Journal of Management Publishes Study on Corporate Political Activity By SEBA's Michael Hadani

A new research study, co-authored by Saint Mary’s College Management Professor Michael Hadani, reveals how some companies have been successful in blocking corporate social responsibility (CSR) proxy proposals by engaging in corporate political activity and receiving preferential treatment from the Securities and Exchange Commission.

The study Corporate Political Activity and Regulatory Capture: How Some Companies Blunt the Knife of Socially Oriented Investor Activism, examines how corporate political activity, such as lobbying regulators, hiring former politicians to company boards and contributing to political action committees, has been employed to prevent CSR proposals from consideration at shareholders meetings. Socially responsible proposals call for changes in business conduct impacting societal issues such as gender pay equity or the environment.

The study, co-authored by Jonathan Doh of Villanova University and Marguerite A. Schneider with the New Jersey Institute of Technology, was recently published in the prestigious Journal of Management.

“When firms receive shareholder proposals that are about corporate social responsibility, companies have multiple options,“ said Hadani. “They can allow the proposal to go to vote at the annual shareholders meeting, negotiate to withdraw the proposal or they can go to the SEC, which has legal authority over the inclusion of shareholder proposals, and lobby for the activist proposal to be omitted, because it’s not financially appropriate for the shareholder voting agenda.”

Professor Hadani adds, “We found that companies that engage in corporate political activity have greater resources and access to politicians and SEC regulators than those involved in social movement organizations. As a result, these firms have been able to prevent these proposals, which promote corporate social responsibility, from going to a vote.” Although the research indicates the effect of corporate political activity on shareholder proposals is small, translating into one out of every 10 proposals omitted by regulators, Hadani said the impact is still significant.

“While small in number, those omitted proposals could be substantial. They could be about business policies that relate to human rights violations, environmental concerns, and other social issues,” said Hadani. “There is also a symbolic effect. It sends a message that a company will flex its political muscle to undermine corporate social responsibility proposals.”

The study’s methodology included literature reviews of socially oriented shareholder activism, corporate political activity and regulatory agency behavior. It also looked at the interactions of corporate social responsibility and social activism in the context of the political marketplace, reviewed the ability of firms to shield themselves from socially oriented shareholder actions, and analyzed a variety of data, including material compiled by the Interfaith Center for Corporate Responsibility (ICCR) on CSR proxy activism. Visit the Journal of Management online for more information about the research.

Michael Hadani is the TransAmerica Corporation Professor of Business Policy in the management department of the School of Economics and Business Administration at Saint Mary’s. His academic research includes examining the financial benefits from corporate political investments, corporate philanthropy, and corporate political activity, institutional investors, shareholder activism, and earnings management and justice in the world of business and politics. He can be reached via email at mh21@stmarys-ca.edu.

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