Responding to Objections to Shining Light on Corporate Political Spending (4): The Claim that Such Disclosure Would Give a Political Advantage to Unions

Lucian 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 requesting that the SEC require all public companies to disclose their political spending, discussed on the Forum here. Bebchuk and Jackson are also co-authors of Corporate Political Speech: Who Decides? and Shining Light on Corporate Political Spending, coming out this month in the Georgetown Law Journal. This post is the fourth in a series of posts, based on the Shining Light article, in which Bebchuk and Jackson respond to objections to an SEC rule requiring disclosure of corporate political spending; the full series of posts is available here.

In our first three posts in this series (available here, here and here), we examined three objections raised by opponents of mandating disclosure of political spending and explained why these objections provide no basis for opposing such rules. In this post, we focus on a fourth objection that opponents of these rules have raised: the claim that requiring disclosure of corporate political spending would create an important imbalance in the information that is provided to investors and voters about two of the most significant sources of spending on politics: corporations and labor unions.

Several opponents of the petition have argued that disclosure of corporate political spending would convey an important political advantage to labor unions—organizations that, opponents argue, may also engage in undisclosed spending on politics. For example, Senator John McCain has argued that disclosure of corporate spending on politics “forces some entities to inform the public about the origins of their financial support, while allowing others—most notably, those affiliated with organized labor—to fly below the radar.”

At the outset, we note that we support enhanced disclosure of political spending for labor unions as well as for public companies. In this post, however, we limit our analysis to whether, assuming that the rules governing disclosure of union spending on politics remain unchanged, the nature of those rules provide a basis for opposing disclosure of corporate political spending. For two reasons, the nature of the rules on union political spending offer no reason for opposing disclosure of corporate spending on politics.

For one thing, under current law unions are required to disclose a great deal of information about their spending on politics. Thus, even if one believes that the SEC must maintain perfect symmetry between the disclosure rules that apply to corporations and those that apply to labor unions, it will be necessary to enhance the disclosure rules that currently apply to public companies.

For another—and more importantly—the SEC’s analysis of the disclosure rules for public companies should not be guided by the relative balance of political power between unions and corporations. The SEC’s charge, as a matter of law, is to protect investors. Regardless of what unions, private companies, or other entities are required to disclose, investors have good reason to be interested in—and indeed are interested in—how the companies they own spend shareholder money on politics. Refusing to provide investors with this information because the members of other organizations do not receive it is hardly persuasive.

In our view, the SEC should focus solely on the effects of the proposed disclosure rule on investors, and disregard arguments about its potential effects on the political process. We should stress that this view rules out not only some arguments made by opponents of the petition but also arguments made by supporters of disclosure in this area. For example, some supporters of the petition have argued that disclosure of corporate political spending would have beneficial effects for the American political system. The SEC should not give weight to these arguments. The Commission is a guardian not of the political process, but rather of shareholder interests, and should therefore disregard speculation—whether offered by opponents or proponents of disclosure—about the effects that disclosure might have on the political process.

The SEC’s role is to ensure that public company investors receive the information they need to evaluate the corporations they own. This information clearly includes information on how those companies spend shareholder money on politics. Those considerations, without more, should guide the SEC’s rulemaking in this area.

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One Comment

  1. Frank P. Mora
    Posted Tuesday, May 7, 2013 at 2:01 pm | Permalink

    The SEC cannot rule on union disclosure but in the interest of equal treatment, rule against publicly held corporation’s disclosure. Unions have no objection to full disclosure & transparency and would consent to a binding agreement of full disclosure to prevent an unequal treatment decision.
    Privately held corporations might still have an unfair political advantage.