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Union Funds Target Political Spending, Bring Proposals Unrelated to Share Value

The 2012 proxy season has proven to be politically charged, with activist shareholders targeting political spending, lobbying, executive compensation, and chairman independence.

Copland notes that labor union pension fund proposals have increased in 2012 with a particular focus on political spending and lobbying disclosures. Unions are among the greatest proponents of proposals to disclose political spending in 2012 and appear to be using the proxy process to pursue goals unrelated to their fiduciary duty to maximize retirement returns for union members.

Copland finds that while the number of shareholder proposals introduced in 2012 did not change from the previous year, the composition of such proposals has changed. In 2012, a plurality of all shareholder proposals – 20 percent – involved corporate political spending or lobbying, a significant increase from past years. Still, such proposals were rejected by shareholders; none of the Fortune 200 companies received a majority voting in favor on any of these proposals. As expected, proposals with a majority of shareholder support were related to share value (including proposals to elect directors annually and those requiring that directors receive majority support of voting shareholders in order to be elected.)

Union pension funds concentrated their shareholder proposals on companies and industries being targeted by union organizing campaigns or those that had been politically active in a manner perceived to be adverse to labor interests.

In contrast to previous years, companies in the energy sector in 2012 were more likely to be the targets of union-backed shareholder proposals. Two energy companies received multiple labor-backed proposals in 2012: Anadarko Petroleum (with four proposals); and ExxonMobil (with three). Both energy companies are unlikely targets for such proposals considering their strong share-price performance. ExxonMobil’s share price grew 15.9 percent year-over-year in 2011, well above not only the Dow Jones Industrial Average (+5.5%) but peer companies Royal Dutch Shell (+9.5%), ConocoPhillips (+7.0%), and BP (-3.2%), and just below peer Chevron (+16.6%). Anadarko’s stock returned only 0.2 percent in 2011, but that far outperformed industry peers Chesapeake Energy (-14.0%), Halliburton (-15.5%), and Schlumberger (-18.2%). ExxonMobil and Anadarko were each targeted with one labor-backed shareholder proposal related to political spending, and they may have gained labor activists’ ire in part because of their political participation: 88 percent of the $1.4 million donated by ExxonMobil’s political action committee in 2010 went to Republicans, as did 79 percent of the $310,500 given by Anadarko’s PAC. Anadarko has also been making well-publicized efforts to exploit natural-gas hydraulic fracturing, which has become a political football partly because of its threat to older union-intensive coal energy production.

The company with the highest number of labor-backed shareholder proposals in 2012 was Abbott Laboratories, which received fully six of the eight union-backed proposals in the health-care sector. Four of those related to executive compensation, one called for chairman independence, and another called for lobbying disclosure. As with ExxonMobil and Anadarko, Abbott’s share-price performance would not seem to warrant this disproportionate attention: the company’s stock price returned 17.4 percent in 2011, above industry peers GlaxoSmithKline (+16.3%), Merck (+4.6%), and Novartis (-3.0%), though somewhat below Pfizer (+23.6%). Abbott Laboratories was, however, at the heart of recent union legal disputes involving pharmaceutical sales representatives, and Abbott CEO Miles White very publicly supported public-employee-union reforms in various states, including Wisconsin and Illinois.

Despite the intensity of such shareholder proxy activity, political spending proposals and lobbying did not receive the support they had in past years with an average of just 17 percent support across the Fortune 200. These numbers mark the lowest annual level recorded in the ProxyMonitor.org database, dating back to 2006.

Read: 2012 Proxy Season: Season-End Report

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