I’m going to confess right here that I don’t possess the requisite statistical skills to hazard an opinion on whether shareholders benefit when their corporation engages in lobbying and campaign expenditures. If you have a more powerful appetite for numbers than I do, John Coates of Harvard Law School offers a bibliography of academic studies that conclude corporate political spending is bad for shareholders at the Harvard Forum on Corporate Governance (including his own influential 2012 paper for the Journal of Empirical Legal Studies). Want a different view? A pair of economics consultants from Sonecon disputed Coates and those who think likewise in a 2012 paper for the Manhattan Institute that found corporate political spending has “a generally positive effect” on a company’s value, in terms of market returns. You can pick whichever analysis suits you because I’m not going to argue the merits of either. I do believe, however, that regardless of the benefits of lobbying and campaign contributions, shareholders have a right to know when and how their money is being spent on politics.
Coates does too, which prompted his post Friday at the Harvard corporate governance forum. Coates was reacting to the Securities and Exchange Commission’s decision in November to table consideration of rules that would require disclosure of corporate political spending; the Harvard prof called the SEC’s move “a policy and political mistake” that permits large corporations to lobby secretly against Dodd-Frank regulations, using other people’s money. As you probably know, corporate disclosure of political spending has been kicking around in shareholder proposals for about a decade, but the SEC was pushed into the debate in 2011, when a group of 10 law professors with varying views on the impact of such spending joined together to petition the SEC to develop disclosure rules.
The professors, led by co-chairs Lucian Bebchuk of Harvard and Robert Jackson of Columbia, argued that the U.S. Supreme Court assumed when it expanded the First Amendment rights of corporations to engage in political speech in Citizens United v. Federal Election Commission that shareholders could monitor corporate expenditures to assure themselves that such spending was in their interests. But the Supreme Court’s assumption doesn’t work without mandatory disclosures, the professors said. Thanks to nudging from public interest groups, about 600,000 shareholders asked the SEC to take up the issue, which made it as far as the agency’s rulemaking agenda in November 2012 before falling off the SEC’s priority list for the upcoming year. SEC chair Mary Jo White told reporters earlier this month not to infer that the disclosure proposal is dead and buried forever. But SEC rulemaking is shelved for at least a year.
Nevertheless, as Zachary Parks of Covington & Burling discusses at his very useful blog Inside Political Law, shareholders continue to push for disclosure of corporate political spending by other means. Parks cites shareholder proposals – which are increasingly common, as you can see from the Manhattan Institute’s Proxy s Monitor study, but rarely attract anything approaching majority support – and novel shareholder litigation, such as the New York State pension fund’s successful suit to force Qualcomm to disclose its expenditures and a newly filed suit accusing Aetna of misleading shareholders about its political spending.
So while the SEC sits on the sidelines, I talked to both Parks and Coates about what legitimate reasons corporations might have for opposing disclosure, keeping in mind that more than 150 of the biggest companies in the country have already volunteered to disclose information about their political spending to shareholders. Though they’re on opposite sides of the discussion, they agreed on the two biggest reasons why corporations are reluctant to disclose their expenditures (with Coates wearing a devil’s advocate hat): cost of compliance and business risks.