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Corporate Disclosure Benefits Both Businesses and Democracy

Ian Vandewalker and Seattle-based entrepreneur and investor Steve Roth write that the SEC should mandate all publicly traded companies disclose their political spending.

May 12, 2015

Cross-posted on The Huffington Post

Starbucks CEO Howard Schultz made waves a few years back when he organized business leaders to pledge not to make campaign contributions, in protest of the brinksmanship in D.C. that led to a government shutdown. It was a bold move for the leader of a highly visible brand. But even if every CEO in America had agreed, their companies could still have pumped big money into politics without anyone knowing, because it’s now legal for corporations to spend money on elections in complete secrecy.

A series of decisions by the John Roberts-led Supreme Court has not only created an explosion in unaccountable outside spending on elections; it has also allowed much of that spending to be invisible. No matter what CEOs like Schultz tell the public and their shareholders about their own political spending, in many cases it is currently impossible to know how they are using corporate money to influence our elections.

This isn’t good for our democracy, or our economy. But the situation isn’t hopeless. And the solutions need not be far off. The good news is a lot can be done today. In particular, the Securities and Exchange Commission (SEC) could almost immediately strike a significant blow against “dark money” spending by major corporations in elections, in a way that would benefit investors and voters alike.

Investors need information about political spending so that they can make informed decisions. Political activity creates risk for companies, as Target discovered in 2010 when it saw boycotts in response to political spending in favor of a gubernatorial candidate who opposed same-sex marriage. Studies show that political spendingcorrelates with lower shareholder value. Furthermore, shareholders deserve to know whether their money is used to support causes they object to.

But today, companies that engage in political spending aren’t even required to tell their own shareholders who they’re giving money to. Since the Supreme Court allowed corporations to spend on elections in its 2010 Citizens United decision, groups that conceal the source of their funds have spent well over $600 million trying to influence elections. No one knows how much of that money came from corporations. While some companies do choose to reveal this information, disclosure should be required for the protection of all investors.

Washington State’s biggest companies illustrate the diverse approaches politically active corporations take to public disclosure of election spending. Amazon doesn’t share information about the recipients of the money it expends on ballot initiatives and the politically active trade associations that can spend millions to influence elections. Bellevue-based truck manufacturer PACCAR engages in no voluntary disclosure—not even to tell shareholders whether the firm contributes to campaigns or not. On the other hand, Microsoft publishes data about trade association payments that are spent on politics, as well as all of its contributions to political committees. Costco and Boeing also received high marks for transparency on a nonpartisan index of corporate transparency and accountability around political spending, the CPA-Zicklin Index. Starbucks, whose CEO organized the no-contributions pledge, hasn’t donated money directly to campaigns in recent years, but the CPA-Zicklin Index notes that it doesn’t fully report other categories of political spending.

The huge variation among different companies leaves investors in the dark about too much of the market and unable to make informed decisions—crippling the crucial information mechanisms of both capitalism and democracy.

The SEC has the power change that, by making all public companies disclose their political spending. A petition asking the agency for a disclosure rule has generated over a million comments in support, and more voices continue to join that that strong chorus. One of the biggest investors in Washington, state treasurer James McIntire (responsible for the investment of more than $4 billion in state funds), joined withseveral other state treasurers to demand action from the SEC. And more than a hundred major investors from across the country have written the agency a letter of their own asking for required corporate reporting of political donations.

These reporting requirements are not onerous. Pharma giant Merck set up a committee to oversee political contributions after consultation with shareholders, and Merck’s vice president of state government affairs and policy said, “the administrative burden wasn’t much of a problem.”

For the public and the business community, there’s no meaningful downside to stronger rules on corporate political spending disclosure. The only people who stand to benefit from secrecy are those who hope to manipulate our democracy and seek unfair advantage while remaining in the shadows—leaving both shareholders and voters in the dark. The SEC should put reporting requirements for corporate political donations at the top of its agenda. It’s time to bring those shadow players into the light.

Steve Roth is a Seattle based entrepreneur and investor.

(Photo: Thinkstock)