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:

…continue reading: SEC Comment Letter: Shining Light on Corporate Political Spending

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

Ernst & Young supports effective audit committees and believes that audit committee transparency can promote greater investor confidence in financial reporting. A number of companies currently disclose more information about their audit committees than is required under relevant rules. With this post, we seek to alert audit committees and other stakeholders to current disclosure practices, and also to proposals that have been made for additional disclosures, in order to facilitate consideration and discussion.

Going Beyond the Minimum

Audit Committee Transparency

In general, investor demand and regulatory changes are driving boards of directors of public companies to be more transparent about their activities.

More specifically, investor interest – and policy debate around the role of audit committees and auditor independence – are generating discussion about audit committee disclosures that go beyond the minimum requirements. For example:

…continue reading: Audit Committee Reporting to Shareholders

Today [May 1, 2013], the Commission considers issuing a release proposing rules and interpretive guidance applicable to certain market intermediaries, participants, clearing agencies, data repositories, and trade execution facilities that are involved in cross-border transactions of security-based swaps. The proposed release is over 1,000 pages, contains over 2,000 footnotes, and requests comments on more than 630 questions with many subparts. Although the questions posed are many, they are intended to be balanced and fair to solicit views from all sides. This is a welcome approach, because it contributes to a healthy debate and dialogue that is vital to the Commission’s processes.

Today, the Commission also votes to reopen the comment period on the various outstanding rulemaking releases and policy statement concerning security-based swaps and market participants to allow the public additional time to analyze and provide comments in light of our cross-border release.

The length of the cross-border release and the reopening of the comment periods reflect the complexity and importance of the issues involved in securities-based swap transactions. In issuing today’s proposal and asking for comments on the Commission’s proposed approach to regulating the securities-based swap market, the Commission recognizes the interactions among many important rules in this area. It is important, therefore, that our rules avoid gaps and loopholes, and that they work together to provide the needed transparency, accountability, and protection to our economy, the markets, and, most importantly, to investors.

…continue reading: Proposed Rules for Global Derivatives Market

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

I am particularly pleased to be at a conference that focuses on the role of institutional investors and their impact on corporate control, market liquidity, and systemic risk. The SEC has a great deal of interest in these areas and I hope that you will provide us with any observations that can help inform the SEC’s understanding.

Role Played by Institutional Investors

The topic of your conference recognizes the important role played by institutional investors and the great influence they exert in our capital markets. The role and influence of institutional investors has grown over time. For example, the proportion of U.S. public equities managed by institutions has risen steadily over the past six decades, from about 7 or 8% of market capitalization in 1950, to about 67 % in 2010. The shift has come as more American families participate in the capital markets through pooled-investment vehicles, such as mutual funds and exchange traded funds (ETFs).

Institutional investor ownership is an even more significant factor in the largest corporations: In 2009, institutional investors owned in the aggregate 73% of the outstanding equity in the 1,000 largest U.S. corporations.

…continue reading: Institutional Investors: Power and Responsibility

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