Securities and Exchange Commission Political Disclosure Rulemaking Is a Critical Step for Investors and Democracy

At a Senate briefing today, lawmakers, prominent pension fund leaders, investors and securities law experts built a robust case for the Securities and Exchange Commission (SEC) to issue a rule requiring publicly traded companies to disclose their political spending.

U.S. Sen. Robert Menendez (D-N.J.), who sponsored and keynoted the briefing, said, "Investors have a right to know how corporate executives are spending investors' money. The Supreme Court's ruling in Citizens United that corporations are people and can spend unlimited money to influence elections has triggered a flood of secret money that undermines our democracy and often occurs without shareholders' knowledge or consent. Basic disclosure would bring much needed transparency and accountability and help ensure that corporations' political spending accurately reflects the will of the shareholders who own them."

Menendez has consistently called on the SEC to use its authority to require companies to disclose to shareholders how they spend shareholders' money to influence elections. In the wake of the Supreme Court's Citizens United v. Federal Election Commission decision, which said that corporations are people and can spend unlimited sums to influence elections, Menendez authored the Shareholder Protection Act, which not only would require full disclosure of any political spending by any public company, but would require shareholder authorization of this spending.

U.S. Sen. Elizabeth Warren (D-Mass.), who also keynoted the briefing said, "Disclosure of corporate political spending is good for investors, good for business, and good for the American public. Shareholders have a right to know how the companies they own are spending their money. More disclosure would make the democratic process more accountable by making sure citizens know who is backing candidates. The SEC should require publicly traded companies to disclose secret political spending - and it should do it now."

The rulemaking petition has garnered more than 640,000 supportive comments from the general public and investors alike - more than any other petition in the SEC's history - including supportive commentary from hedge fund investors and former Vanguard CEO John Bogle. The support has made an impact; last year, the SEC added the proposal to the agency's regulatory agenda.

"We applaud the SEC and encourage the agency to continue to act decisively to protect investors by providing them with material information," said Lisa Gilbert, director of Public Citizen's Congress Watch division and moderator of the briefing. Gilbert added, "Securities and Exchange Commission Chair Mary Jo White has lately stressed the independence of the SEC, saying they should use their expertise to mandate transparency requirements when information about companies is truly needed by investors. This rule fits that necessity perfectly, as the information has been loudly demanded by a wide-range of investors for that reason."

"Although investors have long asked public companies to disclose when shareholder money is spent on politics, most corporate political spending remains hidden from investors," said Robert J. Jackson, Jr., a professor at Columbia Law School who co-chaired the group of legal experts that petitioned the SEC to take up these rules in 2010. "The SEC should act immediately to adopt rules that would give investors the information they need to evaluate political spending at the companies they own."

The rulemaking has robust support from the investor community. Since 2010, the number of shareholder resolutions pertaining to political spending filed at companies has climbed from 58 to 128, according to the Sustainable Investments Institute. Average support for these proposals has steadily increased in the past two years.

"Investors should know how corporate dollars are being spent on politics so they can evaluate whether that spending is advancing the corporation's best interests," said New York State Comptroller Thomas P. DiNapoli, trustee of the $160.7 billion New York State Common Retirement Fund in a statement. "I urge the SEC to take up rulemaking to create a uniform standard for disclosure of corporate political spending."

The business community is also trending toward disclosure. More than 16 companies received top scores for their disclosure policies from the Center for Political Accountability-Zicklin Index, an increase of 150 percent from 2012. And 150 companies of the 195 surveyed received improved scores from 2012. In addition, a survey released earlier this year by the Committee for Economic Development showed that 90 percent of surveyed business leaders supported full disclosure of individual, corporate and labor contributions to political committees.

Professor John Coates of Harvard Law School, a prominent author of many studies on corporate governance and securities law, commented, "Political activity creates distinct and difficult-to-model risks. Dozens of studies have produced results inconsistent with political activity generally serving shareholder interests. Instead, they support the view that political activity can harm shareholder interests. These harms can flow through many channels - from reputational harm to dilution of strategic focus, from politically risky acquisition bets or capital investments to state laws deterring takeovers. To adequately assess those risks, shareholders need basic, standardized information about political activity - before investing, and afterwards, to monitor corporate performance and make informed decisions. Disclosure of such information is squarely within the SEC's charge, and would deliver significant benefits to investors at a low cost."

Laura Berry, executive director of the Interfaith Center for Corporate Responsibility, added, "As investors and active shareowners, the members of ICCR have been instrumental in encouraging our companies to agree to full disclosure for nearly a decade. Disclosure allows investors to make the best possible decisions by underscoring a company's strategic priorities. There is good reason that so many citizens align with investors in their conviction that corporations can and should disclose their political contributions."