Activists concerned about corporate spending on lobbying have filed a record number of shareholder proposals to force disclosures at public companies, including Devon Energy Corp. and Chesapeake Energy Corp.
Both Oklahoma City energy companies tried to keep the lobbying disclosure proposals off their annual proxy statements to shareholders, but the Securities and Exchange Commission said they had to include the measures.
In separate letters to the SEC, the companies argued the proposals were either too vague or had the effect of micromanaging the company.
The proposals ask Chesapeake and Devon to disclose the amounts they spend on lobbying legislators and regulators, including amounts spent on trade associations and membership in tax-exempt policy organizations that write model legislation. They also ask for disclosures on how the companies use “grassroots lobbying communications” at the local, state and federal level.
Walden Asset Management and several other investors sponsored the proposal at Devon, while the Service Employees International Union and the Unitarian Universalist Association of Congregations are behind the proposal at Chesapeake. Those groups have filed similar proxy proposals at other companies.
The proposals are part of a broader effort to enhance corporate political disclosures in the wake of the 2010 U.S. Supreme Court ruling in Citizens United, said Jill Fisch, a law professor at the University of Pennsylvania who specializes in corporate governance and proxy issues. The ruling allowed corporations and unions to spend unlimited amounts of money on campaign issues as long as they didn’t coordinate the efforts with candidates.
“This is obviously a hot issue for shareholders this year,” Fisch said. “It’s definitely coming out of the Citizens United decision. It’s been targeted by some of the shareholder groups as a way of responding and filling the gaps.”
A recent report by proxy consultants Institutional Shareholder Services said shareholder proposals involving corporate political activity were the largest category for the first time this year, surpassing activist proposals over environmental matters.
Timothy Smith, senior vice president of Boston-based Walden Asset Management, said Devon was among 40 companies his firm talked to this year on the political spending and lobbying issue. His firm manages about $2 billion in assets for individual and institutional clients.
“Devon should understand that, as a major energy company, it’s going to be scrutinized,” Smith said. “Especially if they are making contributions or lobbying on controversial issues, like trying to handcuff the EPA from taking stands on the environment. Shareholders have a right to know that. We think their legal actions and the company’s response are basically a defense of secrecy.”
Devon, Chesapeake urge rejection
Both Devon and Chesapeake advised shareholders to reject the proposals. Devon’s shareholders will vote on the measure by June 6; Chesapeake’s annual meeting is June 8.
Devon said its total lobbying costs are less than one-hundredth of a percentage point of its total assets. With $41 billion in assets, that amounts to about $4 million a year.
“The board of directors believes that the currently available information with respect to lobbying activities strikes the appropriate balance between transparency and excessive burden and cost,” Devon said in its proxy. “The proposal’s requirements would tip this balance, resulting in the waste of valuable time and corporate resources tracking immaterial activity without materially altering the publicly available disclosure that currently exists.”
Data from the Center for Responsive Politics shows Devon spent about $950,000 on federal lobbying last year and $1.3 million in 2010. Chesapeake spent about $2 million in 2011 and $2.7 million in 2010. Those figures don’t include lobbying expenditures at the state and local levels.
Vonda Brunsting, with the capital stewardship program at the SEIU pension fund, said the proposal at Chesapeake grew out of previous proxy proposals that she said were ignored by the board. Chesapeake shareholders voted in 2008 and 2009 to put the entire board of directors up for election each year. The proposals were nonbinding, but Chesapeake decided to lobby for passage of an Oklahoma law that would make directors continue to serve staggered terms.
“That was really an egregious case of shareholders’ rights being weakened,” Brunsting said. “As shareholders, we can’t evaluate business risk to a company unless we know what their expenditures are, and they’re not required to disclose all that information. I think a lot of people are going to be watching the shareholder meeting, and a lot of investors are going to be looking at all the issues on the ballot with increased scrutiny.”
Chesapeake said it already discloses political contributions with the applicable state and federal authorities. But the company said disclosing additional lobbying and trade association expenditures could limit its participation in the political process and have a “chilling effect” on corporate political speech.
“Our industry is heavily regulated and taxed at the federal, state and local levels,” Chesapeake said in its proxy. “The company must participate in the political process in order to effectively advocate for and against regulatory and tax policies that impact our ability to conduct our business. Our participation is exceedingly important because of the special knowledge and experience we bring to the process.”
Other Oklahoma companies disclose
Tulsa-based Williams Cos. already publishes a list of spending on political campaigns and lobbying, including dues to trade associations. So does American Electric Power, the Ohio-based parent company of electric utility Public Service Co. of Oklahoma.
Williams has disclosed corporate lobbying expenditures since 2009, when a shareholder group made the request, said spokeswoman Julie Gentz.
“They had asked for a number of disclosures and we were happy to talk with them about it,” Gentz said. “Some we were already doing and others we agreed to do, so we negotiated a solution and they withdrew the proposal.”
According to its 2011 disclosure report, Williams spent $1.1 million in dues to trade associations, and made a further $114,000 in contributions to political groups and candidates. Williams spent more on federal lobbying — an average of almost $4 million a year since 2008 — according to the Center for Responsive Politics.
AEP, which has electricity customers in 11 states, reported more than $11 million on internal and external lobbying at the state and federal levels in 2011. That figure includes almost $93,000 to Oklahoma-based associations such as The State Chamber and the Tulsa Metro Chamber.
Melissa McHenry, an AEP spokeswoman in Columbus, Ohio, said the company has disclosed lobbying and political expenditures since 2007. A group of AEP shareholders requested the policy and the company agreed, so it never became a proposal that was voted on through the proxy process.
Fisch said she prefers to see such disclosures decided on a company-by-company basis rather than a blanket law or regulatory rule. “In some companies, a high level of political involvement makes sense and in some other companies maybe it’s a waste of shareholder funds,” she said.
Because it’s the first time on Devon’s proxy, Smith of Walden Asset Management said he doesn’t expect to the lobbying expenditure proposal to win passage. Walden and others may try again next year, he said.
“Our goal is to engage this company and others in a serious discussion about the issue,” Smith said. “We’re trying to be persuasive. For us, a positive outcome isn’t necessarily getting a vote; it would be an agreement with the company and withdrawing the resolution.”