Benefits Trust and Walgreens Collaborate on Political Spending Disclosure

The UAW Retiree Medical Benefits Trust (Trust) and leading drugstore chain Walgreen Co. (Walgreens) recently announced an agreement to a multi-year collaboration in which the company would develop a best practice policy approach to corporate political spending and lobbying activities. A product of constructive dialogue between the Trust and Walgreens, the agreement highlights the utility of the shareholder engagement process by underscoring that companies and shareholders can work together to their collective long-term interest.

Walgreens is to be applauded for coming to the table and developing an agreement to work together with the Trust.

The main components of the agreement are:

• A two-year commitment to a robust engagement between the Trust and Walgreens in which the company would clarify and formalize policies and processes related to the oversight and disclosure of political and lobbying expenditures;
• A review of existing oversight processes at the board and management levels with respect to political and lobbying expenditures;
• The codification of internal processes to ensure political and lobbying expenditures are consistent with the company’s best interests; and
• The development of a framework to review current and future memberships and participation in trade associations and other tax-exempt organizations.

We see both the process and the expected outcome as a model for other investors as well as to help shape public policy. With the recent announcement that the U.S. Securities and Exchange Commission may consider mandating disclosure of corporate political activity, the Trust anticipates that its work with Walgreens and other companies will provide the Commission and other regulators and policymakers evidence that disclosure is both feasible and useful to investors.

Political and lobbying activity by portfolio companies is a key issue for the Trust’s corporate governance program. Since this past June, the Trust has been leading a coalition of large institutional investors to engage with 20 U.S. public companies where significant gaps in board oversight disclosure of corporate political and lobbying activities may expose the companies to serious financial, regulatory and reputational risks. The 25-member coalition is comprised of a broad range of public pension funds, labor funds, and sustainable investment funds representing nearly $1 trillion in assets under management. Six of the member funds are located outside of the U.S., reflecting a significant global convergence around the issues of political and lobbying activities.

The coalition requested that each company’s Board of Directors assess these risks and develop appropriate internal processes and policies to ensure these expenditures are closely aligned with the long-term interests of the company, its investors and other stakeholders. The coalition also requested that the each company provide investors with comprehensive disclosure of these expenditures, including dues, voluntary payments and so-called “special assessments” to trade associations and other tax-exempt organizations.

The coalition was able to reach comprehensive settlements with several companies that expanded existing disclosure of political spending and lobbying, further emphasizing the evolution of these issues from the margins into the mainstream corporate governance narrative. Settlements included agreements with Mylan Inc. and Dow Chemical Company, led by the Nathan Cummings Foundation and the Unitarian Universalist Association, respectively. Coalition members also filed a total of fourteen shareholder proposals for consideration at companies’ annual meetings this year.

The bottom-line of the Trust’s successful engagement with Walgreens and its work with the 25-member coalition is that governance oversight of corporate political spending and lobbying is essential to ensuring shareholder value. Importantly, our work can serve as a model for shaping public policy while promoting best practices among investor companies.