SEC Action Needed to Fulfill the Promise of Citizens United

As we note in a recent op-ed in the Washington Post, the Supreme Court’s Citizens United decision to let corporations spend unlimited sums in federal elections was premised on a pair of promises: Corporations would disclose expenditures, and shareholders would police such spending.

Those promises remain unfulfilled: of the more than $300 million spent by outside groups in 2010, nearly half was spent by groups that revealed nothing about their funders, double the total spending by outside groups in 2006, as shown in analyses by the Center for Responsive Politics.

The best chance to fulfill those promises may now rest with the SEC, which was recently petitioned to begin a rule-making process to require disclosure of political activity by corporations.

Contrary to consensus views, SEC action may benefit owners of affected firms. In a new report, we estimate industry-adjusted price-to-book ratios of 80 companies in the S&P 500 that have policies calling for disclosure of electioneering. After controlling for size, leverage, research and development, growth and political activity, we find disclosing companies had 7.5 percent higher ratios than other S&P 500 companies in 2010.

Our data are inconsistent with claims that disclosure is harmful, and are consistent with the idea that well-managed companies responsive to shareholder concerns tend to be valued more highly than other companies. Our results lead us to support two initiatives that are clearly within the SEC’s jurisdiction, authority, and expertise:

• The SEC should require publicly traded companies to disclose to shareholders and the public their expenditures used for political purposes, including donations to trade associations that help finance electioneering and/or lobbying activities.
• The rules should stipulate that shareholders have the right to use the company’s proxy statement to propose and (if approved by the requisite vote of shareholders under state law) to adopt by-laws requiring that any publicly traded company’s political spending budget – including electioneering and lobbying expenditures – be approved by a majority vote of all shareholders in advance of any political spending.

News coverage of the report can be found here, here, and here.