The SEC’s recent decision to take disclosure of political activities off the SEC’s agenda is a policy mistake, as it ignores the best research on the point, described below, and perpetuates a key loophole in the investor-relevant disclosure rules, allowing large companies to omit material information about the politically inflected risks they run with other people’s money. It is also a political mistake, as it repudiates the 600,000+ investors who have written to the SEC personally to ask it to adopt a rule requiring such disclosure, and will let entrenched business interests focus their lobbying solely on watering down regulation mandated under the Dodd-Frank Act and the 2012 securities law statute, rather than having also to work to influence a disclosure regime.
Posts Tagged ‘Citizens United v. FEC’
Last week the Securities and Exchange Commission released its regulatory agenda, and this agenda no longer includes rules requiring public companies to disclose their spending on politics. The agenda now includes only overdue rules that the SEC is required to develop under Dodd-Frank and the JOBS Act. While we are disappointed by the SEC’s decision to delay its consideration of rules requiring disclosure of corporate political spending, we hope that the SEC will consider such rules as soon as it is able to devote resources to rulemaking other than that required by Dodd-Frank and the JOBS Act. The submissions to the SEC over the past two years have clearly demonstrated the compelling case and large support for requiring such disclosure.
We co-chaired a committee of ten corporate and securities law professors that filed a rulemaking petition urging the SEC to develop rules requiring public companies to disclose their spending on politics. In the two years since the petition was submitted, the SEC has received more than 600,000 comment letters on our petition—more than on any other rulemaking project in the Commission’s history. The overwhelming majority of these comments—including letters from institutional investors and Members of Congress—have been supportive of the petition. At the end of 2012, the Director of the SEC’s Division of Corporate Finance acknowledged the widespread support for the petition, and the Commission placed the rulemaking petition on its regulatory agenda for 2013.
In our paper, “The Impact of Political Connectedness on Firm Value and Corporate Policies: Evidence from Citizens United,” we examine the reasons behind a company’s decision to become politically connected and what impact such connections have on firm value and corporate policies. Political connections may enhance or harm shareholder value. However, existing insights attempting to address the impact of corporate political connectedness on shareholder value are inconclusive. In an effort to test for the existence of a causal link between political connections and changes in shareholder value, we pose our research questions in the context of a natural experiment. Specifically, we focus on an exogenous enhancement in the value implications of political connectedness that accompanied the landmark Supreme Court case, Citizens United.
Responding to Objections to Shining Light on Corporate Political Spending (7): Claims About the Costs of Disclosure
The Securities and Exchange Commission is currently considering a rulemaking petition urging the Commission to develop rules requiring public companies to disclose their political spending. In our first six posts in this series (collected here), we examined six objections raised by opponents of such rules and explained why these objections provide no basis for opposing rules requiring public companies to disclose their spending on politics. In this post, we consider a seventh objection: the claim that disclosure rules in this area would impose substantial costs on public companies—and that the SEC lacks the authority to develop such rules because these costs would exceed any benefits that the rules would confer upon investors.
Several opponents of the petition have argued that the SEC may not require public companies to disclose their spending on politics because the costs of such rules would exceed their benefits. For example, the American Petroleum Institute and the U.S. Chamber of Commerce, which are both significant intermediaries through which undisclosed corporate political spending is currently channeled, recently argued in letters to the SEC that the “Commission could not rationally find that the benefits of such a rule” “could outweigh the huge costs.” There is currently considerable debate over the precise weight that cost-benefit analysis should be given in the SEC rulemaking process generally. Whatever position one takes on that general issue, however, cost-benefit analysis does not preclude the SEC from adopting rules requiring public companies to disclose their spending on politics.
Responding to Objections to Shining Light on Corporate Political Spending (6): The Claim that Disclosure Rules are Prohibited by the Constitution
The Securities and Exchange Commission is currently considering a rulemaking petition that we filed along with eight other corporate and securities law professors asking the Commission to develop rules requiring that public companies disclose their spending on politics. In our first five posts in this series (collected here), we examined five objections raised by opponents of such rules and explained why these objections provide no basis for opposing rules requiring public companies to disclose their political spending. In this post, we consider a sixth objection: the claim that the Constitution prohibits the SEC from requiring companies to disclose their spending on politics.
The regulation of political speech, including the regulation of contributions and spending, is one of the most constitutionally delicate operations in which the government can engage. As the Supreme Court stated in Buckley v. Valeo, “[Political] contribution and expenditure limitations operate in an area of the most fundamental First Amendment activities. . . . [T]he First and Fourteenth Amendments guarantee ‘freedom to associate with others for the common advancement of political beliefs and ideas.’” The same is true of “compelled disclosure,” which the Court has noted “in itself can seriously infringe on privacy of association and belief guaranteed by the First Amendment.”
Given these important First Amendment concerns, and wary of creating the actuality or appearance of partisan advantage, Congress has entrusted interpretation and enforcement of the campaign finance laws to the Federal Election Commission (FEC). This agency is unique in a number of ways. Perhaps most fundamentally, it includes six commissioners evenly divided between the two major parties. Furthermore, having been the defendant in many of the most important First Amendment lawsuits of the past 40 years, it has considerable expertise in dealing with the intricate intersection of campaign finance regulation and constitutional liberties.
We recently submitted a comment letter in connection with a rulemaking petition, currently before the SEC, urging the development of rules to require public companies to disclose the use of corporate resources for political activities. The Petition was submitted by the Committee on Disclosure of Corporate Political Spending, a group of ten corporate and securities law experts that we co-chaired. In further support of the rules advocated by the Petition, our comment letter submitted for consideration by the SEC our Article Shining Light on Corporate Political Spending, which was published recently in the Georgetown Law Journal.
The submitted Article puts forth a comprehensive, empirically-grounded case for the rules advocated in the Petition. The Article also provides a detailed response to each of the ten objections that have been raised by the Petition’s opponents, either in the comment file or elsewhere. The Article shows that none of these objections, either individually or collectively, provides a basis for opposing rules requiring public companies to disclose political spending.
The main part of our comment letter discusses and reviews the analysis in the attached article as follows:
Rulemaking Petition on Disclosure of Political Spending Attracts Support from More Than 500,000 Comment Letters Filed with the SEC
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.
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 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.
Responding to Objections to Shining Light on Corporate Political Spending (4): The Claim that Such Disclosure Would Give a Political Advantage to Unions
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.”