Some Suspicion

Not everyone, however, is a fan. “There are some who are suspicious of the motives of the organization behind the Index,” says Ken Gross of the law firm of Akin Gump Strauss Hauer & Feld. “Skeptics wonder if Zicklin and likeminded efforts are more about discouraging political activity than about disclosure.”

Some companies resent the scrutiny they are under and resist it. “They think that being pressured for disclosure is only the beginning of efforts to shut down their giving altogether,” says Gross who, with Tubbs, spoke at the Council’s May 31 “Understanding the CPA-Zicklin Index” webinar.

Such companies liken being encouraged to disclose their political activities “to “feeding the squirrels,” as Gross puts it. “They don’t want to give groups like CPA any nuts because they’ll just come back the next year wanting more.”

Sound Governance Practices

What they might fail to understand is that many of the 24 criteria on which the ratings are based— assigning boards of directors to oversee PAC giving, for example — are already being undertaken as sound governance by countless companies. “These ideas have gone mainstream,” as CPA President Bruce Freed told Politico, which reported in late 2021 that companies are increasingly “under pressure from shareholders, customers, employees and regulators…to align their political influence with their stated values.”

That is how Tubbs sees it, too. “We already had robust disclosure and board oversight,” he says. “We consult with our C-suite leadership as we develop and implement our political engagement. But we have also raised our score because we have revised our guidelines in part based on what Zicklin takes seriously and looks for in evaluating companies. Our company’s values are well aligned with theirs. We’ve improved our score as well, though, because we have had productive back-and-forth with them. A lot of people don’t appreciate that they have an open door. You can reach out to them, and our direct engagement has been helpful.”

Making Your Case

Gross also encourages companies to cultivate a relationship with CPA staff. “You can ask them questions about your score and, if you don’t think it is fair or right, you can make your case,” he says. “You can also ask why a peer company got a higher score than you did. You might agree to disagree, but you can have the conversation. And they can help you figure out how to raise your score. I’ve helped companies do that, and there are benefits to working closely with them that are not immediately obvious.”

Among the benefits of complying with Zicklin guidelines is that doing so can help you avoid potential problems with your own shareholders. “Proxy requests from activist shareholders often involve the disclosure of political contributions that Zicklin also looks at,” Gross says. “If you are already doing these things, it allows you to ward off some of these proxies.”

None of this is to suggest that compliance automatically makes problems go away. “Companies really are in a bind in this whole area,” Gross explains. “In some ‘red states,’ compliance with the kind of policies Zicklin and similar guidelines are pushing is seen as ‘going woke,’ and if you do comply, the state has said it is not going to do business with you. But in some ‘blue states,’ they won’t do business with you if you aren’t in compliance.”

Risk Management Considerations

But there are other perils involved in ignoring those practices that Gross says are now “mainstream.”  To a certain degree, prudent risk management is at stake. Take board oversight of PAC activities. “If there’s a problem with your PAC, and there has been no board oversight, the story is not going to be buried in the business section of your local paper,” Gross says. “It is going to be on the front page of the New York Times.”

That’s on the crisis avoidance side. Gross and Tubbs clearly believe that, for most companies, working to achieve and maintain a high score has positive benefits, too. Gross says you can use a good Zicklin rating “to position yourself favorably,” which Edison does.

“We pride ourselves on our score because the Index is respected,” Tubbs explains. “We include our rating in our sustainability report, for example, because we think it bears on the ‘governance’ part of ESG. We also use our rating and what it says about our company in our effort to recruit eligible employees to join our PAC, and it’s been helpful for that purpose.”