The SEC Delays its Consideration of Rules Requiring Disclosure of Corporate Political Spending

Lucian Bebchuk is Professor of Law, Economics, and Finance at Harvard Law School. Robert J. Jackson, Jr. is Associate Professor of Law, Milton Handler Fellow, and Co-Director of the Millstein Center at Columbia Law School. Bebchuk and Jackson served as co-chairs of the Committee on Disclosure of Corporate Political Spending, which filed a rulemaking petition requesting that the SEC require public companies to disclose their political spending, discussed on the Forum here. Bebchuk and Jackson are also co-authors of Shining Light on Corporate Political Spending, recently published in the Georgetown Law Journal. A series of posts in which Bebchuk and Jackson respond to objections to an SEC rule requiring disclosure of corporate political spending is available here.

Last week the Securities and Exchange Commission released its regulatory agenda, and this agenda no longer includes rules requiring public companies to disclose their spending on politics. The agenda now includes only overdue rules that the SEC is required to develop under Dodd-Frank and the JOBS Act. While we are disappointed by the SEC’s decision to delay its consideration of rules requiring disclosure of corporate political spending, we hope that the SEC will consider such rules as soon as it is able to devote resources to rulemaking other than that required by Dodd-Frank and the JOBS Act. The submissions to the SEC over the past two years have clearly demonstrated the compelling case and large support for requiring such disclosure.

We co-chaired a committee of ten corporate and securities law professors that filed a rulemaking petition urging the SEC to develop rules requiring public companies to disclose their spending on politics. In the two years since the petition was submitted, the SEC has received more than 600,000 comment letters on our petition—more than on any other rulemaking project in the Commission’s history. The overwhelming majority of these comments—including letters from institutional investors and Members of Congress—have been supportive of the petition. At the end of 2012, the Director of the SEC’s Division of Corporate Finance acknowledged the widespread support for the petition, and the Commission placed the rulemaking petition on its regulatory agenda for 2013.

To be sure, the petition has also attracted prominent opponents. For example, objections to requiring public companies to disclose their spending on politics have been raised by legal academics, Members of Congress, and the Wall Street Journal editorial page. The SEC’s comment file now includes a comprehensive list of the possible objections that might be raised to a disclosure rule in this area.

In our recent Article, Shining Light on Corporate Political Spending, as well as a collection of posts here on the Forum, we have considered each of the ten objections raised by opponents to SEC rulemaking in this area—both inside and outside the comment file. As we have shown, none of these objections—either individually or collectively—provides any basis for opposing rules that would require public companies to disclose their spending on politics.

We recognize, of course, that the SEC faces an overwhelming rulemaking mandate under Dodd-Frank and the JOBS Act, and that the Commission has increasingly limited resources. We also understand that the SEC has faced considerable political pressure from Congress not to develop rules that would require disclosure of corporate political spending. Nevertheless, we are hopeful that, before too long, the SEC will consider, as it should, the merits of a rule requiring disclosure in this area, and the overwhelming support in the comment file for such a rule. And when the Commission does engage with the merits on this issue, we expect that it will conclude that public companies should be required to make their political spending transparent to investors.

Although disclosure of corporate political spending is no longer formally on the SEC’s agenda, this issue is not going away. Shareholder proposals requesting information on political spending have been submitted to a substantial number of large public companies, and many such public companies have been responding to shareholder concerns by voluntarily disclosing some information. When shareholders expressed a growing interest in information about executive pay two decades ago, the SEC responded with rules requiring uniform and consistent disclosure of executive compensation in public companies. Similarly, an SEC rule is now required to ensure that information about political spending is provided to all public-company investors in a consistent and uniform matter. The SEC should consider the petition to require public companies to disclose their political spending as soon as practicable.

We hope that—although there is already a substantial body of evidence in the comment file in support of disclosure in this area—those who support the petition will continue to submit comments to the SEC urging them to move forward with rules requiring disclosure of corporate political spending. Information on how to submit a comment is available here.

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