On the SEC Disclosure Rule, the People Have Spoken

, , lead analyst, Center for Science and Democracy | September 4, 2014, 8:44 am EDT
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One million comments. Today I’m celebrating one million comments.  What’s the significance of one million comments? Let me explain.

An SEC petition hits one million public comments

Back in January, UCS asked its supporters to comment in support of a petition to the U.S. Securities and Exchange Commission (SEC) asking the agency to require companies to better disclose their political activity.  Our  report, Tricks of the Trade, and prior work showed the alarming secretive influence that companies and their trade associations have on climate change policy action (and inaction). The SEC has the power to address this. In response, more than 19,370 UCS supporters submitted a comment to the SEC.  Today, those comments join many others to reach this significant milestone.

And it is significant. Never has the agency come close to receiving this much public interest in a rule. Proposed by a group of high-profile law professors in 2011, the ‘SEC disclosure rule’ would help address the wave of secret money flowing into our political system since the Supreme Court’s 2010 Citizens United decision. The Citizens United decision has given a new scale to the term “money in politics”—on the order of a staggering $6.3 billion in the 2012 election cycle. This affects our democracy in profound and concerning ways. With no limits on spending and no transparency for donors, money can influence our political system with no accountability for the forces behind it.

Since the Supreme Court's 2010 Citizens United decision, spending in elections, especially from dark money groups, has skyrocketed. Credit: Center for Responsive Politics/opensecrets.org

Since the Supreme Court’s 2010 Citizens United decision, spending in elections, especially from dark money groups, has skyrocketed. Credit: Center for Responsive Politics/opensecrets.org

From climate to chemicals: Secret money harms the public interest

This has serious consequences for evidence-based policy making. What happens when moneyed interests aren’t aligned with the public interest? We can get policy decisions that don’t protect the public. We’ve seen money trump evidence before—take climate change, drug safety, chemical regulation. In all these cases, public health and welfare has suffered when decisions protected profits rather than people, while those responsible for influencing the decision making away from the public interest can stay in the dark, with no accountability for their actions.

When our decision makers are debating tough issues, we should have an open dialogue. Citizens have a right to know who is influencing those decisions and what evidence is being considered. The SEC disclosure rule would require publicly traded companies to better disclose their political activities to the SEC. With such a rule in the place, the public and company investors would be able to see how companies spend their money on political activities, providing more accountability and transparency for those who stand to have big influence on our political system. (For a full primer on the impact of Citizens United and the SEC rule, see my past posts here, here, and here).

The million-comment question: Overwhelming support and a silent agency?

SEC Chairman Mary Jo White removed the corporate political disclosure rule from the agency's rulemaking agenda in 2013. Will one million comments encourage her to put it back on? Photo: U.S. SEC

SEC Chairman Mary Jo White removed the corporate political disclosure rule from the agency’s rulemaking agenda in 2013. Will one million comments encourage her to put it back on? Photo: U.S. SEC

If one million Americans are actively supporting a Securities and Exchange Commission rule, you know it’s an issue that affects us all. The people have spoken and they want a more transparent and accountable political system. Indeed, a press release from the Corporate Reform Coalition (of which UCS is a member) points out that polling shows that eight out of 10 Americans (81 percent) believe that corporations should only spend money on political campaigns if they disclose their spending immediately.

But will the SEC respond to this overwhelming and unprecedented support? Keep your ears to the ground to find out. The agency has been fairly quiet since it dropped the disclosure rule from its rulemaking agenda back in November 2013. This year in February, SEC Chairman Mary Jo White made vague reference to the rule in a SEC Speaks speech when she stated that the agency “will focus on making specific recommendations for updating the rules that govern public company disclosure.” But we’ve yet to see the commission prioritize the issue in an official way. Will this significant milestone change that? That is the million-comment question.

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  • From climate change to chemicals, there is so much lobbying going on!!!

  • Doug

    I dissent. The SEC does not have the power to require disclosure of non-material information. If a company’s political donations are not material to the business or financial condition of the company, there is no securities law rationale for their disclosure and it’s none of the SEC’s business.

    • Doug, thanks for your thoughts on this. There are several resources that delve into the issue you raise. Many have made the case that corporate political spending is, in fact, material to the business. The Supreme Court’s decision in Citizens United relied on the assumption of transparency so that investors and the public could hold companies accountable for political spending. The reality, of course, is that no such transparency exists for most companies, leaving investors at risk. Indeed, through proxy voting and other indicators, we’ve seen investors increasingly interested in having this information and we’ve observed that secret political spending has created risks for companies and their investors. Risks around company reputation when undisclosed political spending is brought to light has been particularly telling. Investors and citizens deserve transparency around how corporate money is spent on political activities.

      • Doug

        Hi Gretchen,
        As a law professor, I am happy to engage in reasoned debate and I appreciate your willingness to do the same.

        I can understand from a political perspective why people would want to know what political contributions public corporations are making, but what I am having a hard time seeing is how that is material to the business or financial condition of the corporation. You seem to rely pretty heavily on the possibility that disclosure of political contributions might hurt the company’s reputation which might have an effect on the company’s business or financial condition. That double “might” seems pretty tenuous to me.

        Consider lobbying expenses. Suppose you have a publicly traded sugar producer that spends boodles to support government tariffs/quotas/subsidies to protect domestic sugar production. That’s a political expenditure, but also related to the company’s business and therefore entrusted to the business judgment of the board. How is a contribution to the Business Roundtable or the Chamber of Commerce to elect pro-business candidates any different?

        I suppose it would be different if the sums involved were large enough to be material to the corporation. But that is apparently not the problem.

        – Douglas Levene

      • Hi Doug,

        I do agree that this makes sense from a political perspective and I claim no legal expertise in this area; however, I can point you toward some of the resources and legal scholars that make the case that the SEC has the authority and should use it to enact such a rule. To start, the work of Ciara Torres-Spelliscy, John Coates, and Robert Jackson, Jr would be good folks to look at. You may want to look at these papers as a start, for example.

        http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2184554
        http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2282576&rec=1&srcabs=2184554&alg=1&pos=1

        You mention the need for a case where political spending did negatively impact a company. A recent example, is the boycott of Target over some of its political spending: http://www.nydailynews.com/news/national/target-boycotted-donating-150-000-mn-right-wing-republican-tom-emmer-campaign-governor-article-1.200635

        Lastly, you may be interested in this detailed analysis from the Brennan Center for Justice
        http://www.brennancenter.org/sites/default/files/legacy/publications/Corporate%20Disclosure%20White%20Paper%20FINAL.pdf

      • ChrisM

        Hello, Douglas,

        As a complete layman, I find your case somewhat confusing, so I have a couple of questions for you.

        Question one: if a company’s political donations were not material to the business or financial condition of the company, why would the company make those donations (or, more accurately, investments) in the first place? Your sugar producer example seems, to my uneducated mind, to contradict the point you’re attempting to make in your first paragraph. In the latter you claim to be “having a hard time seeing is how that is material to the business or financial condition of the corporation,” but in the former you say “That’s a political expenditure, but also related to the company’s business.” Could you explain that please? And if the sums involved were not “large enough to be material to the corporation,” why would corporations be spending such large sums in order elect people to help them avoid scrutiny?

        As for the possibility of reputational damage by public disclosure of unpopular policies or actions, one need only look to Walgreens’ recent capitulation of their tax inversion plans for a parallel. Would that company have abandoned those plans so fast had it not considered its business or financial condition to be at risk from sudden negative public perception? And if corporations have nothing to hide regarding their allegedly innocent desire to simply get pro-business candidates elected, why would they be so clandestine about it to begin with? What is it they’re afraid of if, according to you, there shouldn’t be any business or financial problem with public disclosure – why all the secrecy?

        As Gretchen’s article points out, public sentiment regarding secret corporate political spending is negative for over 81 percent of the US population, which raises another question: with increasing public awareness of the internal machinations of our political-economic system due to new, internet-based, information dissemination by individuals and organizations, is it really feasible for corporations not to expect exposure and business and financial risk from public backlash against actions perceived as morally unacceptable, such as the undermining of democratic principles?