Disclosure reform - the SEC is riding off in two directions at once

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Date: Summer 2016
From: Business Lawyer(Vol. 71, Issue 3)
Publisher: American Bar Association
Document Type: Article
Length: 17,177 words
Lexile Measure: 2060L

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After the U.S. Supreme Court decided Citizens United, (216) the Committee on Disclosure of Political Spending, co-chaired by Professor Lucian Bebchuk of Harvard Law School and Robert J. Jackson of Columbia Law School, sent a petition to the SEC to start a rulemaking proceeding to require disclosure of corporate political contributions. (217) This petition has proven controversial. Two different issues are involved concerning disclosure of political spending: campaign contributions and lobbying activities. The SEC has received more than 1,200,000 comments supporting the petition, which two former SEC chairs have endorsed. (218) The petition's formal support is derived from a diverse array of constituents; public interest groups, federal lawmakers, trade unions, and major investor firms have all officially endorsed the petition. (219) For the agency, this level of response has been unprecedented, reflecting this issue's social and political significance. (220) Indeed, petitioners note that investor polls, shareholder proposals, and policy statements of some large institutional investors demonstrate an increasing desire to review companies' political expenditures. (221) The issue is political: bills have been introduced in Congress both to compel the SEC to mandate such disclosures and to prevent the SEC from mandating such disclosures. (222)

The Committee's petition asserts that investor interest in corporate spending on politics is increasing. This interest did not spring up overnight; in 2006, 85 percent of polled shareholders perceived a lack of transparency surrounding issuing companies' political contributions. (223) By the end of 2014, over one million comments had been sent to the SEC urging the agency to move on this petition. (224) Further, shareholder proposals on this subject have been increasing in number. In 2013, seventy proponents filed fifty proposals on lobbying disclosures; forty were put to a vote, averaging 26 percent investor support. (225) Institutional investors have also endorsed the proposed disclosure requirements; TIAA-CREF and the Council of Institutional Investors are but two of many institutional entities that have released public statements in favor of the petition to advance the "best interests of shareholders." (226)

Even the U.S. Supreme Court is believed to have indirectly endorsed the public disclosure of political expenditures. In a statement made in Citizens United v. Federal Election Commission, Justice Kennedy noted that "with the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters." (227) The operative word in that statement is can; issuers are not currently required to make such disclosures of expenditures, regardless of how accessible such statements may be through the Internet. (228) It appears that the "can" will remain the operative word in this respect until the SEC decides otherwise.

However, strong opposition to these proposals and the rulemaking petition remains. One argument against the petition is that such expenditures must be reported to the Federal Election Commission, but such disclosure does not capture contributions to trade associations that engage in lobbying activity on behalf of industry groups. (229) Some publicly traded corporations...

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Gale Document Number: GALE|A460901128