Last week, Securities and Exchange Commissioner Daniel Gallagher took the unusual step of publishing a letter to the editor of the New York Times expressing his opposition to the SEC even considering companies’ disclosure of political spending. In his letter, the Commissioner vows “to fight to keep” the subject off the SEC’s agenda. As explained below, however, his letter fails to provide a substantive basis for his vehement opposition to transparency in corporate spending on politics.
Posts Tagged ‘Citizens United v. FEC’
Anyone paying the slightest amount of attention recognizes that the U.S. political system is performing poorly. Washington is gripped by extreme partisanship, which prevents Congress from conducting even routine business, and cooperation between the executive and legislative branches is near historic lows. But as I argue in my new book, Billionaires: Reflections on the Upper Crust, the problem with the nation’s politics is even deeper than the daily headlines suggest. There is limited transparency surrounding money and politics, and many institutions that in the past could counterbalance the power of the wealthy and other special interests have grown weak. It is difficult for financially strapped news organizations to provide quality coverage of government, and political parties have become heavily dependent on a relatively small number of wealthy and well-connected people for campaign contributions.
The Million-Comment-Letter Petition: The Rulemaking Petition on Disclosure of Political Spending Attracts More than 1,000,000 SEC Comment Letters
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. We are delighted to announce that, as reflected in the SEC’s webpage for comments filed on our petition, the SEC has now received more than a million comment letters regarding the petition. To our knowledge, the petition has attracted far 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.
Leo Strine, Chief Justice of the Delaware Supreme Court Review and a Senior Fellow of the Harvard Law School Program on Corporate Governance, and Nicholas Walter recently issued an essay with that is forthcoming in Cornell Law Review. The essay, titled Conservative Collision Course?: the Tension Between Conservative Corporate Law Theory and Citizens United, is available here.
The abstract of Chief Justice Strine’s and Walter’s essay summarizes it briefly as follows:
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.
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.