Investor Group Reacts to Aetna Political Contributions Report, Says Lack of Disclosure Underscores Need for Greater Transparency in Corporate Political and Lobbying Expenditures
DETROIT, Aug. 30, 2012 /PRNewswire/ -- A coalition of public, union, and global institutional investors representing over $922 billion in plan assets today publicly called on Aetna to address the serious risks associated with corporate political spending and lobbying activities following the August 24 publication of the company's 2011 Political Contributions and Related Activity Report. (http://www.aetna.com/about-aetna-insurance/document-library/pac/2011-Aetna-PAC-annual-report.pdf)
The coalition's appeal comes three weeks after the investor group wrote to Aetna's board audit committee urging the company to publicly disclose all direct and indirect political and lobbying payments made by the company, including payments made through trade associations and other tax-exempt organizations. Aetna came under scrutiny earlier this year when millions in contributions the company made to two nonprofit organizations in 2011 were, according to company officials, incorrectly categorized as lobbying expenditures. Both contributions were originally listed as part of the nearly $10.5 million the company reported spending on lobbying in 2011.
"Aetna's effort to characterize millions in political donations it made in 2011 as 'educational' activities is a red flag for shareholders," said New York State Comptroller Thomas P. DiNapoli. "Aetna, and all public companies, must always act in the best interests of its shareholders when spending corporate dollars. Transparency is the best possible way to maximize returns and minimize risk for investors. This episode should serve as a wake-up call that disclosure of political spending is an issue about which shareholders should be deeply concerned."
The company first disclosed the payments, which included $3 million to self-described "action tank" American Action Network and $4 million to the U.S. Chamber of Commerce, in a National Association of Insurance Commissioners (NAIC) filing earlier this year. In response to questions about the payments and amended NAIC filing, Aetna Chairman, Chief Executive Officer and President Mark Bertolini said the contributions were provided to each organization for "educational activities" which the company maintains it is not required to disclose.
Aetna subsequently re-filed the NAIC documentation, omitting the references and allocations related to the American Action Network and the U.S. Chamber.
Aetna's 2011 Political Contributions report references the company's U.S. Chamber contribution in a footnote, stating the $4 million payment was for the business group's "voter education initiatives." The report does not specify the activities that are covered by "voter education initiatives," nor does it discuss whether Aetna incurred additional costs in making the contribution, including any tax liability.
The American Action Network is not listed in the report as recipient of any contribution by Aetna or its political action committee.
"Regardless of whether the expenditures were for lobbying or for educational purposes, we still don't know what the $7 million bought the company or its investors," said UAW Retiree Medical Benefits Trust Chairman Robert Naftaly. "What we're really asking for is more information from our portfolio companies—including Aetna. 'Transparency' is not a four-letter word; rather, it inspires investor confidence and forms the bedrock of our capital markets."
A series of legal and regulatory decisions in the past several years have eased many of the restrictions federal campaign finance laws have historically placed on political activity by U.S. companies. These changes have opened the door to virtually unlimited corporate political spending and lobbying through tax-exempt nonprofit organizations such as trade associations, chambers of commerce, and so-called "social welfare" groups like the American Action Network.
Conversely, campaign finance disclosure laws and regulations have largely remained the same. These outdated rules have created an environment where U.S. companies and other donors can indirectly support political and lobbying activities anonymously by making contributions to these tax-exempt groups. The resulting disclosure gap makes it very difficult for investors to piece together a meaningful representation of how their portfolio companies are allocating company resources to political and lobbying activities based solely on publicly available information.
U.S. public companies like Aetna may be particularly reluctant to disclose "special assessments" and other voluntary payments made to trade associations and chambers of commerce, which can eclipse annual dues many times over in any given year: Aetna's $4 million payment to the U.S. Chamber in 2011 is 40 times greater than the dues the company reports paying to the business group the same year. Similarly, contributions from large donors with deep pockets can provide a sizeable chunk of an outside organization's revenue. Aetna's $3 million contribution to the American Action Network, for example, is equal to roughly 10 percent of the total contributions and grants the organization has received since its inception, as reported to the Internal Revenue Service.
Shareholders are responding to the unprecedented growth in corporate political contributions by demanding more transparency from portfolio companies. They also have begun to focus on lobbying expenditures, which exceed corporate political spending nine to one, as well as payments made through trade associations and similar intermediaries to influence legislation and regulations at the local, state and federal levels. Shareholders filed a record 125 proposals on corporate political activity at U.S. companies during the 2012 proxy season.
"Transparency and comprehensive reporting of political expenditures are quickly becoming important benchmarks of good corporate governance," said Tim Brennan, Treasurer and Chief Financial Officer of the Unitarian Universalist Association.
Investor interest in corporate political spending and lobbying has spread well beyond U.S. borders in recent years. U.S. equities investors from Western European countries, where political spending and lobbying by corporations does not appear to be as widespread, have taken an especially keen interest in the issue.
"Our support for this initiative reflects a growing global convergence of opinion that disclosure and board accountability for corporate political expenditures is fundamental to good corporate governance practices," said Manuel Isaza of Hermes Equity Ownership Services – Americas. "We look forward to working with companies towards enhanced disclosure."
The coalition brings together a broad cross-section of large institutional investors, including public and union-affiliated funds, from the United States, the United Kingdom, and The Netherlands.
Among the signatories of the Aetna letter are: AFL-CIO Office of Investment; The Co-operative Asset Management (UK); F&C Management Ltd. (UK); Hermes Equity Ownership Services (UK); Illinois State Board of Investment; International Brotherhood of Teamsters; Middletown Works Hourly & Salaried Union Retirees Health Care Fund; MN (The Netherlands); New York State Common Retirement Fund; SEIU Pension Plans Master Trust; UAW Retiree Medical Benefits Trust; UFCW Pension Plan for Employees; Unitarian Universalist Association.
SOURCE UAW Retiree Medical Benefits Trust