Are New Rules on Disclosure of Political Spending Imminent?

By Cydney Posner

According to this article in The New York Times, SEC representatives have indicated that they could propose new rules related to disclosure of political spending "by the end of April." (But it's already almost the end of April and no meeting has even been noticed.) Political spending disclosure has been a hot topic for quite a while (see my articles from 2/26/13, 11/8/12, 6/7/12, 10/31/11, 7/20/11, 7/14/11 and 3/23/06). The article observes that a rulemaking petition that was submitted to the SEC "has already garnered close to half a million comments, far more than any petition or rule in the agency's history, with the vast majority in favor of it." The article predicts that "a major battle" will ensue with business groups that "are preparing for a fierce counterattack if the agency's staff moves ahead." One Democratic and one Republican commissioner have already expressed their opposing views on the concept.

In anticipation of the possibility of rulemaking by the SEC, "House Republicans introduced legislation last Thursday that would make it illegal for the commission to issue any political disclosure regulations applying to companies under its jurisdiction." California Republican Representative Darrell Issa, chair of the House government oversight committee, "has demanded copies of any correspondence between the commission and outside parties relating to the proposed rule, along with details on how many hours commission staff had spent working on it." The debate also puts new SEC Chair Mary Jo White in the hot seat: "'We're keeping an eye on her,' [said] an official with Americans for Prosperity, the conservative political organization founded by Charles and David Koch that has urged the S.E.C. to drop the issue. ‘My feeling is they are not going to want to deal with this….The S.E.C. has to deal with its own problems….' "

According to the article, "few public corporations contribute to super PACs, in part because political action committees are regulated by the Federal Election Commission and subject to stringent disclosure rules. Virtually no public corporations have spent their own money directly in political campaigns, a practice now permitted under the Supreme Court's Citizens United decision. And corporations remain banned from giving money directly to federal candidates. Instead, some large companies donate money to trade associations and other tax-exempt groups, like the U.S. Chamber of Commerce or Crossroads Grassroots Policy Strategies, founded by Karl Rove, which in turn mount huge advertising campaigns on businesses' behalf. Because those groups assert their spending to be educational in nature, they are exempt from most of the donor disclosure requirements that apply to super PACs, political parties and candidates. As a result, many trade groups and 501(C)(4) organizations are "lining up in opposition to the rule."

The article reports that "the leaders of three of Washington's most powerful trade associations — the U.S. Chamber of Commerce, the National Association of Manufacturers and the Business Roundtable — issued a rare joint letter to the chief executives of Fortune 200 companies, encouraging them to stand against proxy resolutions and other proposals from shareholder activists demanding more disclosure of political spending. Tax-exempt groups and trade associations spent hundreds of millions of dollars on political advertising during 2012 elections, but they are not required to disclose their donors. Evidence has mounted that a significant portion of the money came from companies seeking to intervene in campaigns without fear of offending their customers, their shareholders — or the lawmakers they target for defeat."

According to the article, the reaction to the rulemaking petition has broken down along party lines. Opponents argue that the SEC does not have the "authority or expertise to issue regulations about political spending, and that a disclosure rule would infringe on companies' free speech rights — and damage shareholder value — by exposing them to criticism and attack from political opponents." They also contend that the amounts spent on political donations are arguably immaterial to the bottom line and that "the advocates' ‘apparent goal is to silence the business community by creating an atmosphere of intimidation under the cover of investor protection.'" Opponents also "said they believed the main purpose of the petition was not to protect shareholders, but to dry up sources of money for pro-business political groups."

Petition advocates maintain that shareholders should be able to evaluate business executives' oversight of company resources: according to a Columbia law school professor who helped write the original petition, "'Shareholders have been demanding this information for some time….It's a basic precept of American securities law that shareholders should be given the information they need to evaluate their companies.'" Many comments favoring the petition have cited Citizens United, which, in giving corporations first amendment rights, provided "that ‘shareholder objections raised through the procedures of corporate democracy' could provide accountability for the new political powers."

Attempts at legislation to require shareholder authorization before a public company could make certain political expenditures and to require transparency in connection with Board decisions regarding specific political expenditures have not met with much success. (See may articles from 7/14/11 and 7/20/11.) And, according to the article, the IRS has not been responsive to demands "to examine whether any of the organizations are violating tax laws that limit their election spending. Advocates for more disclosure have also waged scores of shareholder proxy fights seeking to force companies to provide information on political disclosure, almost all of which have failed. So the advocates have sought to advance their cause through state regulatory actions, lawsuits and public pressure to persuade companies to disclose their political spending voluntarily."

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