Despite a strong company record on diversity, Minnesota-based retailer Target embroiled itself in a stew of controversy and boycott last summer after revelations that it gave a remarkably generous fraction of the corporate treasury to an organization which supported a politician some considered a bigot.

Now the firm faces a shareholder resolution on its corporate political activities. Still, Target isn’t alone. More than 45 firms could face proxy initiatives on disclosing and accounting for their political donations this year. Since such resolutions were first filed in 2004, shareholders are increasingly inclined to support them.

Last year saw an average 30 percent vote in favor of 28 resolutions on contribution disclosure resolutions; votes above 40 percent were reached at Coventry Health Care, CVS Caremark and Sprint Nextel. Proxy advisers, public pension funds and mainstream mutual funds are getting on the bandwagon.

‘There are real risks involved in political giving,’ explains Bruce Freed, president of the Center for Political Accountability (CPA), a Washington-based corporate governance advocate.

Freed co-wrote a handbook on corporate political activity with the Conference Board that warned companies face heightened financial, legal and reputational risk following the Supreme Court’s Citizens United ruling, which effectively eliminated most legal restraints on corporate political spending.

The widely distributed handbook also includes a model code of conduct developed by the CPA. ‘Our request is straightforward,’ says Freed. ‘That companies disclose the political spending of all corporate funds and adopt and disclose policies for review and management.’

Just over half of S&P 100 firms meet the CPA’s basic guidelines, but investors remain engaged in about a dozen dialogues. ‘A resolution is just a way to spur a dialogue,’ says Freed. ‘Our preference is to resolve this. But some companies, frankly, have not been moved.’ He points to Goldman Sachs as one example: ‘It has made some movement, but the sticking point is its disclosure of money given to trade associations.’ To add to the pressure on such companies, the CPA will soon introduce an index rating companies’ political disclosure and accountability.

Indeed, corporate payments to controversial trade associations have become a major issue for investors. A coalition of CPA members and other institutions filed resolutions in November at Accenture, IBM, PepsiCo and Pfizer (among the 120 or so members of the board of the US Chamber of Commerce) to disclose and review their oversight of trade association donations.

‘The significant disconnect between some of the Chamber of Commerce’s goals and many corporations’ goals and stated CSR values troubles investors,’ says Shelley Alpern, vice president at Trillium Asset Management. ‘They are wondering why these companies associate with a trade association actively working against their interests.’ The board, which has opposed measures aimed at climate change, reportedly poured $75 million into the 2010 election campaigns largely to unseat pro-healthcare reform candidates.

In recent years, Apple and energy utility PG&E resigned as members as a result of the chamber’s climate change position.

‘We are trying to have a thoughtful conversation on this issue,’ adds Tim Smith, senior vice president at Walden Asset Management. ‘Few firms are stepping up and saying, Yes, we must reassess our role on the board. Still, many business leaders recognize it’s not good for a major business organization to be so partisan.’

The sticking point

Companies have taken a broad variety of approaches to political participation risk. Some, like IBM and Avon, skirt the issue entirely by banning any sort of contribution.

Microsoft has informed trade associations its contributions may not be used for independent expenditures. Merck posts its political contributions categorized by state candidate and amount on its website, and discloses the portion of dues major US trade associations report as being used for political advocacy.

Norfolk Southern recently agreed to beef up its political disclosure policy after receiving shareholder proposals on the issue from the New York City pension funds.

The shipping and transportation company will not only disclose its political contributions,but will also state on its website when the company disagrees with political efforts supported by trade associations to which it belongs.

The NYC Comptroller gushed that Norfolk Southern’s new transparency stood ‘in stark contrast to those corporations that make anonymous donations to trade associations to hide management’s support for issues and political campaigns that may be publicly distasteful’.

This year the New York City pension funds have renewed their call for transparency, filing proposals at six companies, including Charles Schwab, Coventry Health Care and Sprint Nextel, to provide detailed accounts of their direct and indirect political contributions and who decides to make them.

Meanwhile, another group of investors filed proposals at oil firms Valero Energy, Tesoro and Occidental Petroleum seeking an independent board review of their political spending policies. The resolutions were inspired by the companies’ support for a California ballot initiative to block the state’s global warming law.

At least one resolution has been withdrawn, however: Tesoro agreed in December to the disclosure and board oversight of all direct and indirect political spending. ‘Working with Tesoro was a cooperative experience,’ remarks Laura Campos, director of shareholder activities at the Nathan Cummings Foundation. ‘In many of our dialogues, the sticking point has been disclosure of contributions to trade and other [tax-exempt] associations.’

The argument

That’s just where Bruce Herbert is stuck. As founder of Seattle-based Newground Social Investment, he’s been pursuing the Boeing Company on political spending issues for several years. ‘Boeing has made some disclosures,’ he says. ‘But it isn’t willing to disclose what it pays to trade associations. That’s the big one.’

While activist arguments are framed in terms of financial opportunity and risk and the materiality of superficially non-financial issues, the broader implications of a brave new post-Citizen’s United world are lost to none. ‘The court was astonishingly naïve or extremely cynical and manipulative,’ Herbert says. ‘[Its decision] is ludicrous and counter to democracy and the common good.’ Pointing to the rising flow of direct and anonymous funding in US elections, he adds: ‘Spending so much money won’t benefit us as investors.’

‘The materiality argument holds the day,’ confirms Laura Berry, executive director of the Interfaith Center on Corporate Responsibility (ICCR), whose members filed at least 25 shareholder resolutions aimed at corporate political spending. ‘But broader issues come up when one human being talks with another. I’ve met some deeply engaged people at the highest corporate levels who desire the kinds of transparency we are talking about.’

As for rolling back Citizens United, Berry sees progress over the longer term. ‘We need to go through another presidential election cycle before people start to really see the money flows,’ she says. ‘There will undoubtedly be many examples demonstrating its flawed judgment.