political expenditures

As some of us contemplate which disclosure rules we’d like to do away with, others are thinking about new rules that would require more disclosure. One possible area of rulemaking relates to disclosure of political contributions. Regardless of one’s views of the merits of such disclosure, significant and vocal groups of shareholders advocate it, and for that reason alone it’s not something that companies (or regulators) can blithely ignore.

What I don’t understand is why those who are pressing for such disclosure seem to believe not only that it is imperative, but also that it must be included in Exchange Act reports, such as 10-Ks or 10-Qs. To the extent (albeit limited) that any securities lawyers are OK with political contributions disclosure in the first place, the insistence upon including it in a 10-K or 10-Q is a major turn-off, because doing so would lengthen those already voluminous reports and, more importantly, would subject a company to Exchange Act liability.

I’ve spoken to one of the principal advocates of such disclosure – who, by the by, is a smart and decent man – about this insistence. I asked why, for example, he’d oppose posting the information on a company’s website, or including it in a supplemental report (both of which are the current norms for such disclosure) outside the framework of the Exchange Act. He countered by saying, first, that only an SEC rule would require all public companies to provide the information and that only an SEC rule would set universal disclosure standards. I disagree; it seems to me that both of those goals could be achieved through industry standard-setting or exchange listing standards. But even if he’s right and the SEC were to impose requirements, that doesn’t mean that the disclosure should have to be in an Exchange Act report. No offense to my smart and decent friend, but I’m still waiting for an answer.

As we approach disclosure “reform” with hopes that the web will offer us some respite from ever-longer SEC filings through more “layered” disclosure, much of it posted on the web, and not all of which needs to be printed or “filed” or even “furnished,” it seems anomalous if not downright ill-advised to insist upon this particular push to make our filings look more and more like doorstops. The good news is that thus far the SEC has shown little or no interest in rulemaking in this area, but time will tell.

Your thoughts?

SEC Chair Mary Jo WhiteThe mission of the U.S. Securities and Exchange Commission (“SEC”) is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. This sounds great, but how does the SEC actually carry out its mission? The answer lies in the SEC’s oversight and regulation function of the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds. A key player in how the SEC exercises this function is the SEC Chair, essentially, the SEC’s chief executive.

On April 10, 2013, the SEC announced the swearing in of Mary Jo White as the 31st Chair of the SEC. So who is Mary Jo White? White is a former federal prosecutor, specializing in complex securities and financial institution frauds and international terrorism cases from 1993-2002. After working as a prosecutor, White became a partner at Debevoise & Plimpton where she represented high-profile clients, including JPMorgan Chase & Co, former Bank of America Corp. CEO, Ken Lewis, UBS AG and accounting giant, Deloitte & Touche LLP.

So what’s not to like? The confirmation from the Senate came with little dissent: it voted unanimously in her favor, and its Banking Committee voted 21-1 in her favor. The one nagging criticism of White stems from her ability to effectively navigate conflicting interests. Essentially, some critics fear that her ties to Wall Street will cloud the SEC’s decision-making with respect to these institutions’ behavior during the 2007-09 financial crisis.

Importantly, because of White’s vast experience as both a federal prosecutor and Wall Street defense lawyer, she must, as SEC Chair, recuse herself from investigating former clients for at least a year. Notably, after defending JPMorgan Chase for its role in the financial crisis, for example, White could have to sit out an SEC investigation into the bank’s recent $6 billion trading loss.

Even without consideration of White’s association with Wall Street, she takes over at the SEC at a time of transition, and is faced with grave challenges. According to many, the SEC has been “stuck in a rut” since former SEC Chair, Mary Schapiro, resigned in December of 2012, leaving the SEC’s five-member panel divided between two Democrats and two Republicans.  But White is starting to make changes.  Recently, she appointed Keith Higgins as the new Director of Corporation Finance and appointed acting director, Lona Nallengara, as SEC chief of staff.  Also, President Obama nominated two U.S. Senate aides to replace Continue Reading New SEC Chair: Mary Jo White

Campaign diclosure rules to create administrative nighmareAs first reported by Professors  Lucian Bebchuk and Robert J. Jackson, Jr. in their recent posting on the Harvard Law School Forum on Corporate Governance and Financial Regulation, the SEC may take action to issue proposed rules on corporate political spending disclosures by public companies as early as the second quarter of this year. This is according to the most recently updated Current Unified Agenda and Regulatory Plan, where the SEC appears to have preliminarily scheduled a notice of proposed rulemaking on this subject for April. Realistically, the fact that these rules are scheduled on this regulatory agenda is probably not very significant and may have gotten there as a means to temporarily appease shareholder rights advocates that have recently been pressing for these disclosures. Additionally, considering that the current four-person commission is equally divided on the political front, it is not likely that anything significant will come out of the SEC in the near future until a replacement for Mary Schapiro is appointed and confirmed. 

If something does miraculously materialize, it would be an interesting move by the SEC considering that rules required to be adopted under the Dodd-Frank Act have yet to be fully implemented almost three years after the bill was signed into law in 2010. This fact was emphasized in Commissioner Gallagher’s recent comments to the U.S. Chamber Center for Capital Markets Competitiveness. In those comments, Commissioner Gallagher specifically noted that “the SEC, like other regulators, is now dealing with the problem of rushed, inadequate rule proposals that were pushed out in a bid to meet arbitrary congressional deadlines.”  With the backlog of Dodd-Frank and JOBS Act rules, why would the SEC even bat an eyelash at a rules proposal with no Congressional mandate? 

In any case, there’s no question that campaign contribution disclosure has been a hot topic, particularly in the wake Continue Reading Proposed campaign contribution disclosure rules may be coming as early as April (but not likely)

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

Recent comments from SEC commissioner Luis Aguilar indicate that the SEC may consider new rules that would require public companies to disclose political expenditures. In his recent speech from February 24, 2012, Commissioner Aguilar informally called on the SEC to adopt political spending disclosure rules in light of the landmark U.S. Supreme Court Case, Citizens United v. Federal Election Commission, which struck down federal restrictions on corporate political spending as unconstitutional. Although public companies are still restricted from directly contributing corporate funds to political candidates, they are permitted to contribute funds for campaign advertisements that support or oppose political candidates. Additionally, companies may contribute to independent organizations that engage in political advertising or lobbying.

We previously blogged about a petition which was submitted by a group of ten law professors in response to the Supreme Court’s opinion in Citizens United asking the SEC to consider adopting rules that would require public companies to make disclosures about their political contributions. The petition was prompted by, among other things, the Court’s assertion that procedures of corporate democracy would be 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. As the petitioners pointed out, the Court’s reasoning is partially based on the assumption that shareholders have access to information concerning a company’s political spending. While certain companies voluntarily make political spending disclosures in their public filings with the SEC, there are currently no rules or regulations that require a company to make such disclosures. Continue Reading Are more disclosure requirements for public companies in the works?