The Conference Board Governance Center Blog

Aug
11
2011

Corporate Political Spending Issue Now at SEC’s Doorstep

In light of a divisive presidential election cycle that is about to start, the issue of corporate political spending has gotten some traction over the past month as a committee of academics has petitioned the SEC for new disclosure rules. Public companies may want to keep an eye on how this plays out over the next few months since it is an issue that involves politics and corporate governance at a time when Congress and the President are not too popular.

It would seem that the SEC, with all the rulemaking associated with the Dodd-Frank Wall Street Reform and Consumer Protection Act, would have its hands full. But politics has a funny way of dictating the agenda of a regulator that has had its own public image problems. Don’t be surprised to see if the SEC follows up on the Aug. 3 petition from a group of 10 professors from prestigious business and law schools to propose rules requiring disclosure of corporate political spending.

This issue continues to be a concern for politicians, trade associations, and the boards of many public companies since the 2010 Citizens United case lifted some of the restrictions for companies’ political expenditures. The U.S. Supreme Court in January 2010 ruled that companies, like individuals, can advocate for politicians and political issues that affect the prosperity of their employees and shareholders. But as Bruce Freed, president of the Center for Political Accountability, told me last year when the decision came down, the court made a point of reiterating the importance of disclosure to shareholders. [Read blog post here.]

Just this past week the issue of corporate political spending disclosure was raised again as the Committee on Disclosure of Corporate Political Spending filed a petition with the SEC seeking new rules.

The 11-page petition filed Aug. 3 states that: “Shareholders in public companies have increasingly expressed strong interest in receiving information about corporate spending on politics, and such spending is likely to become even more important to public investors in the future. Furthermore, shareholders need to receive such information for markets and the procedures of corporate democracy to ensure that such spending is in shareholders’ interest. Still, while many large public companies have begun to provide such information, no existing rule requires disclosure of this information to investors, and corporate political spending remains opaque to investors in most publicly traded companies. The Commission should address this lack of transparency and, drawing on its expertise and experience in designing rules for disclosure of other information that is of interest to investors, should adopt rules concerning disclosure of corporate political spending.”

Only days later the New York Times wrote an editorial calling for a corporate political spending disclosure rule similar to the one the SEC wrote in the 1990s regarding disclosure of executive pay. The editorial stated: “Shareholders clearly want to know. In 2011, a quarter of the companies on the S&P Index of 100 large corporations included shareholder proposals seeking more disclosure of political spending in their proxy statements to be considered at annual meetings.”

The Times pushed for decisive action by the SEC. “A uniform rule of disclosure of political contributions in corporate proxy statements once a year or through some other means would help shareholders assess the profitability of a company’s political activities and protect democracy from the flood of money unleashed by the Citizens United decision,” the Times wrote.

When I exchanged emails with Lucian Bebchuk, professor of law and economics at Harvard Law School and one of the lead signatories on the petition, he said that it is apparent investors want to know more about the political spending of the companies they invest in as well as the trade associations those companies give money to.

“We believe, for the reasons described in detail in the petition, that there is a strong case for SEC consideration of the adoption of rules making political spending more transparent, and we therefore hope that the SEC will indeed begin considering the subject,” Bebchuk wrote. “The Citizens United case, and the increase in the scope of permissible corporate political spending brought about by the decision, just reinforce a need for greater transparency that existed even prior to the decision.”

The petition also addresses corporate contributions to intermediaries, such as trade associations like the U.S. Chamber of Commerce. “There are cases, such as corporate contributions to intermediaries that spend a large fraction of their funds on politics, for which inclusion within the scope of the Commission’s rules seems warranted,” the petition states.

It is not clear when or if the SEC will act on the petition.

The disclosure issue is certainly one the newly formed Conference Board Committee on Corporate Political Spending will tackle in the coming months as it prepares to issue a follow-up report to The Conference Board 2010 report, Handbook on Corporate Political Activity. Then, on Oct. 20 in New York City, the committee will host a symposium to discuss how corporations and shareholders can best develop good governance practices, increase shareholder value, and manage the risks related to corporate political spending. For more information about the committee, click here.

Regarding the petition, the committee issued the following statement: “This topic, as evidenced by the recent letter to the SEC from the committee of academics and the other recent press coverage, is only going to heat up in 2012. Now is the time to sit down, work through the issues and being putting policies and initiatives in place that recognize each organization’s unique situation.”

Interestingly enough, one of the signatories of the petition is Prof. Robert J. Jackson Jr. of Columbia Law School, is on the Advisory Committee of The Conference Board corporate political spending committee.



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