Wall Street Journal: A Political Attack on Shareholder Value (In the News)

By David M. Primo

Last week the Center for Political Accountability and the Zicklin Center at the University of Pennsylvania’s Wharton School released the annual “CPA-Zicklin Index,” which ranks companies based on disclosure policies for political activities. The more you disclose, the better you score. The aptly named Noble Energy and transportation giant CSX topped the list, while 20 companies, including Warren Buffett’s Berkshire Hathaway and household names like Netflix, received scores of zero.
Shareholders and executives may want to take note, though: A high ranking isn’t necessarily good for your company—or for you. The index rests on the view that disclosure reduces the shareholder risk associated with corporate involvement in politics. That’s also the reasoning behind the movement to require shareholder approval for corporate political spending. Yet in reality disclosure and approval requirements tend to hurt shareholders.
This finding emerges from a new working paper that I co-wrote with Indian School of Business finance professor Saumya Prabhat. In 1998 Britain’s Committee on Standards in Public Life issued a scathing report calling for disclosure reforms in the wake of several scandals. In response, the U.K. enacted a law in 2000 that increased disclosure requirements and mandated shareholder approval of political contributions. We studied how this reform process affected shareholder risk and return.