Views on improving the integrity of global capital markets
23 May 2012

What’s the Shareowner Return on Political Spending? Not Good. In Fact, It’s Terrible.

We’ve seen an active U.S. proxy season the last few years, with Majority Voting and “Say-on-Pay” votes spoiling the party for a select few corporations on the unhappy side of shareowner votes. This has occasionally resulted in defenestrated directors or embarrassing “no” votes on executive compensation that invariably lead to negotiations with shareowners to rework pay plans.

Maybe it’s just because this is an election year, but you can add this to the list of hot proxy topics: disclosure of political spending and lobbying. In 2011, the average support for political contribution proposals was 32.5 percent (see the ISS 2011 U.S. post-season report), up from 30.4 percent for similar proposals in 2010, the last major U.S. election year. As we are still in the middle of proxy season, the statistics aren’t out yet for 2012, but we expect the number of proposals and support for them to continue on this upward trajectory.

Shareowners may be asking for such disclosure because they understandably want to know how their money is being spent. Or perhaps their intuition is telling them that political spending is not a great investment. They would be right — a recent study reveals that investing in political spending is indeed a horrible investment. Unless, maybe, you are a CEO looking for a political favor down the road.

The paper, Corporate Political Contributions: Investment or Agency?, reviews corporate donations to political candidates for federal offices in the United States from 1991 to 2004. Among its findings:

  • Firms that donate have operating characteristics consistent with the existence of a free cash flow problem.
  • Donations are negatively correlated with returns. A $10,000 increase in donations is associated with a reduction in annual excess returns of 7.4 basis points. (By extension, a $1 million donation would be expected, on average, to decrease annual returns by approximately 7.4 percent).
  • Worse corporate governance is associated with larger donations.
  • Even after controlling for corporate governance, donations are associated with lower returns.
  • Political donations are symptomatic of agency problems within firms (individuals in firms use corporate money to support personal causes or candidates).

Not exactly a ringing endorsement for corporate money in the political process. An earlier paper by Harvard’s John Coates hinted at a more nefarious motivation behind some political spending. The study found that 11 percent of CEOs took political posts after retirement, suggesting political spending could have “partly been influenced by personal ambitions.”

A groundswell of investor support for the Securities and Exchange Commission to weigh in on the issue is growing. Recently, a record 178,000+ comments were submitted as part of a rulemaking petition presented to the SEC calling for more disclosure of corporate political spending and lobbying. The petition was submitted by the Committee on Disclosure of Corporate Political Spending, a group of 10 law professors that has asked the Commission to develop rules requiring public companies to disclose to shareholders the use of corporate resources for political activities.

Shareowner political spending and/or lobbying resolutions (the resolutions are often presented hand in hand, so we include both for comparison) were voted down recently at CVS Caremark, AT&T, Boeing, IBM, PepsiCo, 3M, and Bank of America.


Percent Support


(from votes cast)

CVS Caremark






IBM (lobbying)


IBM (political contributions)


PepsiCo (lobbying)


3M (lobbying)


3M (political spending)


Bank of America (lobbying)


Bank of America (political spending)



Stay tuned for a more detailed breakdown of the issue in the summer, after the end of proxy season.


About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a senior director of capital markets policy at CFA Institute, where he focuses on corporate governance, ESG, and climate change analysis. He writes and speaks frequently on these topics on behalf of CFA Institute. His paper, Climate Change Analysis in the Investment Process was named “Best ESG Paper” by Savvy Investor in 2021.

2 thoughts on “What’s the Shareowner Return on Political Spending? Not Good. In Fact, It’s Terrible.”

  1. Nice blog Matt

    I just read this from Steven Strauss which he acknowledges is largely drawn from Lawrence Lessig’s new book

    Does it contradict this study – ie that there are short-term benefits?

    The good thing is that it really reinforces the long-term costs especially to diversified asset owners.

    Whatever the answer to my question – and we may not know for some time – its clear there is a very strong reason for empirically minded analysts to be formally assessing this aspect of corporate governance performance. Would you agree?

    Best wishes


  2. Matt Orsagh says:

    There may be short-term benefits, but do those necessarily go to shareowners or management. The Coates paper notes that sometimes donations favor the later. Thank you for the link – I had not seen that. I was struck by the following passage: “To our nation’s detriment, large corporations may consequently decide that investments in lobbying and campaign contributions (i.e., investments for preferential treatment at the expense of the rest of society) — are safer and more lucrative than producing innovative goods and services.”

    For the long-term shareowners and our society – investing in producing better products and services over political spending – will likely have a higher long-term return.

    At the very least all political spending should be transparent. If the argument is that political spending is benign – then why does so much of it lurk in the shadows?

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