Shareholder Protection in the Age of Super PACs
Neither our economy nor our democracy will function in the interest of all Americans if corporate political activity occurs in secret, with shareholders — and voters — kept in the dark.
On Friday, SEC Commissioner Luis Aguilar spoke out on the need for the Securities and Exchange Commission to address the lack of adequate disclosure of corporate spending unleashed by Citizens United. Aguilar’s comments are a welcome and important response to a chorus of voices — including the Brennan Center and a broad range of groups — who have urged the SEC to issue rules that would require public corporations to provide their shareholders with information about the use of corporate resources for political activities.
In 2011, for-profit corporations made $17 million in contributions to Super PACs. This is 18 percent of the total itemized Super PAC funding. That sum, however, does not include corporate donations to non-profits engaged in political activity — which are not required to disclose their donors — or corporate donations to non-profits that the groups then transfer to Super PACs. Aguilar’s speech to the SEC staff should goad the other Commissioners to take action on this critical issue.
Aguilar recognized that there are numerous reasons why the SEC’s mandate to protect investors requires affirmative steps to ensure corporate disclosure of political activity. First, disclosure is essential to help individuals make investment decisions. People may not want to invest in companies that choose to engage in political activity or to support candidates with whom they disagree. Second, disclosure is necessary in order to ensure that political spending decisions reflect the shareholders’ interests, rather than just those of the corporate managers. Finally, transparency in corporate spending combats pay-to-play corruption and rent-seeking, which distort the marketplace and efficiently functioning capital markets.
The amount of unregulated corporate spending in the 2012 election raises serious concerns of corruption. Senator John McCain recently said: “I predict to you there will be a major scandal associated with the Supreme Court decision on Citizens versus United [sic]. There is too much money washing around.” It is up to our government agencies to take proactive steps to prevent scandal before it occurs. Aguilar warned that Enron and other scandals of the previous decade stemmed in part from the SEC’s failure to adopt a pay-to-play rule proposed in 1999 until 2010. “The cost of Commission inaction — particularly in the face of compelling evidence for the Commission to act — can be devastating, as we have seen over and over again.”
Comments like McCain’s and Aguilar’s are proverbial canaries in the coal mine. Neither our economy nor our democracy will function in the interest of all Americans if corporate political activity occurs in secret, with shareholders — and voters — kept in the dark. It’s time for the SEC to heed repeated calls for action and promulgate common sense disclosure rules for corporate political spending.