SEC and political spending

When the Supreme Court — in our view wrongly — ruled that corporations had a constitutional right to spend their money to influence elections, it also said that disclosure of such expenditures “permits citizens and shareholders to react to the speech of corporate entities in a proper way.” In that spirit, the Securities and Exchange Commission should heed a petition drive to require publicly traded companies to disclose their political spending to investors.

So far more than 500,000 Americans have signed a petition asking the SEC to mandate the disclosure of political spending by corporations, including direct expenditures such as advertising campaigns and contributions to political committees, trade associations and nonprofit organizations.

A significant number of corporations already share information about their spending on politics. In a 2011 letter to the SEC requesting a disclosure rule, 10 law professors noted that nearly 60% of companies on the S&P; 100 Index had adopted policies requiring disclosure of such spending to shareholders.

So should the remaining companies be required to follow suit? Opponents make two arguments. The first is that advocates for disclosure have an ulterior motive: to intimidate the business community into withdrawing from political advocacy. That may be true, but it’s also irrelevant. Besides, if a company’s management can convince investors that its political activities increase shareholder value, it has nothing to fear from disclosure.

The other argument is that campaign finance regulation is not the province of the SEC but of Congress, the Federal Election Commission and the courts. But those bodies have failed to act. So far, Congress has not passed the DISCLOSE Act, a measure that would mitigate the worst effects of the Supreme Court’s Citizens United ruling by requiring disclosure of political spending, including disclosure to shareholders. And the FEC has failed to devise clear rules for post-Citizens United disclosure.

In the vacuum created by that inaction, campaign reform activists have turned their attention to state laws and regulations and to other federal agencies. In addition to the petition before the SEC, there have been calls for the Internal Revenue Service to crack down on tax-exempt “social welfare” organizations that engage in political spending.

There are also some people who would like to go beyond corporate disclosure and require shareholders to approve political spending by corporations, an intriguing proposal that is not before the SEC at the moment.

This piecemeal approach to campaign reform may not be ideal, but it’s preferable to no action at all. And requiring publicly traded companies to be open about their political spending is well within the SEC’s core mission of protecting shareholders’ interests. The rule should be adopted.