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One Year Later, Shareholders Are Still in the Dark

Transparency is vital to our democracy. The SEC must require disclosure of corporate political expenditures to give shareholders and citizens the information they need.

August 2, 2012

One year ago tomorrow, a group of experts in corporate and securities law asked the Securities and Exchange Commission (petition No. 4–637) to create a rule requiring publicly traded companies to disclose their political spending to shareholders.

Since the petition was filed, the SEC has received over 290,000 comments about it — a record number. Virtually all of these comments have been in support of the proposal, including one from a group of mutual fund and institutional asset managers that together manage more than $690 billion. Even one of the SEC’s own commissioners, Luis Aguilar, has publicly endorsed the idea of requiring companies to report their political spending.

So far, the SEC has not acted.

This week, the Brennan Center released a report explaining the need for disclosure from corporations in the current climate of rampant spending on elections, and why the SEC needs to regulate it.

In the year since the petition was filed, the case for transparency has only grown stronger. The 2012 presidential election is going to be the most expensive one ever. And outside spending — spending by anyone other than the candidates’ campaigns — is playing a much larger role than in previous elections.

Corporations have contributed to this surge in outside spending, but we don’t know exactly how much because it’s so easy for them to hide their contributions. They can shunt their money through shell corporations or give to non-profit “social welfare” groups and trade associations like the U.S. Chamber of Commerce, which spend millions on electioneering but aren’t required to reveal their donors.

Reacting against this corporate secrecy, shareholders have been clamoring for information about whether and how their money is used in politics. Each year since Citizens United was decided, more and more corporations have seen shareholder resolutions that would require disclosure of political spending. During the 2012 shareholder meeting season, several corporations faced protests by shareholders and others demanding greater disclosure of political spending.

Transparency would help investors make informed decisions about whether to buy or sell stock in a company. It would allow them to monitor the activities of corporate managers and their effect on the company’s bottom line. And it would allow shareholders to avoid having their money used for political purposes that they disagree with. Target shareholders, for example, expressed both concerns in 2010 when the retailer faced boycotts after donating money to a PAC that backed a Minnesota gubernatorial candidate who opposed same-sex marriage.

Looking beyond shareholders, the broader public would benefit from disclosure of corporate political spending. As the Supreme Court recognized in Citizens United, voters have an interest in knowing the source of political speech so they can decide whether to trust it. In 2007, in Littleton, Colorado, an organization called “Littleton Neighbors Voting No” spent $170,000 opposing a local ballot question. Despite its homegrown-sounding name, the organization was entirely funded by Wal-Mart to fight a restriction that would prevent the company from doing business in Littleton.

In addition to letting voters know who is trying to persuade them, disclosure requirements also deter campaign finance violations and expose the creative use of loopholes to get around those laws.

The statute that created the SEC gives the agency the authority and responsibility to protect investors and the public interest. Federal securities law has always been based on a philosophy of full disclosure. Since shareholders and the general public have shown such a strong interest in information about corporations’ political spending, that information should be included in the disclosures that the SEC requires of all publicly held corporations.

As SEC Commissioner Aguilar put it, “Investors are not receiving adequate disclosure, and as the investors’ advocate, the Commission should act swiftly to rectify the situation by requiring transparency.”

The petition asking for rules requiring disclosure of corporate political expenditures has been sitting on the SEC’s doorstep for a year. It’s time for the agency to give shareholders and citizens the information they need to make informed decisions about their money and their votes.