a range of risks
to companies – reputation, legal and business – and the spike in secret political spending can
distort markets and outcomes."
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