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The Securities Edge Securities Blog for Middle-Market Companies

SEC Considering Petition to Adopt Rules Requiring Disclosure of Political Contributions

Posted in Disclosure Guidance

The SEC is currently considering a petition submitted by a group of 10 law professors asking the SEC to adopt rules that would require public reporting companies to disclose political contributions in their annual proxy statements. As justification for the proposal, the petitioners assert that there is empirical evidence that indicates public company shareholders are becoming more and more interested in receiving disclosure of corporate political contributions. Moreover, the petitioners further support their proposal by pointing out that the U.S. Supreme Court has regularly recognized and relied on corporate accountability mechanisms in instances where shareholder resources are used for political purposes. Specifically, in the recent landmark case of Citizens United v. FEC, the Court recognized certain protected corporate speech, effectively extending constitutional protections under the First Amendment to independent corporate political spending. In its opinion, the Court relied on “procedures of corporate democracy” as a means by which shareholders could monitor the use of corporate assets for political purposes and also effect corporate change where such political purposes were inconsistent with shareholder interests. The petitioners point out, however, that in order for corporate democracy to be effective, shareholders must have information about a company’s political speech; otherwise, shareholders are unable to know whether such speech “advances the corporation’s interest in making profits.” Therefore, the petitioners conclude that political contribution disclosure rules are necessary in order for these accountability mechanisms and corporate democracy to function properly and efficiently.

A copy of the petition can be viewed on the SEC’s website by clicking here. While the SEC has not indicated whether it will take any further action in response to the petition, it is accepting public comments regarding the proposal. The public comments that the SEC has received to date are also posted on its website and can be viewed by clicking here. We believe that given the controversy of the Citizens United case, the SEC may give this petition strong consideration.