A committee of law professors that I co-chair with Lucian Bebchuk has petitioned the Securities and Exchange Commission to develop rules requiring public companies to disclose the use of shareholder money on politics. The petition has drawn over 500,000 supportive comments, more than any rulemaking proposal in the SEC’s history, including support from institutional investors and Members of Congress along with a sitting Commissioner. Although the SEC confirmed last year that it was considering the proposal and added disclosure of political spending to its regulatory agenda, the Commission has not yet announced whether it will require public companies to tell investors whether and how their money is being spent on politics.
This afternoon, I will join U.S. Senators Bob Menendez and Elizabeth Warren, along with John Coates of Harvard Law School, for a briefing on why the SEC should act immediately to develop rules requiring disclosure of corporate spending on politics. Today I will explain why the case for such rules is strong—and why the arguments that have apparently led the SEC to hesitate about making rules in this area provide no basis for continuing to allow public companies to spend shareholder money on politics in the dark.
As we explained in the petition, the SEC’s disclosure rules have long evolved in response to changing shareholder interest in particular information about the companies they own. And shareholders are unusually interested in corporate spending on politics: disclosure of corporate political spending is now a more frequent subject of shareholder proposals at U.S. public companies than any other corporate-governance issue.
This level of shareholder interest is not surprising. As Lucian Bebchuk and I showed in a paper published last Spring in the Georgetown Law Journal, between 2005 and 2010 public companies spent more than $1.5 billion in shareholder money on federal politics alone by channeling that money through intermediaries, like the Chamber of Commerce, that are not required to reveal the source of their funding. Without disclosure, shareholders cannot know whether their money is being spent in a manner consistent with investors’ interests—or is instead being spent to advance the political causes favored by corporate insiders. And although many corporations now disclose some of this information voluntarily in response to shareholder requests, the SEC generally does not require investors to request the information they need from thousands of public companies. The case for requiring public companies to disclose their political spending is strong.
To be sure, the petition, and the push for SEC rules in this area, has attracted opponents. These opponents have raised a wide range of objections to requiring disclosure of corporate political spending. I have previously explained, on this Blog and elsewhere, why these objections, taken individually and collectively, provide no serious basis for opposing SEC disclosure rules. But today’s briefing will focus on why one objection that has apparently given the SEC pause—the claim that the SEC should stay out of politics—is not an adequate reason for the Commission to remain silent on this important question.
In response to the petition, opponents have echoed Commissioner Gallagher’s claim, while announcing in advance that he would oppose any rule in this area, that the SEC should avoid “politically charged” issues. Members of the House, echoing that concern, demanded that the SEC produce information about whether its staff was developing a rule and pressed new Chairman Mary Jo White to pledge that the SEC would not do so. After responding to the House request, the SEC moved rules requiring disclosure of corporate political spending from its near-term priorities to its “long-term” agenda. Press accounts indicated that senior SEC staff hesitated because they were uncertain about the political implications of requiring disclosure in this area.
Whatever position one takes on disclosure in this area more generally, the SEC should not fail to give investors information they need because doing so might have political implications. It is emphatically the SEC’s job to make sure that companies provide investors with the information necessary to evaluate the companies they own. In doing that job, SEC staff should avoid speculating—and should ignore speculation from others, inside and outside Congress—about how requiring disclosure of that information might influence politics.
Of course, the SEC should not take action in this area in order to benefit one of the major political parties over the other. But the SEC should not be deterred from acting to give investors the information they need by the possibility that its actions might have implications for politics. Indeed, if the SEC chooses not to adopt disclosure rules because of its concerns about the possible political effects of giving investors the information they need, that choice—rather than the choice to adopt rules—would reflect inappropriate consideration of politics. For those of us who hope the SEC will avoid engaging in politics, its decision to change the status of rules in this area after receiving inquiries from one of the major political parties is disappointing.
Investors have expressed significant interest in understanding how the companies they own spend shareholder money on politics. Without that information, investors cannot know whether that spending is consistent with their interests. The SEC’s job is to make sure that public companies provide shareholders with this kind of information. That is why the Commission is now considering developing a rule that would require public companies to disclose their political spending. That rule’s place on the SEC’s agenda should not depend on whether the major political parties favor disclosing the information that investors need.
The SEC should focus on what investors, rather than politicians, want. When it does, it will find that the case for requiring public companies to disclose their spending on politics is strong.