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28 Sep. 2011 | Comments (0)

After I blogged two weeks ago about the importance of trade association corporate political spending disclosure, I thought it would be a good idea to track down the braintrust of the new Baruch Index of Corporate Political Disclosure unveiled earlier this month by Baruch College Zicklin School of Business. [caption id="attachment_1347" align="alignright" width="165" caption="Naomi Gardberg, Ph.D., Baruch"]Naomi Gardberg, Ph.D., Baruch[/caption] [caption id="attachment_1348" align="alignright" width="165" caption="Donald Schepers, Ph.D., Baruch"]Donald Schepers, Ph.D., Baruch[/caption] The index, which was put together by Donald H. Schepers, Ph.D., director of the center, and Naomi A. Gardberg, Ph.D., Baruch College professor, measures a company’s corporate political activity at all levels and branches of government. The 2011 version rates the S&P 100 with plans to expand to the S&P 500 next year. The index takes into account 57 items when measuring a company’s willingness to disclose with regard to:
  • Ease with which someone can find the relevant materials on the corporate website;
  • What policies, procedures, and corporate governance structures are in place and disclosed; and
  • What the corporation says about who and what it gives to, and how those donations are made.
Meanwhile, the Center for Political Accountability (CPA) and the Wharton School’s Zicklin Center for Business Ethics Research plans on unveiling on Oct. 28 an index of their own named the C-Z Index after the name of the two sponsors. According to CPA President Bruce Freed, the index will measure whether companies in the S&P 100 have policies and practices that invoke transparency and accountability when it comes to political spending disclosure. The Baruch Index will be a topic of discussion at The Conference Board Committee on Political Spending symposium in New York City on Oct. 20 where it will release the results of a report that is meant to be a tool for all companies. The symposium keynote speaker will be former Federal Elections Commission Chair Trevor Potter. Last week Schepers and Gardberg spent some time with me discussing the new index. Here is that interview: What was the impetus for the Baruch Index of Corporate Political Disclosure? Donald H. Schepers, Ph.D.: We came up with the idea after the Caperton v. Massey Energy case in 2008 and 2009 in West Virginia, where a judge was elected and it was found there was some corporate influence. [The case involved Hugh Caperton, a mining executive, who claimed Massey Energy, a major coal producer, was running him out of business. As part of the case, Caperton’s lawyers charged that the judges involved should have recused themselves if they had received political contributions from the company.  In the end, the U.S. Supreme Court ruled a state supreme court justice in the case benefited from $3 million in campaign contributions and should have recused himself. See Wall Street Journal article.] Obviously, the Citizens-United decision made everything a bit more open. But at that time [January 2010], we had already been accumulating information for the index before then. We did this at the Zicklin Center because we see this as a strong corporate governance issue. Transparency is a strong issue. What was the significance of the Caperton v. Massey Energy case? Naomi A. Gardberg, Ph.D.: When you think about the fact that 39 states elect their justices, this issue [of whether or not to recuse onself when receiving campaign contributions] is important. The Supreme Court ruling [in the Caperton v. Massey Energy case] did not specify a quid pro quo. But it did give the appearance of conflict of interest. The judge should have sat out the case. Why unveil it now? What is the index’s purpose? Gardberg: There are two reasons we decided to unveil the index now: the election season is heating up and since in January 2012 we intend to collect data on the S&P 500 we wanted to use the index as a marker for companies that it is time to get their house in order. Your first annual index found that only 22 percent of the S&P 100 disclose little or nothing about their corporate political activities. In fact, your index states that only seven companies had what you consider transparent political spending disclosure. Were you surprised by these findings? Gardberg: Yes and no. I’m not surprised there were a few exemplars. A few companies tend to disclose first. But that 22 percent figure was more shocking. Because it a new issue, we had expected the [amount of disclosure] to change over time. Schepers: There will be a bigger sample next year [when we include the S&P 500]. What goes into calculating the index? Gardberg: We began with The Conference Board Handbook on Corporate Political Activity: Emerging Corporate Governance Issues. That report lists 20 or so action items. We took The Conference Board list and broke them [the action items] up individually. Schepers: We expanded that list of items with other items based upon our desk research and literature review. We then asked academic and practitioner experts to evaluate the items in terms of relevance, inclusiveness, and importance. After some testing with Executive MBA students, we refined the list to 57 dichotomous items, in three categories.  [For more on the Baruch Index methodology, click here.] Gardberg: We wanted the companies to disclose at each level [local, state and federal] and branches of government. We wanted enough items to differentiate each level of disclosure. We had a group of academics and corporations look at the items being used in the index. Schepers: We did an academic literature review and looked at four items to see how long it took to find things on a company’s web site. [Those items were 1.) whether or not the company has a dedicated section for corporate campaign finance policies, 2.) a dedicated section on corporate political expenditures, 3.) a central page for corporate campaign finance information found within two clicks and The company has a dedicated political disclosure webpage that is accessible through the use of general and site-specific search terms such as "political contributions" or "political payments" in its search function.] Can you describe the process? Gardberg: We wanted the students to replicate the experience of a stakeholder. They Googled or went to the company’s website. We had a research team of MBA candidates. Two grad students looked at each company’s web site, and we used standard statistical tests to measure for agreement and reliability [factors]. They took the 57 items and answered yes or no if the information was present. Does your index take into account the disclosure of trade associations and not-for-profit 527 organizations? If so, how is that factored in? Gardberg: Yes. We have separate items on PACs and trade associations. We looked into what the companies are doing about those attributes. What is the next step for the Baruch Index? Will you partner with other organizations? Schepers: As we mentioned earlier, we will expand the index to the S&P 500 from the S&P 100 companies. We will do a content analysis in the first few weeks of 2012 and release the results later in the year. The only decision we will make about partnering is that we will not partner with any companies. If there are any non-profits, we may consider them. By now, you are aware of another political spending disclosure index that will be unveiled in late October by the Center for Political Accountability and Wharton School’s Zicklin Center. Do you consider such an index as competition or an example of more interest in this area of disclosure? Gardberg: If there are multiple measures of reporting corporate political spending, it only makes the issue more salient. It adds to the discussion. Schepers: The free market breeds competition, which makes both of us better. They are more interested in proxy battles at corporations [shareholder proxy proposals on political spending disclosure], while ours is more about promoting information for stakeholders to use in their engagement with the company.
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

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