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The Securities Edge Securities Blog for Middle-Market Companies

Are political contribution disclosure rules for public companies coming in the near future?

Posted in Disclosure Guidance

Campaign contribution disclosure rulesPetition and comment letters urging the SEC to create rules requiring public companies to disclose their political contributions may finally be gaining some traction.  We previously blogged about this petition, which was submitted by a group of ten law professors in response to the Supreme Court’s opinion in the Citizens United v. Federal Election Commission case, asking the SEC to consider adopting rules that would require public companies to make disclosures about their political contributions. We also blogged about SEC Commissioner Luis Aguilar’s subsequent comments during a speech stating that the SEC should consider rules requiring this type of disclosure. Until recently, the SEC had not taken any action to consider issuing rules in this area. 

However, according to a Wall Street Journal report from November 8th, the SEC’s Division of Corporate Finance is now considering recommending that the agency’s commissioners propose rules mandating public companies to provide disclosure to shareholders regarding the uses of corporate resources for political purposes. Such rules, of course, would not be inconsistent with the recent trend toward mandating social disclosures in public company filings, like the conflict mineral rules which were recently adopted in August of this year. Although many have argued that these types of social disclosure rules impose undue costs and burdens on public companies without providing any benefit to shareholders, political contribution disclosures are arguably necessary in light of the Citizens United ruling. In that case, the U.S. Supreme Court struck down federal restrictions on corporate political spending on constitutional grounds. In holding that these restrictions violated the U.S. Constitution, 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. However, as the ten law professors pointed out in their petition to the SEC, disclosure of corporate political spending would be necessary for corporate democracy and accountability mechanisms to function properly. Without disclosure, shareholders would have no way of knowing the extent of any corporate political expenditures and therefore, could not effectively hold decision makers accountable through the voting process at the annual meeting. Additionally, a forthcoming study that will be published in the Georgetown Law Journal purports to provide empirical evidence supporting the need for political spending disclosure rules and rebuts many of the objections that have been raised. Keep in mind, however, that the authors of this study are also two of the law professors that were signatories to the original petition sent to the SEC. 

In any case, this issue has been a hot topic, particularly with the substantial sums contributed to candidates and political action committees during the recent election. In fact, the SEC has received over 300,000 comment letters on the petition to date. The majority of these comment letters have been supportive of the petition although only about 1,000 of these letters were actual comment letters and not “form” letters. In addition to expressing their opinions directly with the SEC, shareholders also made a record number of proxy proposal requests to public companies related to corporate political spending during the most recent proxy season. Given the publicity that has surrounded this issue, I expect that the SEC will likely propose rules requiring some level of political contribution disclosure by public companies now that the 2012 elections are over with. However, given the SEC’s apparent displeasure with all of the social disclosure rules they have had to implement recently as a result of Dodd-Frank, they may be reluctant to add any more of rules of this nature. We’ll just have to wait and see if any thing further materializes.

  • http://www.facebook.com/dan.louis.79 Dan Louis

    nice job Gus!