Supporters of Transparency Should Work with the SEC, Not Take it to Court

Lucian Bebchuk is Professor of Law, Economics, and Finance at Harvard Law School. Robert J. Jackson, Jr. is Professor of Law 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. Bebchuk and Jackson are also co-authors of Shining Light on Corporate Political Spending, 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. All posts related to the SEC rulemaking petition on disclosure of political spending are available here.

In July 2011, we co-chaired a committee of ten corporate and securities law experts that petitioned the Securities and Exchange Commission to develop rules requiring public companies to disclose their political spending. As reflected on the SEC’s webpage for comments filed on the petition, the SEC has now received more than 1.2 million comments on the proposal—more than any rulemaking petition in the SEC’s history. Earlier this week, a suit was filed in the federal court for the District of Columbia, relying in part on our petition and the broad support it has received, seeking an injunction requiring the SEC to initiate rulemaking on the subject. As explained below, this litigation is unhelpful to the broadly supported effort to obtain disclosure that would shed light on corporate political spending.

To be sure, we are disappointed that the SEC has not yet started the rulemaking process urged by our petition. At the end of 2012, the Director of the SEC’s Division of Corporation Finance acknowledged the widespread support for the petition, and the Commission placed the proposal on its regulatory agenda for 2013. Unfortunately, Chairman Mary Jo White faced considerable political pressure from Congress not to develop rules that would require disclosure of corporate spending on politics, and the Commission has thus far delayed any further consideration of rules in this area. As we explained in earlier posts on the Forum (see, for example, posts here and here), we view the delay as unfortunate and unwarranted in light of the compelling arguments for disclosure, the breadth of support that the petition has received, and the weakness of the objections that opponents have been able to raise.

While the SEC would do well to initiate rulemaking without further delay, we view the attempt to force the Commission to act through court action as unhelpful for two reasons. First, while the SEC’s delay in initiating rulemaking is regrettable, the SEC’s behavior thus far does not come close to satisfying the demanding conditions for judicial intervention. The court should thus not be expected to provide the injunction requested by the lawsuit.

Furthermore, it would be desirable for the rulemaking process to proceed when the Commissioners are supportive of, or at least open to considering, a disclosure rule—rather than being forced to undertake that process by a court order. As the rulemaking petition explains, and as we further explain in Shining Light on Corporate Political Spending, the rulemaking process will require the expertise and judgment of the Commission and its staff, and a rulemaking process conducted under a court order—even if such a court order could be obtained—would hardly be a recipe for a good outcome for investors.

Supporters of transparency would do well to continue to focus on the effort to persuade the Commission of the merits of a disclosure rule in this area—and the compelling case for at least starting the rulemaking process. Although we have been disappointed by the SEC’s decision to delay that process, we remain hopeful that the strong arguments made in the petition and the comment file will before too long convince a majority of Commissioners that the Commission should pursue rules requiring disclosure of corporate spending on politics.

We urge all those interested in the subject to file comments with the SEC if they have not done so yet. Comments can be filed by following the instructions on the SEC website available here.


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One Comment

  1. Bob Lamm
    Posted Wednesday, May 20, 2015 at 7:47 am | Permalink

    I agree with your conclusion, but even assuming that political contributions disclosure is desirable I would urge that such disclosure be posted online rather than in a filing under the Securities Exchange Act. Our SEC filings are getting longer and longer, making it increasingly difficult for investors to find important information even when they are looking for it. In addition, I’m not sure why there is a need for political contributions disclosure to have the status of “filed” information that would subject issuers to liability. That alone is driving many issuers to oppose rulemaking. I’ve raised this before with supporters of political contributions disclosure and so far every one of them has said it’s a good idea. Issuers, too, have said it is a good way to achieve the goal of those supporters. But the supporters seem wedded to the idea of including the information in an Exchange Act report and don’t appear to want to budge.

    I would urge supporters of political contributions disclosure to push for effective disclosure rather than adding to already excessively lengthy filings.