In a widely-watched development, the Securities and Exchange Commission’s legal staff recently issued a “no-action letter” to Home Depot. The likely result is that Home Depot’s shareholders will have an opportunity to vote on a proposal authored by self-described “socially responsible” investment house NorthStar Asset Management.
According to NorthStar’s attorney, the proposal has “at its core the notion of shareholder approval of electioneering contributions.” This approval would take the form of an annual “advisory” shareholder vote on Home Depot’s electioneering contributions.
The SEC’s letter is brief, and gives little insight into the Staff’s reasoning, but the attached materials make for interesting reading.
NorthStar argues that shareholders have “few choices if they do not support the electioneering spending policies of a company. They can seek to vote the board out of office, or they can sell their shares. Many commentators have noted that this new development [corporate electioneering spending in the wake of Citizens United] endangers the corporate governance process by potentially politicizing the relationship between shareholders and their companies…”
But won’t an annual vote on election spending have precisely such a politicizing result? There are doubtless “single-issue” voters in elections for corporate directors – NorthStar makes no secret of its liberal political views, or the prominence of political advocacy in its investment decisions. But many shareholders surely vote on the basis of a basket of interests, not unlike voters who routinely split their votes between representatives of different parties, or help elect politicians with whom they partially disagree. And for many (if not most) shareholders, management’s business performance – and not the relatively minor amounts spent on political campaigns – weighs most heavily on their voting decisions.
By contrast, an annual vote on political spending will be an inherently political exercise. NorthStar makes clear that it would demand certain political spending decisions; others would surely demand the ideological opposite. The vote would be an annual campaign for the political war chest of The Home Depot, Inc. It takes little imagination to foresee how bitter such a fight could become.
I am not a Home Depot shareholder, but I suspect many responsible investors would prefer to avoid this scenario. A yearly political contest would be a distraction from the corporation’s core business activities, and a costly and exhausting process for shareholders and management alike.
