Responding to Objections to Shining Light on Corporate Political Spending (5): The Claim that Shareholder Proposals Requesting Disclosure Do Not Receive Majority Support

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 four posts in this series (collected here), we examined four 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 fifth objection raised by opponents of these rules: the claim that the SEC should not require disclosure in this area because shareholder proposals requesting disclosure of corporate spending on politics generally have not received the support of a majority of investors.

Several opponents of the petition have argued that the SEC should not mandate disclosure of corporate political spending because, in many cases, shareholder proposals seeking such disclosure at individual companies are supported by less than a majority of voting shares. For example, Paul Atkins, a former SEC commissioner, argued in a recent article that “majorities of shareholders routinely refuse to support mandatory disclosure” of corporate political spending—and, thus, that shareholders are simply not interested in this information.

For two reasons, this argument offers no basis for opposing mandatory rules requiring public companies to disclose their spending on politics. First, SEC disclosure rules are not intended to provide only that information demanded by a clear majority of shareholders. Instead, SEC rules have long been designed to ensure that information reasonably sought by a significant number of investors is disclosed. For example, shareholder proposals on issues related to corporate social responsibility—such as those seeking disclosure of potential effects of the company’s business on climate change—generally do not receive support from a majority of shareholders. Yet two years ago, citing “increasing calls for climate-related disclosure by shareholders,” the SEC staff recently issued interpretive guidance identifying when public companies are required to disclose matters related to climate change.

Second, it has long been the SEC’s practice to expand its disclosure rules when shareholder proposals have received significant support—even when the levels of support are far lower than the support recently received by proposals requesting disclosure of political spending. For example, none of the shareholder proposals that led the SEC to reconsider its executive compensation disclosure rules in 1992 received majority support. In fact, the percentage of shareholders voting in favor of proposals requesting disclosure of corporate political spending during the 2012 proxy season (21.4% of shares voted) was nearly twice as high as the percentage that supported the executive-pay proposals the SEC cited when it expanded those rules in 1992 (11.2%). The evidence from the 2012 proxy season, then, suggests that investors have substantial interest in disclosure of corporate spending on politics.

The SEC’s obligation is to ensure that the information reasonably sought by a significant number of shareholders is disclosed so that investors can have the information they need to evaluate the companies they own. Moreover, the SEC has historically expanded its disclosure rules in light of shareholder proposals that have received far less support than shareholder proposals requesting disclosure of corporate political spending now receive. The fact that some shareholder proposals in this area receive less than majority shareholder support offers no basis for opposing rules requiring public companies to disclose their spending on politics.

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