In July 2011, we co-chaired a committee of ten corporate and securities law experts that petitioned the Securities and Exchange Commission to develop rules requiring public companies to disclose their political spending. In a post eleven months ago, we noted that the petition had attracted more than 250,000 comment letters. In this post, we report that, as reflected in the SEC’s webpage for comments filed on our petition, the SEC has now received more than half a million comment letters regarding the petition. To our knowledge, the petition has attracted more comments than any other SEC rulemaking petition—or, indeed, than any other issue on which the Commission has accepted public comment—in the history of the SEC.

As in the past, it remains the case that the overwhelming majority of comment letters filed with the SEC are supportive of the petition. In November 2012, the then-Director of the SEC’s Division of Corporation Finance said that the Division was “looking at the [petition] and we have 300,000 comments on it. So in light of this interest, we’re taking a look at whether to make a recommendation to the Commission.” The comment letters submitted over the last several months reinforce the strength of interest noted by the Director.

We should note that, of the filed comments, 497,024 came from individuals who expressed their views through one of fourteen common types of letters filed with the Commission. While these comments use standard form letters, each was separately submitted by individuals who presumably were interested enough in this subject to write to the SEC. Furthermore, the petition has separately attracted 3,363 distinct comment letters, and the overwhelming majority of these letters is also supportive of the petition.

…continue reading: Rulemaking Petition on Disclosure of Political Spending Attracts Support from More Than 500,000 Comment Letters Filed with the SEC

In our first four posts in this series (collected here), we examined four objections raised by opponents of mandating disclosure of political spending and explained why these objections provide no basis for opposing such rules. In this post, we focus on a fifth objection raised by opponents of these rules: the claim that the SEC should not require disclosure in this area because shareholder proposals requesting disclosure of corporate spending on politics generally have not received the support of a majority of investors.

Several opponents of the petition have argued that the SEC should not mandate disclosure of corporate political spending because, in many cases, shareholder proposals seeking such disclosure at individual companies are supported by less than a majority of voting shares. For example, Paul Atkins, a former SEC commissioner, argued in a recent article that “majorities of shareholders routinely refuse to support mandatory disclosure” of corporate political spending—and, thus, that shareholders are simply not interested in this information.

…continue reading: Responding to Objections to Shining Light on Corporate Political Spending (5): The Claim that Shareholder Proposals Requesting Disclosure Do Not Receive Majority Support

In our first three posts in this series (available here, here and here), we examined three objections raised by opponents of mandating disclosure of political spending and explained why these objections provide no basis for opposing such rules. In this post, we focus on a fourth objection that opponents of these rules have raised: the claim that requiring disclosure of corporate political spending would create an important imbalance in the information that is provided to investors and voters about two of the most significant sources of spending on politics: corporations and labor unions.

Several opponents of the petition have argued that disclosure of corporate political spending would convey an important political advantage to labor unions—organizations that, opponents argue, may also engage in undisclosed spending on politics. For example, Senator John McCain has argued that disclosure of corporate spending on politics “forces some entities to inform the public about the origins of their financial support, while allowing others—most notably, those affiliated with organized labor—to fly below the radar.”

…continue reading: Responding to Objections to Shining Light on Corporate Political Spending (4): The Claim that Such Disclosure Would Give a Political Advantage to Unions

In a new study, The Myth that Insulating Boards Serves Long-Term Value (forthcoming, Columbia Law Review, October 2013), I comprehensively analyze – and  debunk – the view that insulating corporate boards serves long-term value.

Advocates of board insulation claim that shareholder interventions, and the fear of such interventions, lead companies to take myopic actions that are costly in the long term – and that insulating boards from such pressure therefore serves the long-term interests of companies and their shareholders. This claim is regularly invoked to support limits on the rights and involvement of shareholders and has had considerable influence. I show, however, that this claim has a shaky conceptual foundation and is not supported by the data.

In contrast to what insulation advocates commonly assume, short investment horizons and imperfect market pricing do not imply that board insulation will be value-increasing in the long term. I show that, even assuming such short horizons and imperfect pricing, shareholder activism, and the fear of shareholder intervention, will produce not only long-term costs but also some significant countervailing long-term benefits.

Furthermore, there is a good basis for concluding that, on balance, the negative long-term costs of board insulation exceeds its long-term benefits. To begin, the behavior of informed market participants reflects their beliefs that shareholder activism, and the arrangements facilitating it, are overall beneficial for the long-term interest of companies and their shareholders. Moreover, a review of the available empirical evidence provides no support for the claim that board insulation is overall beneficial in the long term; to the contrary, the body of evidence favors the view that shareholder engagement, and arrangements that facilitate it, serve the long-term interests of companies and their shareholders.

I conclude that, going forward, policy makers and institutional investors should reject arguments for board insulation in the name of long-term value.

Here is a more detailed account of the analysis in the article:

…continue reading: The Myth that Insulating Boards Serves Long-Term Value

The SEC is expected to consider a rulemaking petition requesting that the SEC develop rules requiring that public companies disclose their spending on politics. The petition has received significant support—including nearly half a million comment letters urging the SEC to act as advocated by the petition—but has also attracted opponents. In our article Shining Light on Corporate Political Spending and in this post series, we respond to each of the objections that opponents of the petition have raised.

In our first two posts (available here and here), we explained why opponents’ claims that corporate spending on politics is immaterial to investors, and that disclosure in this area would empower special interest investors, provide no basis for opposing rules requiring public companies to disclose their political spending. In this post, we focus on a third objection that opponents of these rules have raised: the claim that political spending is good for shareholders—and that disclosure will discourage directors and executives from engaging in spending on politics that would be beneficial for investors.

…continue reading: Responding to Objections to Shining Light on Corporate Political Spending (3): The Claim that Political Spending is Good for Shareholders

The SEC is expected to consider a rulemaking petition requesting that the SEC develop rules requiring that public companies disclose their spending on politics. The petition has received significant support—including more than 490,000 comment letters urging the SEC to act as advocated by the petition—but has also attracted opponents, including prominent members of Congress. The SEC recently indicated that it plans to address the petition’s request this year. Given the SEC’s expected consideration of the petition, we have written an article, Shining Light on Corporate Political Spending, that puts forth a comprehensive case for the rulemaking advocated in the petition—and responds to each of the ten objections that opponents of the petition have raised.

In our post last week, we explained why opponents’ claims that corporate spending on politics is immaterial to investors provide no basis for opposing rules requiring public companies to disclose their political spending. In this post, we focus on a second objection that opponents of these rules have raised: the claim that disclosure rules on political spending will empower shareholders who have special interests, such as pension funds, at the expense of other investors.

…continue reading: Responding to Objections to Shining Light on Corporate Political Spending (2): Claims of Special Interest Influence

A committee of academics that we co-chaired has submitted a rulemaking petition urging that the SEC develop rules requiring disclosure of corporate political spending. Our petition has attracted more than 490,000 comment letters, the overwhelming majority of which support the petition. The petition has also attracted opponents, including prominent members of Congress, the Wall Street Journal editorial page, legal academics, and intermediaries that facilitate undisclosed corporate political spending such as the U.S. Chamber of Commerce. And the SEC has indicated that the agency plans to address the petition’s request for rules in this area during 2013.

Given the expected SEC consideration of the subject, we have written an article, Shining Light on Corporate Political Spending, coming out this month in the Georgetown Law Journal, that puts forward a comprehensive case for the rulemaking we advocated in the petition and responds to each of the ten objections that opponents have raised in comment letters filed with the SEC or elsewhere. We show in this article that these objections, either individually or collectively, provide no basis for opposing rules requiring public companies to disclose political spending to their investors.

…continue reading: Responding to Objections to Shining Light on Corporate Political Spending (1): The Claim of Immateriality

A small but influential alliance of activist investor groups, academics and trade unions continues — successfully it must be said — to seek to overhaul corporate governance in America to suit their particular agendas and predilections. We believe that this exercise in corporate deconstruction is detrimental to the economy and society at large. We continue to oppose it.

The Shareholder Rights Project, Harvard Law School’s misguided “clinical program” which we have previously criticized, today issued joint press releases with eight institutional investors, principally state and municipal pension funds, trumpeting their recent successes in eliminating staggered boards and advertising their “hit list” of 74 more companies to be targeted in the upcoming proxy season. Coupled with the new ISS standard for punishing directors who do not immediately accede to shareholder proposals garnering a majority of votes cast (even if they do not attract enough support to be passed) — which we also recently criticized — this is designed to accelerate the extinction of the staggered board.

…continue reading: Harvard’s Shareholder Rights Project is Still Wrong

Golden parachutes, those packages that reward top executives if their company is acquired, have attracted much attention from investors and public officials for more than two decades. Defenders of golden parachutes believe that they provide executives with incentives to facilitate a sale of their companies. While the evidence confirms this, it indicates that golden parachutes have significant costs as well and might fail to serve the interests of shareholders over all.

Shareholder resolutions opposing golden parachutes have often received substantial support over time. Congress adopted tax rules aimed at discouraging large golden parachutes, and the rules created during the financial crisis precluded companies receiving government support from providing golden parachute payments to top executives. Subsequently, the Dodd-Frank Act mandated advisory shareholder votes on all future adoptions of golden parachutes.

Many companies and financial economists, however, continue to believe that golden parachutes are an important and beneficial element of executive pay. Because top executives typically give up independence and control when their companies are acquired, executives that do not have a golden parachute might be excessively reluctant to sell — and often can impede or even derail an acquisition they dislike.

…continue reading: For Whom Golden Parachutes Shine

In our new paper, Shining Light on Corporate Political Spending, we put forward a comprehensive, empirically-grounded case for SEC rules requiring public companies to disclose their political spending. We provide empirical evidence on the need for such rules and respond to the full range of objections that have been raised to mandatory disclosure in this area. The paper, which will be published by the Georgetown Law Journal, is available here.

Our paper systematically develops the case for the position taken in a rulemaking petition that was submitted to the SEC last year by a committee of ten law professors that we co-chaired. The petition has received unprecedented support, including from comment letters submitted to the SEC by more than a quarter of a million individuals. In addition, the petition has drawn supportive commentary from institutional investors, editorials in the New York Times and Bloomberg News, and a substantial number of members of the U.S. Senate and House of Representatives. At the same time, the petition, and the push for SEC disclosure rules in this area, has attracted opponents, including legal academics, prominent members of Congress, and the Wall Street Journal’s editorial page.

…continue reading: Shining Light on Corporate Political Spending