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E-MailLucian Bebchuk is Professor of Law, Economics, and Finance at Harvard Law School. Robert J. Jackson, Jr. is Associate Professor of Law and Milton Handler Fellow 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 concerning political spending, discussed on the Forum here and here. Posts discussing their articles on corporate political spending, Corporate Political Speech: Who Decides?, and Shining Light on Corporate Political Spending, are available here.
The Securities and Exchange Commission recently updated its entry in the Office of Management and Budget’s Unified Agenda to indicate that, by April, it plans to issue a Notice of Proposed Rulemaking on requiring public companies to disclose their spending on politics. Although the Director and Deputy Director of the Commission’s Division of Corporation Finance signaled that the SEC was considering this issue in November, this update provides a firm timetable for SEC action on disclosure of corporate political spending. Moreover, this update makes clear that the SEC’s consideration of this issue will result in a Notice of Proposed Rulemaking.
As co-chairs of the Committee of academics that petitioned the SEC to develop rules requiring public companies to disclose their spending on politics, we are pleased that the SEC has indicated that it plans to move forward on these rules, and we are optimistic that rules will soon be in place to give investors the information they need to assess how corporate funds are spent on politics. As we argued in our petition—signed by a broad group of academics with widely varying views on corporate and securities law—the case for requiring public companies to disclose their spending on politics is strong.
A significant amount of corporate political spending currently occurs under investors’ radar screen, particularly when public companies spend shareholder money on politics through intermediaries, who are never required to disclose the source of their funds. Investors clearly want to receive information about such spending; shareholder proposals requesting information on political spending are now the most common proposals at public companies. And, because the interests of managers and investors often diverge when it comes to political spending, disclosure is necessary to ensure that insiders are held accountable when they decide to spend investors’ funds on politics.
In the eighteen months since we filed the petition the proposal has attracted massive support from a record number of comments filed with the SEC. The petition’s comment file includes more than 300,000 comment letters, all of which except ten support the petition. Notably, the file includes several letters from institutional investors—and all of these unanimously support the petition. One letter, from a coalition of 40 institutional investors who together manage more than $690 billion, urged the SEC to adopt rules requiring disclosure of corporate political spending.
To be sure, the petition has attracted opponents, including legal academics, prominent members of Congress, and the Wall Street Journal editorial page. More recently, representatives of the intermediaries that facilitate undisclosed corporate political spending, including the American Petroleum Institute and the U.S. Chamber of Commerce, have written to the SEC urging the Commission not to adopt rules requiring disclosure of corporate political spending.
In our most recent work on this subject, Shining Light on Corporate Political Spending, we explain why the arguments advanced by these opponents provide little basis for opposing rules requiring public companies to disclose political spending to their investors. In particular, these opponents argue that such rules would harm shareholders because (1) the rules would give unions, which would not be subject to them, an advantage over corporations with respect to political spending and (2) political spending is beneficial for shareholders. Opponents of the petition also argue that the Commission lacks the expertise, as well as the necessary statutory and constitutional authority, to promulgate such rules. We show that none of these arguments, either individually or collectively, should give the SEC pause in proceeding with rulemaking in this area.
The case for rules requiring disclosure of public companies’ political spending is strong, and investors should be pleased that the SEC is planning to develop these rules this Spring. We look forward to the SEC’s proposed rules, which we expect will provide public-company investors, for the first time, with a clear view on how their money is being spent on politics.
