A group of ten very prominent corporate and securities law experts submitted a formal rulemaking petition to the SEC last week urging the Commission to develop rules requiring public companies to disclose the use of corporate resources for political activities to shareowners. Please take a few minutes to join with me writing an e-mail to the SEC in support of their petition and the important issue seeks to address.
The petition was submitted by the Committee on Disclosure of Corporate Political Spending, co-chaired by Lucian A. Bebchuk, Professor of Law, Economics, and Finance at Harvard Law School and Robert J. Jackson, Jr., Associate Professor of Law at Columbia Law School. Bebchuk and Jackson are co-authors of Corporate Political Spending: Who Decides?, and prior posts about the subject of corporate political spending are available here, here, and here.
The other members of the Committee on Disclosure of Corporate Political Spending are Bernard Black (Northwestern), John Coffee (Columbia), James Cox (Duke), Ronald Gilson (Stanford and Columbia), Jeffrey Gordon (Columbia), Henry Hansmann (Yale), Donald Langevoort (Georgetown), and Hillary Sale (Washington University in St. Louis).
The petition presents data indicating that public investors have become increasingly interested in receiving information about corporate political spending. For example, “as early as 2006, polls indicated that 85% of shareholders held the view that there is a lack of transparency surrounding corporate political activity.” “During the 2011 proxy season, out of the 465 shareholder proposals appearing on public-company proxy statements, 50 proposals were related to political spending, and more proposals of this type were included in proxy statements than any other type of proposal.” A large number of public companies have already voluntarily changed their disclosure practices to provide such information to shareowners, including 60% of the S&P 100.
In Citizens United v. FEC the US Supreme Court noted that shareowners could “determine whether their corporation’s political speech advances the corporation’s interest in making profits” and could discipline directors and executives who use corporate resources inconsistently with shareowner interests. However, unless shareowners have information about a company’s political speech and expenditures we will be unable to know whether such speech “advances the corporation’s interest in making profits” and will be unable to discipline directors and executives. The petition discusses the following specific elements:
- First, we expect that the Commission will be required to determine whether certain de minimis corporate spending on political activity should be exempt from disclosure. We encourage the Commission to adopt such a de minimis exception. We note, however, that the symbolic significance of corporate spending on politics suggests setting an appropriately low threshold. The Commission’s existing rules, such as its rules concerning disclosure of compensation and of related-party transactions, may offer a sound starting point for the development of such an exception.
- Second, the Commission will likely be required to determine how often public companies should be required to disclose corporate spending on politics to shareholders. Highly frequent reporting would be disruptive and costly for many companies, and the Commission should, where possible, use existing disclosure mechanisms to minimize the costs of the rule. Thus, although the exact design of the proposed rules is beyond the scope of this petition, we encourage the Commission to use the existing proxy-disclosure regime as the method for providing investors with this information.
- Third, we expect that the Commission will determine the types of political spending subject to disclosure. In particular, the Commission may consider whether contributions that are restricted from political use will be subject to these rules. On the other hand, there are cases, such as corporate contributions to intermediaries that spend a large fraction of their funds on politics, for which inclusion within the scope of the Commission’s rules seems warranted. To address less obvious cases, the Commission may wish to adopt criteria for determining the types of spending subject to disclosure. Overall, the Commission should delineate the scope of the expenditures subject to disclosure to address potential problems of over- or under-inclusion.
- Use the Commission’s Internet comment form;
- Send an e-mail to firstname.lastname@example.org. Include File Number 4-637 in the subject line;
- Use the Federal eRulemaking Portal; or
- Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.
All submissions should refer to File Number 4-637. This file number should be included on the subject line if e-mail is used and that is the method I recommend. To avoid duplication or work at the SEC, use only one method. The Commission will post all comments on petitions on the Commission’s Internet website. Comments are also available in the Commission’s Public Reference Room, 100 F Street, NE, Washington, DC, 20549, on official business days between the hours of 10:00 am and 3:00 pm.
Your petition can say something as simple as the following:
Ms. Elizabeth M. Murphy, Secretary
Securities and Exchange Commission
100 F Street, Northeast
Washington, D.C. 20549
Re: File Number 4-637.
Dear Ms. Murphy:
I am an individual investor concerned with how the corporations I invest in are spending corporate funds on political activities. I write in support of a petition by the Committee on Disclosure of Corporate Political Spending, File Number 4-637. In Citizens United v. FEC the US Supreme Court noted that shareowners could “determine whether their corporation’s political speech advances the corporation’s interest in making profits” and could discipline directors and executives who use corporate resources inconsistently with shareowner interests.
However, unless shareowners can easily access information about a company’s political speech and expenditures we will be unable to know whether such speech “advances the corporation’s interest in making profits” and will be unable to discipline directors and executives. The rulemaking sought by the petitioners would address that issue by giving shareowners the information we need to hold the managers and directors of our companies accountable.
For more background information, see Corporate Political Spending Will be a Major Issue in 2012 (SocialFunds.com/Institutional Shareowner, 8/4/2011) Much of the effort on behalf of increased corporate transparency has been spearheaded by the Center for Political Accountability (CPA), whose model resolution formed the basis for most of the proposal and voluntary disclosures, including disclosure of payments to trade associations such as the US Chamber of Commerce. Bruce Freed, president of CPA, told SocialFunds.com,
Citizens United has made the issue of independent expenditures, either directly or indirectly, an important one for companies. We’re heavily involved in planning for the 2012 proxy season. There will be a significant number of companies engaged…
Last year, CPA co-authored with The Conference Board, an independent business membership and research association, a Handbook on Corporate Political Activity. The Conference Board also established a committee of Fortune 500 companies “to develop a set of ‘prevailing practices’ that take into consideration the risks and opportunities of political-spending decisions,” according to a press release. In addition to submitting a report on corporate political spending, the Committee will maintain a website where resources on the issues can be accessed.
Supporting comments reached one million in 2014. Keep them coming. They can’t ignore us forever.