A Shadowy Risk for Shareholders

by Alyce Lomax for The Motley Fool, November 3rd, 2010.

With the midterm elections finally over, a new risk may appear in next year’s proxy statements. If the companies in your portfolio get called out for controversial political contributions, your investments could face a whole slew of dangers.

Dubious dealings

Activist investors now seem far more likely to bring this topic to light, given the Supreme Court’s Citizens United ruling earlier this year (you know, the “corporations are people, too”decision), which freed up companies to contribute to political campaigns.

Earlier this week, The Conference Board, a corporate governance and research group, publicly pushed for corporations to adopt oversight rules regarding political spending, lest they face “serious financial, legal and reputational risk.”

The timing of the Conference Board’s public stance right before the midterm elections was no coincidence, since concerns about corporations’ secretive, undisclosed political contributions abound.

The Conference Board’s report pointed to Wal-Mart (NYSE: WMT), Merck (NYSE: MRK), and Freddie Mac as companies that faced particular public relations or legal ramifications after making political contributions.

Those three aren’t the only examples. Best Buy (NYSE: BBY) and especially Target (NYSE:TGT) faced considerable consumer anger after it came to light they’d given campaign contributions to a Minnesota Republican candidate with an anti-gay marriage stance. This not only hit the news headlines, but also sparked consumer boycotts. Three activist investors filed related shareholder proposals at both retailers, demanding oversight over political spending policies. (continue reading… )



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