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An Investor Perspective: WellPoint's Political Disclosure Controversy

05/21/2012 10:18 am ET | Updated Jul 21, 2012

On May 16, Dow Jones Newswires ran an article titled "Push For More WellPoint Political Disclosure Falls Short." And while it is true that WellPoint shareholders rejected my firm's call for more disclosure about the health insurer's political contributions, with all due respect to Mr. Kamp, he buried the lead.

The headline should have read: "Wellpoint Annual Meeting Brouhaha Demonstrates the Risks of Corporate Politicking." Sixteen percent of shareholders supported comprehensive political disclosure, against the recommendations of WellPoint management and the influential proxy advisory services. That is a big deal. Anybody familiar with the dynamics of corporate governance knows that shows shareholders are very concerned.

When a for-profit health care company becomes better known for controversial political meddling and protests outside of its corporate headquarters than for the quality of its product, shareholders have reason to be concerned.

Concern, of course, is a key element of investing -- concern is what drives investors to pour over complicated financial statements, pay private investigators to monitor high level executives, and lay awake trying to infer what decisions are being made behind the tightly closed boardroom doors of publicly traded companies. Incomplete information is just part of the game.

But market participants do have established rights to certain kinds of corporate disclosure. The financial statements of public companies need to be complete, correct, and compliant or else the SEC will pursue disciplinary action. When key executives are debilitated, companies had better let the markets know. If there is a likelihood that a major legal judgment will go against a company and it is not properly disclosed, that company's executives will soon be dealing with a whole new legal problem.

Two separate January 2012 polls -- one by the Pew Research Center and another by Democracy Corps -- found that roughly two-thirds of Americans agree that unlimited independent expenditures are having a negative impact on American politics. Those results hold for Americans of every political persuasion. Independent expenditures are precisely the type that WellPoint is refusing to disclose.

The only reason that comprehensive political disclosure is not yet mandated by the SEC/federal law is that our regulatory agencies (themselves very much subject to corporate lobbying) have not yet adjusted to the will of the citizenry.

In order to uphold my duty as a fiduciary, I should be able to know all of a company's political spending, not -- as in WellPoint's case -- just the money they choose to allocate ways that they have decided to disclose. As an investor I should have a right to know if my company is going to be politically blacklisted if the wrong political candidate gets elected. It is important to know that my company has a coherent policy of assessing opportunities and risks before stepping into the policy arena.

While companies are often rewarded for shrewd political maneuvering, it is likewise the case that when companies like WellPoint devote corporate funds to political issues and candidates, they take on significant risks associated with consumer backlash, political retribution, and reputational debasement.

A few years back, Target Corporation decided to support a political action committee whose mission was "to put jobs and the economy at the top of the agenda during the 2010 campaign." Instead, that political contribution "made Target the target," resulting in nationwide protests, a consumer boycott, and an apology from the company's CEO.

Or how about the case of Kansas-based public utility Westar Energy? When Westar found itself in need of a favor in 2002, it coordinated some donations by executives to key politicians. In the short term, the company got what it wanted. A year later though, Westar was forced to revise its accounting because of a federal investigation for fraud. It ended up with a $794 million loss for 2002. The CEO was indicted and the company was subject to a $100 million shareholder lawsuit. I bet anyone who was a shareholder of Westar back then is in favor of comprehensive political transparency today!

By the nature of WellPoint's core business, it is connected to some of the most intimate moments in its clients' lives. WellPoint is in a risky business and by not being fully transparent about how they participate in politics, they amplify their risks even more.

So when WellPoint's management argues that their political activity isn't my business as a WellPoint investor or fiduciary, I find it hard to take them seriously. As a shareholder, I don't like to read about controversies related to companies in my firm's portfolio because I know that I and my clients are going to pay for it.