SEC Blocked from Requiring Disclosure of Corporate Political Contributions

Proving exactly why we need more transparency, a last-minute backroom deal added a rider to the omnibus budget bill to make sure that taxpayers, voters, and shareholders will not be able to find out how corporate money is being spent to distort and undermine the democratic process.

In Hindering the SEC from Shining a Light on Political Spending, the authors of a petition for SEC rulemaking on disclosure of corporate political contributions object to a provision of the new omnibus spending bill that would prevent the SEC from issuing such a rule.  Excerpts from the op-ed by Professors Lucien Bebchuk and Robert Jackson in the New York Times:

The omnibus budget agreement adopted by Congress includes a provision that prevents the Securities and Exchange Commission from issuing a rule next year that would require public companies to disclose their political spending.

This unusual Congressional intervention in S.E.C. rule-making is a troubling development both for investors and for the agency.

The S.E.C. has long had broad authority to decide what information public companies must disclose to their investors. When Congress first mandated such disclosure authority in 1934, it expressly chose to give the agency wide discretion to make such decisions.

In the decades since, the agency has adjusted disclosure requirements to respond to the evolving needs of investors.

In recent years, investor interest in receiving information regarding whether, and how, public companies spend shareholder money on politics has been growing. Shareholder proposals requesting disclosure of such information have been the most common type of shareholder proposal at public companies….

In July 2011 we were co-chairmen of a bipartisan committee of 10 corporate and securities law professors that considered this issue and submitted a rule-making petition to the S.E.C. The petition urged the agency to develop rules requiring public companies to disclose their spending on politics.

To date, the agency has received more than 1.2 million comments on the proposal — far more comments than those submitted on any rule-making petition in the history of the agency.

An overwhelming majority of comments, including from a large number of institutional investors, supported the petition….

The rider included in the omnibus budget bill reflects opponents’ interest in avoiding a debate on the merits of disclosure to investors. Although the S.E.C. file includes numerous detailed submissions, the rider was added in a quick, back-room move without any hearing or adequate consideration of these arguments….

And the rider undermines the critical premises on which the Supreme Court has relied in its Citizens United decision. In this consequential decision, the court reasoned that “the procedures of corporate democracy” would ensure that political spending by public companies does not depart from shareholder interests. Without disclosure to investors, however, such procedures cannot be expected to limit or prevent such departures.

In a recent talk, Justice Anthony M. Kennedy, the author of the Citizens United decision, expressed a concern that disclosure of corporate political spending was “not working the way it should.”

The omnibus agreement’s rider, however, seeks to maintain this sorry status quo, preventing the S.E.C. from issuing a rule ensuring that disclosure works the way it should.

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