Skip Navigation

Not Because It Is Easy, SEC

Crafting a new disclosure rule will not be easy for the SEC given the political head winds. But as President Kennedy admonished a nation so many years ago, most things worth doing are not easy. We must be bold.

December 4, 2013

The 50th anniversary of President Kennedy’s assassination presents an opportunity to remember his bon mots like, “We do these things not because they are easy, but because they are hard.” This is how President Kennedy explained why America should try to land a man on the moon. I hope this sentiment will inspire the Chair of the SEC Mary Jo White to do the right thing and revive a rulemaking to bring light to dark political spending by corporations. 

Since 2011 the SEC has had a petition from 10 corporate law professors asking for a new rule on the transparency of corporate political spending. The very first petition on the topic was actually filed the day after the Supreme Court issued Citizens United v. FEC by a lone shareholder in January 2010. Thus, the SEC has been on notice that there is a problem for nearly four years. But still the agency has not addressed this need as it crafted rules mandated by Dodd-Frank — the law that tries to fix problems that led to the Great Recession. Dodd-Frank rules are surely needed; but so is this. Yet the SEC just dropped this potential rule from its regulatory agenda for 2014.

A record breaking 644,000 (and counting) people have taken time out of their busy lives to file public comments endorsing the need for a new rule. According to Felicia Kung, chief of the rule-making office in the SEC’s Corporation-Finance division, “It’s garnered more comments than even our most controversial rules, which is saying a lot these days.”

Realizing there is a need for this new SEC rule on corporate politicking isn’t just easy, it’s a no-brainer. Shareholders have been asking for this transparency themselves through the existing tools of corporate governance. For the past few years, one of the most frequent topics on the proxies of U.S. public companies has been the issue of transparency of political spending. Chairwoman White acknowledged this fact in a speech on December 3, 2013, stating: “The most common 2013 shareholder proposal topics were board declassification, appointment of an independent board chair, limitations on accelerated vesting of equity awards, disclosure of political contributions and lobbying, and sustainability reporting.”

As a result of these efforts by shareholders (on their own dime, by the way), more companies are disclosing. But disclosure of political spending isn’t a good candidate for private ordering since some corporations will remain dark no matter how much their shareholders  coax and cajole. So for shareholders to compare investments apples to apples, there has to be uniform disclosure. The SEC needs to act to give investors the transparency they deserve across the board.

The hard part is too many members of Congress have opted to take a decidedly anti-disclosure stance. Also the dark money fans have taken to the pages of the Wall Street Journal and New York Times to denounce transparency. This isn’t new. For decades, those who want a totally deregulated securities market have complained about SEC disclosures. What they miss is that transparency is one of the reasons why investors trust the stock market with their life savings in the first place. And if you want to see an unregulated stock market, look at the roaring twenties which ended unceremoniously with Black Monday in 1929.  

The Supreme Court has given regulators a wide berth to establish disclosure rules. The Supreme Court is pro-disclosure whether the question is SEC regulations or campaign finance laws. As the Court wrote in SEC v. Capital Gains Research Bureau, Inc. in 1963, and quoted repeatedly in cases ever since, “A fundamental purpose, common to these [securities] statutes, was to substitute a philosophy of full disclosure for the philosophy of caveat emptor and thus to achieve a high standard of business ethics in the securities industry.”  

The Court has taken a similar approach in campaign finance disclosure. They stated in Citizens United that federal campaign finance disclosures “help citizens make informed choices in the political marketplace.” Indeed the modern court has upheld disclosure in elections 8 to 1. Still, the Supreme Court lacks the power to mandate disclosure for companies. That’s up to Congress, the 50 states, and our independent federal regulatory agencies like the SEC.  

Crafting a new disclosure rule will not be easy for the SEC given the political head winds. But as President Kennedy admonished a nation so many years ago, most things worth doing are not easy. We must be bold. We made it to the moon; we can make it through this rulemaking.

The views expressed are the author’s own and not necessarily those of the Brennan Center for Justice.