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Comment to SEC on Corporate Political Spending Disclosure Petition

The Brennan Center for Justice submitted a comment to the Securities and Exchange Commission, urging it to require public companies to disclose their direct and indirect political spending.

  • Adam Skaggs
Published: December 22, 2011

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Ms. Eliza­beth M. Murphy
Secret­ary
Secur­it­ies and Exchange Commis­sion
100 F. Street, North­east
Wash­ing­ton, DC  20549

            Re:       Peti­tion to Require Public Compan­ies to Disclose Corpor­ate Polit­ical Spend­ing
                        File No. 4–637

Dear Ms. Murphy,

The Bren­nan Center for Justice at N.Y.U. School of Law[1] respect­fully submits these comments on the pending peti­tion to require disclos­ure of corpor­ate polit­ical spend­ing, File No. 4–637 (the “Peti­tion”).  For the reas­ons set forth in the Peti­tion, and outlined in the numer­ous comments submit­ted to the Commis­sion, the Bren­nan Center urges the Commis­sion to use its author­ity to bring trans­par­ency and account­ab­il­ity to corpor­ate polit­ical spend­ing by public compan­ies.

There has long been intense pres­sure on the busi­ness community to provide the funds that fuel our ever more expens­ive elec­tions, and this pres­sure increased after the U.S. Supreme Court’s land­mark decision in Citizens United v. Federal Elec­tion Commis­sion[2] expan­ded the scope of permiss­ible corpor­ate polit­ical activ­ity.  Accord­ing to a Zogby Inter­na­tional survey of busi­ness opin­ion lead­ers conduc­ted in 2010, three in five respond­ents said that corpor­ate lead­ers are pres­sured to contrib­ute to polit­ical candid­ates, and nearly half repor­ted that the level of pres­sure placed on busi­ness lead­ers has increased since 2008.[3]  Busi­ness lead­ers “are also asked to make contri­bu­tions to [non-candid­ate] organ­iz­a­tions and polit­ical groups that are allowed to spend corpor­ate money on elec­tion related activ­it­ies.”[4]

The demand for corpor­ate polit­ical dollars has mush­roomed in tandem with the dramat­ic­ally increas­ing costs of recent Amer­ican polit­ical campaigns.  Accord­ing to Federal Elec­tion Commis­sion data, Congres­sional fundrais­ing has more than doubled since 1998.  That year, “candid­ates for the House and Senate raised a total of $781 million.  By 2008, campaign receipts had grown to $1.4 billion and in 2010 soared to almost $1.9 billion.”[5]  Elec­tion spend­ing by non-candid­ate groups has also soared.  Spend­ing by outside groups in the 2010 elec­tions grew by more than 400 percent compared to the previ­ous mid-term elec­tion cycle; if such spend­ing increased at the same rate in the 2012 elec­tion cycle, we would see more than $1 billion in outside money.[6]

Corpor­ate decision-makers feel compelled to be active play­ers in this campaign finance arms race.  Busi­ness lead­ers fear that if they refuse entreat­ies for polit­ical dollars, they will be at a compet­it­ive disad­vant­age, and that “compet­ing interests who do contrib­ute gener­ously will have an advant­age in gain­ing access to and influ­en­cing [poli­cy­makers] on matters of import­ance to the company.”[7]

Given the wide­spread pres­sure on corpor­ate lead­ers to make polit­ical expendit­ures—and the millions of corpor­ate dollars that have flowed into polit­ics in recent years as a result[8]—it is not surpris­ing that there is signi­fic­ant public interest in the details of corpor­ate polit­ical spend­ing.  Share­hold­ers and poten­tial investors have a partic­u­larly strong interest in this inform­a­tion, because informed invest­ment decisions require an assess­ment of whether a corpor­a­tion’s polit­ical spend­ing advances its interest in profit making.

Data on corpor­ate polit­ical spend­ing is import­ant to share­hold­ers because “[p]olit­ical activ­ity . . . exposes compan­ies to substan­tial repu­ta­tional and legal risks that endanger enter­prise and share­holder value.”[9]  The share­holder interest in robust disclos­ure of corpor­ate polit­ical activ­ity is strengthened by the fact that “mana­gerial and share­holder interests are not well aligned” with respect to corpor­ate polit­ical spend­ing.[10]  If such spend­ing is not fully trans-parent, share­hold­ers lack the abil­ity to hold corpor­ate managers account­able for polit­ical spend­ing decisions.

Accord­ingly, to protect the integ­rity of the nation’s capital markets and to ensure that investors have full and accur­ate inform­a­tion about the compan­ies they invest in, the Commis­sion should develop rules that require public compan­ies to disclose to share­hold­ers the use of corpor­ate resources for polit­ical expendit­ures.

Public Compan­ies Are Already Respond­ing To Investor Interest In Corpor­ate Polit­ical Spend­ing.

Partic­u­larly in the two years since Citizens United opened the door to more extens­ive corpor­ate polit­ical spend­ing, the interest in robust disclos­ure of that spend­ing has increased among share­hold­ers and the broader public.  During that time, and even before Citizens United, a substan­tial number of lead­ing Amer­ican compan­ies have volun­tar­ily agreed to provide share­hold­ers with inform­a­tion on corpor­ate polit­ical spend­ing. 

At least three major stud­ies, released in the months after the Peti­tion was filed, have docu­mented the grow­ing interest in trans­par­ency in corpor­ate polit­ical spend­ing:

  • First, in Septem­ber 2011, research­ers from the Robert Zick­lin Center for Corpor­ate Integ­rity at Baruch College issued the Baruch Index of Corpor­ate Polit­ical Disclos­ure, which meas­ures compan­ies’ will­ing­ness to disclose their corpor­ate polit­ical activ­ity; what compan­ies say about the candid­ates and polit­ical groups they give to; and how those dona­tions are made.[11]  The Baruch Index ranked the S&P 100 compan­ies and found that while 22 of the S&P 100 compan­ies disclose little or noth­ing about their corpor­ate polit­ical activ­it­ies, many compan­ies have adop­ted strong disclos­ure policies.  The Index sugges­ted that many compan­ies with high levels of spend­ing on polit­ical activ­it­ies disclose little inform­a­tion about their spend­ing—sug­gest­ing that the lack of trans­par­ency in some polit­ic­ally active compan­ies hinders share­hold­ers from eval­u­at­ing the signi­fic­ance of those compan­ies’ polit­ical activ­it­ies.
  • Second, in Octo­ber 2011, the nation’s lead­ing advoc­ate for trans­par­ency in corpor­ate polit­ical spend­ing, the Center for Polit­ical Account­ab­il­ity, teamed with the Carol and Lawrence Zick­lin Center for Busi­ness Ethics Research at the Whar­ton School of the Univer­sity of Pennsylvania to release the CPA-Zick­lin Index of Corpor­ate Polit­ical Account­ab­il­ity and Disclos­ure.[12]  The CPA-Zick­lin Index emerged from a compre­hens­ive exam­in­a­tion of the activ­it­ies of the S&P 100 compan­ies, and noted that disclos­ure of polit­ical spend­ing is becom­ing a main­stream corpor­ate prac­tice:  57 of the S&P 100 compan­ies disclose their direct corpor­ate polit­ical spend­ing and have adop­ted board over­sight, or they prohibit spend­ing corpor­ate cash on polit­ics.  Forty-three compan­ies disclose some inform­a­tion about their indir­ect spend­ing through trade asso­ci­ations or other tax-exempt groups.
  • Finally, in Novem­ber 2011, the IRRC Insti­tute, a non-profit organ­iz­a­tion that focuses on corpor­ate ethics and the inform­a­tional needs of investors, released a report by the Sustain­able Invest­ment Insti­tute (“Si2”) entitled Corpor­ate Governance of Polit­ical Expendit­ures:  2011 Bench­mark Report on S&P 500 Compan­ies.[13]   The Si2 report examined a larger group of compan­ies than the prior reports, and revealed that, over­all, disclos­ure among S&P 500 firms lags behind that of the S&P 100 compan­ies—­though even in the larger universe of compan­ies, the trend is toward greater disclos­ure and greater trans­par­ency about who has decision making author­ity on polit­ical spend­ing.  Disclos­ure of polit­ical spend­ing through inter­me­di­ary groups like trade asso­ci­ations has also increased.

The release of three major reports on corpor­ate polit­ical spend­ing in the months since the Peti­tion’s filing is itself proof of substan­tial investor interest in the scope and nature of corpor­ate polit­ical spend­ing.  And the reports’ collect­ive conclu­sions estab­lish beyond doubt that corpor­ate disclos­ure of both direct and indir­ect polit­ical spend­ing is well within the main­stream of corpor­ate governance prac­tice—and is increas­ingly the norm.

The substan­tial number of compan­ies that have embraced disclos­ure vary signi­fic­antly in their polit­ical spend­ing policies:  some prohibit polit­ical spend­ing entirely; some forbid contri­bu­tions made directly to parties or candid­ates but allow corpor­ate dollars to fund the polit­ical activ­it­ies of non-profit groups or trade asso­ci­ations; and some embrace polit­ical spend­ing in all its forms but ensure that this spend­ing is done in the open.  While these compan­ies have come to differ­ent conclu­sions on whether corpor­ate polit­ical spend­ing enhances share­holder value, they are unan­im­ous in seeing the value in trans­par­ency and recog­niz­ing share­hold­ers’ vital interest in data on corpor­ate polit­ical activ­ity.

Moreover, even compan­ies that have not yet adop­ted robust disclos­ure policies are increas­ingly exposed to share­holder demands for trans­par­ency.  As the Peti­tion correctly notes, the high number of share­holder propos­als on polit­ical spend­ing filed in the 2011 proxy season reflects the intens­ity of share­holder interest in corpor­ate polit­ical spend­ing.  The number of propos­als on corpor­ate polit­ical spend­ing rose by more than 50 percent in 2011, and aver­age support for these propos­als increased to 33 percent (a signi­fic­ant tally for an inde­pend­ent proposal).[14]  In one case, at Sprint Nextel, support for a polit­ical spend­ing resol­u­tion reached 53 percent.[15]

Even in cases where share­holder propos­als have not yet garnered major­ity support, the level of support is rising consist­ently—as is the number of compan­ies whose share­hold­ers are offer­ing propos­als on corpor­ate polit­ical activ­ity.  In 2011, of the S&P 100 compan­ies that do not currently provide share­hold­ers with inform­a­tion on corpor­ate polit­ical spend­ing, half held a vote on a share­holder polit­ical spend­ing proposal.[16]  Polit­ical spend­ing propos­als are now included in public-company proxy state­ments more frequently than any other type of proposal.[17]

Trans­par­ency In Corpor­ate Polit­ical Spend­ing Is Vitally Import­ant To Share­hold­ers And The Public.

That share­holder interest in disclos­ure of corpor­ate polit­ical spend­ing is as high as it is should come as no surprise.  Investors have a series of incent­ives to monitor the polit­ical spend­ing decisions of corpor­ate managers at the compan­ies they invest in.  While an indi­vidual investor may strongly wish to avoid invest­ing in a company whose polit­ical spend­ing advances causes or candid­ates with which that investor disagrees, there are broader, systemic reas­ons for monit­or­ing corpor­ate polit­ical spend­ing.  These include:

  • Track­ing corpor­ate spend­ing in the context of a network of complex, detailed, and some­times contra­dict­ory federal, state, and muni­cipal campaign finance laws and regu­la­tions, to ensure that corpor­ate polit­ical spend­ing does not run afoul of campaign finance rules and risk corpor­ate liab­il­ity.
  • Ensur­ing that polit­ical spend­ing decisions do not further interests of corpor­ate managers at the expense of share­holder interests.  Because the interests of corpor­ate managers and owners are not always perfectly aligned, some polit­ical spend­ing decisions by managers may not further share­holder value.  Disclos­ure allows for any such conflicts of interest to be detec­ted—and addressed.
  • Detect­ing “rent-seek­ing” and prevent­ing corpor­ate decision makers from obtain­ing advant­ages through polit­ical favor-seek­ing, rather than through effect­ive compet­i­tion in the market­place.  When corpor­a­tions are able to obtain favor­able condi­tions through polit­ical influ­ence, rather than added value, it distorts the oper­a­tion of the market­place, result­ing in sub-optimal distri­bu­tion of capital.  Thus, even where rent-seek­ing conduct produces appar­ent short term gains for a partic­u­lar market parti­cipant, its longer term effects are destruct­ive to a well-func­tion­ing free market.
  • Prevent­ing offi­cials that direct the use of public funds from effect­ively extort­ing corpor­a­tions through pay-to-play tactics.  Nearly half the states have adop­ted pay-to-play bans after corrup­tion scan­dals revealed govern­ment offi­cials demand­ing corpor­ate payoffs in exchange for public contracts.[18]  At the federal level, the poten­tial costs of pay-to-play corrup­tion are enorm­ous, as hundreds of billions of dollars are handed out in federal contracts every year, many of them with little to no mean­ing­ful compet­i­tion.  A 2007 Congres­sional report, for example, repor­ted that more than half of annual federal procure­ment spend­ing—over $200 billion in new contract­s—was awar­ded without full and open compet­i­tion, and about half of that amount, $103 billion, was spent on no-bid contracts, which have no compet­i­tion at all.[19]  When pay-to-play tactics create a system in which taxpayer dollars are doled out in exchange for polit­ical contri­bu­tions, the incent­ive to use corpor­ate resources to compete for contracts can substan­tially under­mine corpor­ate and share­holder value.  The Commis­sion itself has provided lead­er­ship in this area, adopt­ing rules last year that address pay-to-play in the context of registered invest­ment advisors.  In announ­cing those rules, Commis­sion Chair­man Mary L. Scha­piro correctly observed that pay-to-play is “corrupt and corrupt­ing” and that it may “pave the way to outright fraud.”[20]  Like the Commis­sion’s invest­ment advisor rules, rules mandat­ing disclos­ure of corpor­ate polit­ical spend­ing would strike a blow against corrup­tion by shin­ing disin­fect­ing sunlight on corpor­ate polit­ical contri­bu­tions extor­ted through pay-to-play tactics.

The U.S. Supreme Court—which has consist­ently recog­nized the value of disclos­ure, repeatedly uphold­ing laws and regu­la­tions designed to bring trans­par­ency to polit­ical spend­ing—re­cog­nized the share­holder interest in disclos­ure of corpor­ate polit­ical spend­ing in Citizens United.  Writ­ing for the Court’s major­ity, Justice Anthony Kennedy posited the exist­ence of a campaign fund­ing envir­on­ment that “pairs corpor­ate inde­pend­ent expendit­ures with effect­ive disclos­ure” and extolled the virtue of such a system:

[P]rompt 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.[21]

Members of the public who are not share­hold­ers in a given company also have an inform­a­tional interest in know­ing about the company’s polit­ical spend­ing; voters have a vital interest in know­ing which indi­vidu­als and entit­ies seek to influ­ence elec­tions through polit­ical spend­ing, whether or not they are corpor­a­tions.  The Supreme Court has regu­larly recog­nized this broader interest in disclos­ure, which allows citizens to make informed decisions in the polit­ical market­place.  Justice Kennedy described this inform­a­tional interest in Citizens United:

Speech is an essen­tial mech­an­ism of demo­cracy, for it is the means to hold offi­cials account­able to the people.  The right of citizens to inquire, to hear, to speak, and to use inform­a­tion to reach consensus is a precon­di­tion to enlightened self-govern­ment and a neces­sary means to protect it.[22]

Perhaps the most well known example of a public response to corpor­ate polit­ical spend­ing involved Target, a company whose polit­ical dona­tions were disclosed because of Minnesota disclos­ure require­ments stronger than the federal rules.  In 2010, Target donated $100,000 in cash and $50,000 in in-kind services to MN Forward, a polit­ical commit­tee that spent most of its funds support­ing Repub­lican gubernat­orial candid­ate Tom Emmer.[23]  Advoc­ates who opposed Emmer’s stance against gay marriage used this disclos­ure to chal­lenge an appar­ent incon­sist­ency regard­ing Target’s stated support of gay rights (and appeals to gay and lesbian consumers) and its support of Emmer.[24]  Ulti­mately, Target’s CEO issued a state­ment saying that the company endorsed MN Forward’s economic policies but suppor­ted the gay and lesbian community.

The Target incid­ent revealed the strong public interest in the polit­ical spend­ing of corpor­a­tions; indeed, the U.S. Court of Appeals for the Ninth Circuit cited the Target epis­ode as a text­book illus­tra­tion of the “corpor­ate account­ab­il­ity” called for in Citizens United.[25]  That Target’s polit­ical spend­ing sparked a back­lash under­scores the extent to which corpor­ate polit­ical spend­ing can impact a company’s bottom line.  As with other corpor­ate activ­it­ies, corpor­ate polit­ical activ­ity may prompt consumer boycotts and under­mine profits. Poten­tial investors seek­ing to make fully-informed decisions there­fore require inform­a­tion about a company’s past and present polit­ical activ­ity. 

Some oppon­ents of trans­par­ency in corpor­ate polit­ical spend­ing argue that proponents of disclos­ure do not, in fact, seek trans­par­ency as an end in itself, but rather, aim to use it as a Trojan Horse to discour­age corpor­ate polit­ical spend­ing.  These crit­ics theor­ize that disclos­ure will discour­age compan­ies from exer­cising their polit­ical speech rights, for fear of back­lash like that faced by Target.  This cynical view is misguided, and funda­ment­ally mischar­ac­ter­izes the First Amend­ment’s role in foster­ing a dynamic market­place of ideas.

In case after case, the Supreme Court has upheld polit­ical disclos­ure laws, and it has repeatedly recog­nized voters’ interest in know­ing which indi­vidu­als and entit­ies provide the fund­ing that enables polit­ical speech.  More than three decades ago, in an early case strik­ing limits on corpor­ate polit­ical activ­ity, the Court observed that “the people in our demo­cracy are entrus­ted with the respons­ib­il­ity for judging and eval­u­at­ing the relat­ive merits of conflict­ing argu­ments. They may consider, in making their judg­ment, the source and cred­ib­il­ity of the advoc­ate.”[26]

Under the First Amend­ment as construed by Citizens United, corpor­a­tions enjoy the right to polit­ical speech.  The Consti­tu­tion like­wise protects voters’ right to know the iden­tity of the  corpor­a­tions fund­ing such polit­ical speech (just as it protects voters’ right to know the spon­sors of non-corpor­ate polit­ical speech).  The Supreme Court has noted that groups which abuse loop­holes in the disclos­ure rules to make anonym­ous expendit­ures to influ­ence elec­tions can distort the polit­ical market­place.  In McCon­nell v. FEC, for example, the Court observed that disclos­ure oppon­ents “never satis­fact­or­ily answer the ques­tion of how unin­hib­ited, robust, and wide-open speech can occur when organ­iz­a­tions hide them­selves from the scru­tiny of the voting public.”[27]

Corpor­ate decision makers may choose to parti­cip­ate in the polit­ical debates that shape our demo­cracy, but in doing so, they should be prepared to stand behind the ideas they advoc­ate.  Where the causes a corpor­a­tion espouses attract wide­spread public support, this account­ab­il­ity may increase a company’s prof­it­ab­il­ity.  In other cases, the reverse may obtain.  This is how demo­cracy func­tions.  As Justice Antonin Scalia has explained, “Requir­ing people to stand up in public for their polit­ical acts fosters civic cour­age, without which demo­cracy is doomed.  For my part, I do not look forward to a soci­ety which . . . campaigns anonym­ously . . . and even exer­cises the direct demo­cracy of initi­at­ive and refer­en­dum hidden from public scru­tiny and protec­ted from the account­ab­il­ity of criti­cism. This does not resemble the Home of the Brave.”[28]

Corpor­ate polit­ical spend­ing may further the profit-making interests of corpor­a­tions under certain circum­stances.  Under other circum­stances—whether it involves wast­ing of corpor­ate assets; expos­ing compan­ies to liab­il­ity for campaign finance or pay-to-play expendit­ures; or risk­ing consumer back­lash—it may under­mine those interests.  When polit­ical expendit­ures that may threaten share­holder value are not disclosed, investors lack access to all the relev­ant inform­a­tion about public compan­ies, and capital is not optim­ally distrib­uted.  Accord­ingly, to ensure that those consid­er­ing invest­ing in polit­ic­ally-active compan­ies are able to make fully informed decision­s—and thereby to protect the integ­rity of the market—trans­par­ency in corpor­ate polit­ical spend­ing is neces­sary.

The SEC Should Require Disclos­ure Of Polit­ical Spend­ing By Public Compan­ies

For all the fore­go­ing reas­ons, the Commis­sion should adopt rules that require public compan­ies to disclose corpor­ate polit­ical spend­ing in all the forms it takes, includ­ing expendit­ures that directly advoc­ate the elec­tion or defeat of polit­ical candid­ates, and contri­bu­tions, dues, or other payments to inde­pend­ent groups that, in turn, make polit­ical expendit­ures (whether or not these groups them­selves report their donors).

Inso­far as details of corpor­ate polit­ical expendit­ures are of mater­ial interest to investor­s—to say noth­ing of the public at large—the Commis­sion plainly has the author­ity to do so.  Under the Secur­it­ies Exchange Act of 1934, the Commis­sion “is given complete discre­tion   . . . to require in corpor­ate reports . . . such inform­a­tion as it deems neces­sary or appro­pri­ate in the public interest or to protect investors.”[29] The Supreme Court “repeatedly has described the funda­mental purpose of the [Secur­it­ies Exchange] Act as imple­ment­ing a philo­sophy of full disclos­ure,” since “[t]here cannot be honest markets without honest publi­city.  Manip­u­la­tion and dishon­est prac­tices of the market place thrive upon mystery and secrecy.”[30]  Thus, disclos­ure of corpor­ate polit­ical spend­ing is neces­sary “to achieve a high stand­ard of busi­ness ethics in the secur­it­ies industry.”[31]

Investor interest in corpor­ate polit­ical spend­ing has reached a high water mark.  Because there is a substan­tial like­li­hood that reas­on­able share­hold­ers would consider it import­ant in their decision making, inform­a­tion regard­ing polit­ical expendit­ures is undoubtedly mater­ial, and the Commis­sion should mandate its disclos­ure.[32]  As the Supreme Court made clear in Citizens United, a Commis­sion rule requir­ing public compan­ies to disclose polit­ical expendit­ures would rest on firm consti­tu­tional ground.[33]

*          *          *

As we approach the most expens­ive elec­tion in our nation’s history, the pres­sure on public compan­ies to spend money on polit­ics is at an all time high.  The amount these compan­ies spend to influ­ence elec­tions in the months and years ahead will shat­ter historic records.  To protect the public’s interest in making informed choices in the polit­ical market­place, and to ensure that market parti­cipants can make fully informed invest­ment decisions, the Commis­sion should adopt rules that bring trans­par­ency to the nation’s explod­ing corpor­ate polit­ical spend­ing.

Respect­fully submit­ted,

J. Adam Skaggs
Senior Coun­sel
Demo­cracy Program


[1] The Bren­nan Center is a non-partisan public policy and law insti­tute that focuses on funda­mental issues of demo­cracy and justice.  The Bren­nan Center’s Money and Polit­ics project works to reduce the real and perceived influ­ence of special interest money on our demo­cratic values.  Project staff defend federal, state, and local campaign finance and disclos­ure laws in court around the coun­try, and provide legal guid­ance to campaign finance reformers through coun­sel­ing, testi­mony, and public educa­tion.

[2] 130 S. Ct. 876 (2010).

[3] Commit­tee for Economic Devel­op­ment, After Citizens United:  Improv­ing Account­ab­il­ity in Polit­ical Finance 3 (2011).

[4] Id.

[5] Id. at 1.

[6] Public Citizen, 12 Months After:  The Effects of Citizens United on Elec­tions and the Integ­rity of the Legis­lat­ive Process 9 (2011).

[7] Declar­a­tion of Gerald Green­wald, former Chair­man, United Airlines, McCon­nell v. Federal Elec­tion Commi­s­ion, No. 02–0582, Sept. 24, 2002, avail­able at

http://www.campaign­leg­al­cen­ter.org/attach­ments/BCRA_MCCAIN_FEIN­GOLD/McCon­nell_v_FEC_District_Court/708.pdf.

[8] See, e.g., Michael Beckel, Influx of Corpor­ate Polit­ical Cash Followed Pivotal Federal Court Decision, Open­Secrets­B­log, March 25, 2011, at http://www.open­secrets.org/news/2011/03/influx-of-corpor­ate-polit­ical-cash.html (noting that “corpor­ate treas­ury money accoun­ted for about $15.5 million of the cash donated to so-called ‘super PACs’”—more than 17% of the groups’ receipts—in the year after Citizens United was decided).

[9] Commit­tee for Economic Devel­op­ment, supra note 3, at 5.

[10] John C. Coffee, Jr., Testi­mony Before the Subcom­mit­tee on Capital Markets, Insur­ance, and Govern­ment Sponsored Enter­prises of the Commit­tee on Finan­cial Services, United States House of Repres­ent­at­ives (Mar. 11, 2010).

[11] See http://www.baruch.cuny.edu/baruchindex/index.htm.

[12] See http://www.polit­icalac­count­ab­il­ity.net/index.php?ht=a/GetDoc­u­mentAc­tion/i/5800.

[13] See Heidi Welsh and Robin Young, Corpor­ate Governance of Polit­ical Expendit­ures:  2011 Bench­mark Report on S&P 500 Compan­ies (Sustain­able Invest­ments Insti­tute 2011).

[14] Id. at 3.

[15] Id.

[16] See Peti­tion at 5.

[17] Id.

[18] See, e.g., Karl J. Sand­strom and Michael T. Liburdi, Over­view of State Pay-to-Play Stat­utes (Perkins Coie 2010), avail­able at http://www.perkinscoie.com/files/upload/WP_10–05_Pay-to-Play.pdf.

[19] Major­ity Staff of H. Comm. on Over­sight and Gov’t Reform, 110th Cong., More Dollars, Less Sense: Worsen­ing Contract­ing  Trends Under the Bush Admin­is­tra­tion, at i (Comm. Print 2007), avail­able at

http://over­sight-archive.waxman.house.gov/features/moredol­lars/moredol­lars.pdf. 

[20] Speech by SEC Chair­man: Open­ing State­ment at the SEC Open Meet­ing, June 30, 2010, avail­able at http://www.sec.gov/news/speech/2010/spch063010mls.htm.

[21] Citizens United, 130 S. Ct. at 916 (quota­tion marks and cita­tion omit­ted).

[22] Id. at 898 (cita­tions omit­ted).  See also Buckley v. Valeo, 424 U.S. 1, 14–15 (1976) (“In a repub­lic where the people are sover­eign, the abil­ity of the citizenry to make informed choices among candid­ates for office is essen­tial.”). 

[23] See John Gibeaut, A Caution­ary Tale of Corpor­ate Polit­ical Spend­ing Emerges in Minnesota, ABA Journal, Octo­ber 22, 2010.

[24] See Joe Kimball, Target CEO Addresses MN Forward Contri­bu­tion, Says Company Supports GLBT Community, MinnPost.com, July 27, 2010.

[25] Human Life of Wash., Inc. v. Brum­sickle, 624 F.3d 990, 1017 n.6 (9th Cir. 2010).

[26] First National Bank of Boston v. Bellotti , 435 U.S. 765, 791–92 (1978) (foot­notes omit­ted).

[27] 540 U.S. 93, 197 (2003) (quota­tion marks and cita­tion omit­ted).

[28] Doe v. Reed, 130 S. Ct. 2811, 2837 (2010) (Scalia, J. concur­ring).

[29] Nat’l Resources Defense Coun­cil v. SEC, 606 F.2d 1031, 1051 (D.C. Cir. 1979). See also, e.g., Section 14(a) of the Secur­it­ies Exchange Act of 1934, 15 U.S.C. § 78n(a). This is just one facet of the Commis­sion’s general power to “make such rules and regu­la­tions as may be neces­sary or appro­pri­ate to imple­ment the provi­sions” of the Act. 15 U.S.C. § 78w(a)(1).

[30] Basic Inc. v. Levin­son, 485 U.S. 224, 230 (1988) (quota­tion marks and cita­tion omit­ted). 

[31] Id.. at 234 (quota­tion marks and cita­tion omit­ted).

[32] TSC Indus., Inc. v. North­way, Inc., 426 U.S. 438, 449 (1976).

[33] See Citizens United, 130 S. Ct. at 917. See also Roy A. Schot­land, The Post-Citizens United Fantasy-Land, 20 Cornell J.L.  & Pub. Pol’y 753, 755 (2011) (“The major­ity’s opin­ion makes unar­gu­ably clear that disclos­ure of fund­ing sources will . . . continue to be consti­tu­tional.”).

Decem­ber 21, 2011

 

 

Via Elec­tronic Mail:  rule-comment­s@sec.gov

 

 

Ms. Eliza­beth M. Murphy
Secret­ary
Secur­it­ies and Exchange Commis­sion
100 F. Street, North­east
Wash­ing­ton, DC  20549

 

 

            Re:       Peti­tion to Require Public Compan­ies to Disclose Corpor­ate Polit­ical Spend­ing
                        File No. 4–637

 

 

Dear Ms. Murphy,

 

The Bren­nan Center for Justice at N.Y.U. School of Law[1] respect­fully submits these comments on the pending peti­tion to require disclos­ure of corpor­ate polit­ical spend­ing, File No. 4–637 (the “Peti­tion”).  For the reas­ons set forth in the Peti­tion, and outlined in the numer­ous comments submit­ted to the Commis­sion, the Bren­nan Center urges the Commis­sion to use its author­ity to bring trans­par­ency and account­ab­il­ity to corpor­ate polit­ical spend­ing by public compan­ies.

 

There has long been intense pres­sure on the busi­ness community to provide the funds that fuel our ever more expens­ive elec­tions, and this pres­sure increased after the U.S. Supreme Court’s land­mark decision in Citizens United v. Federal Elec­tion Commis­sion[2] expan­ded the scope of permiss­ible corpor­ate polit­ical activ­ity.  Accord­ing to a Zogby Inter­na­tional survey of busi­ness opin­ion lead­ers conduc­ted in 2010, three in five respond­ents said that corpor­ate lead­ers are pres­sured to contrib­ute to polit­ical candid­ates, and nearly half repor­ted that the level of pres­sure placed on busi­ness lead­ers has increased since 2008.[3]  Busi­ness lead­ers “are also asked to make contri­bu­tions to [non-candid­ate] organ­iz­a­tions and polit­ical groups that are allowed to spend corpor­ate money on elec­tion related activ­it­ies.”[4] 

 

The demand for corpor­ate polit­ical dollars has mush­roomed in tandem with the dramat­ic­ally increas­ing costs of recent Amer­ican polit­ical campaigns.  Accord­ing to Federal Elec­tion Commis­sion data, Congres­sional fundrais­ing has more than doubled since 1998.  That year, “candid­ates for the House and Senate raised a total of $781 million.  By 2008, campaign receipts had grown to $1.4 billion and in 2010 soared to almost $1.9 billion.”[5]  Elec­tion spend­ing by non-candid­ate groups has also soared.  Spend­ing by outside groups in the 2010 elec­tions grew by more than 400 percent compared to the previ­ous mid-term elec­tion cycle; if such spend­ing increased at the same rate in the 2012 elec­tion cycle, we would see more than $1 billion in outside money.[6]

 

Corpor­ate decision-makers feel compelled to be active play­ers in this campaign finance arms race.  Busi­ness lead­ers fear that if they refuse entreat­ies for polit­ical dollars, they will be at a compet­it­ive disad­vant­age, and that “compet­ing interests who do contrib­ute gener­ously will have an advant­age in gain­ing access to and influ­en­cing [poli­cy­makers] on matters of import­ance to the company.”[7]

 

Given the wide­spread pres­sure on corpor­ate lead­ers to make polit­ical expendit­ures—and the millions of corpor­ate dollars that have flowed into polit­ics in recent years as a result[8]—it is not surpris­ing that there is signi­fic­ant public interest in the details of corpor­ate polit­ical spend­ing.  Share­hold­ers and poten­tial investors have a partic­u­larly strong interest in this inform­a­tion, because informed invest­ment decisions require an assess­ment of whether a corpor­a­tion’s polit­ical spend­ing advances its interest in profit making.

 

Data on corpor­ate polit­ical spend­ing is import­ant to share­hold­ers because “[p]olit­ical activ­ity . . . exposes compan­ies to substan­tial repu­ta­tional and legal risks that endanger enter­prise and share­holder value.”[9]  The share­holder interest in robust disclos­ure of corpor­ate polit­ical activ­ity is strengthened by the fact that “mana­gerial and share­holder interests are not well aligned” with respect to corpor­ate polit­ical spend­ing.[10]  If such spend­ing is not fully trans-parent, share­hold­ers lack the abil­ity to hold corpor­ate managers account­able for polit­ical spend­ing decisions.

 

Accord­ingly, to protect the integ­rity of the nation’s capital markets and to ensure that investors have full and accur­ate inform­a­tion about the compan­ies they invest in, the Commis­sion should develop rules that require public compan­ies to disclose to share­hold­ers the use of corpor­ate resources for polit­ical expendit­ures.

 

Public Compan­ies Are Already Respond­ing To Investor Interest In Corpor­ate Polit­ical Spend­ing.

 

Partic­u­larly in the two years since