Bringing Corporate Political Spending to Light

I don’t think it’s too much of a stretch to argue that the corporate spending disclosure rules now being evaluated by the Securities and Exchange Commission (SEC) are the most focused popular response to the Citizens United case since the U.S. Supreme Court handed down that epic First Amendment decision in January 2010. The proposed rule, which would require publicly traded companies to disclose to their shareholders their political donations, already has received “half a million comments, far more than any petition or rule in the agency’s history, with the vast majority in favor of it,” according to a revelatory piece earlier this week in The New York Times.

The proposed rule is the evident answer to many of the questions raised about campaign finance reform in the tumultuous years since Citizens United. If the purpose of that ruling was to demand freedom and invite transparency in campaign financing — to permit the so-called corporate “speech” but also permit it to be forced to be “spoken” in public — then this regulatory effort achieves both goals. Public corporations still would be free to donate hundreds of millions of dollars to tax-exempt groups and trade associations, which in turn would be free to advocate on behalf of causes and campaigns. And the American people would be free to assess for themselves the political (and economic) impact of those transactions.

What exactly is wrong with that? As a matter of economics and capitalism, absolutely nothing. As the Brennan Center’s Adam Skaggs told me Thursday, “You would think those who believe the investment market functions the most effectively when investors have more information would favor transparency.”

Indeed, the entire agency, the SEC, was founded three-quarters of a century ago on the proposition that America’s markets needed more transparency and accountability from corporations. Yet there is an inherent tension, Skaggs suggests, “between favoring transparency in the economic marketplace and seeking to wield political influence beneath a cloak of darkness.”

What about as a matter of law? On Thursday, two Democratic lawmakers introduced the Shareholder Protection Act, a federal bill that would require corporate disclosure of campaign expenditures and require corporate executives to get shareholder approval before making certain political contributions. Earlier, House Republicans had introduced a conflicting measure to preclude any agency, and especially the SEC, from regulating corporate campaign disclosures. It is impossible to know today whether either of these measures will pass (or even, given the Senate’s standing filibuster, make it to a vote on the merits).

But it’s easy to predict that any SEC disclosure rule promulgated by the agency will immediately be challenged in federal court. And that brings us back to the justices in Washington.

Would the Supreme Court tolerate a regulatory effort at transparency in campaign finance reform, one that focused upon both the rights and the power of shareholders? Would the justices require a statutory remedy rather than an administrative one? Would it matter which vehicle federal authorities use? These are all questions for another day, in court.

But there is a reason why the forces of reform have a reason to be optimistic about their legal chances were this effort to become law. Justice Anthony Kennedy, the eternal swing vote and author of Citizens United, wrote this in his majority opinion:

Shareholder objections raised through the procedures of corporate democracy can be more effective today because modern technology makes disclosures rapid and informative. A campaign finance system that pairs corporate independent expenditures with effective disclosure has not existed before today… With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are “ ‘in the pocket’ of so-called moneyed interests.” The First Amendment protects political speech; and disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.

And then there is the politics of it all. First, the opponents of campaign finance reform complained about legislative restrictions on political spending. The Supreme Court agreed.

Now these foes of reform are complaining about the possibility of regulatory requirements of transparency that limit not a single dollar in political contributions. They say the SEC has been hounded by progressives who contend that federal regulators failed to adequately punish those responsible for the banking and foreclosure crises of the last decade. The new rules, these critics say, would unfairly and improperly “out” campaign donors by “scaring them” into being publicly linked to their donations. But having the courage of your convictions is as American as Wall Street itself — and one way or another soon could be the law of the land.