Opinion

The Great Debate

SEC should force companies to disclose their political spending

By Bruce Freed and Karl Sandstrom
June 24, 2013

The explosion in hidden election spending is one of the most discussed phenomena in American politics today. What’s less known is that a large number of America’s leading corporations are disclosing their political spending, and that number is steadily growing.

More than 100 major corporations, including 60 in the S&P 100 index — comprised of the nation’s most influential companies — have taken this step, reaching agreements with shareholders to disclose their spending. Now it’s time for all public companies to report.

And it’s time that the Securities and Exchange Commission hastens universal disclosure by requiring publicly held companies to disclose their direct and indirect political spending with corporate funds. The Commission can do this by moving forward on a petition submitted by a bipartisan group of eminent law professors almost two years ago.

It would not be a radical step. In fact, an SEC rule would merely be ratifying a trend emerging from boardrooms across America, including those of Merck, Microsoft, Exelon, Time Warner, Norfolk Southern, Wells Fargo and Aflac. Moreover, it would be in line with shareholder votes that have strongly supported corporate political disclosure for the past several years.

The Center for Political Accountability has been documenting this trend in its CPA-Zicklin Index, an annual benchmarking study conducted in cooperation with the Zicklin Center for Business Ethics Research of the University of Pennsylvania’s Wharton School.

Last year’s Index, which covered the top 200 companies in the S&P 500, found nearly 60 percent disclose at least some political spending information, and two out of five companies are disclosing information on their trade association memberships. These figures include companies that have adopted disclosure through shareholder agreements and those that have acted on their own initiative.

Why are companies doing this? Because they believe it’s good for business. Disclosure helps them uphold shareholder values and avoid exposure to scandal, while preserving their right to participate in electoral politics. And companies believe that more sunlight can help them manage heightened risks — reputation, legal and business — that accompany political spending.

Enhanced corporate disclosure and accountability is an encouraging trend, squarely in line with public and shareholder attitudes. For the fourth year in a row, a cross section of investors — individual shareholders, institutional investors and mutual funds — has backed political disclosure proposals for companies with an average vote of more than 30 percent. The number of resolutions has held steady for the past several years. Public polls have shown that disclosure is supported overwhelmingly by shareholders, directors and the public at large.

An SEC rule would assure companies that everyone is playing by the same rules. Uniformity advances the business interest of any company that is confident in its ability to thrive on a level playing field and does not seek to tilt the field with secret money.

Critics, meanwhile, wrongly accuse transparency advocates of seeking to silence corporate voices. These critics seem to ignore that the Supreme Court, in its Citizens United decision expanding a corporate voice in politics, affirmed resoundingly that corporate political disclosure is important to shareholders and the democracy.

Justice Anthony Kennedy wrote for an 8-1 majority that with swift online disclosure, “shareholders can determine whether their corporation’s political speech advances the corporation’s interests in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.” Unfortunately, this kind of disclosure hasn’t arrived yet, making an SEC rule timely and important.

Disclosure critics who embrace the politics of secret money might heed what another Supreme Court justice, Antonin Scalia, warned in a ballot-petition case in 2010. “For my part, I do not look forward to a society which, thanks to the Supreme Court, campaigns anonymously,” Justice Scalia wrote. “This does not resemble the Home of the Brave.”

If the SEC wishes to codify a growing mainstream practice, provide uniformity where a patchwork exists and help protect investors from the risks of shadowy political spending, it will give serious consideration to proposing a new corporate political disclosure rule.

PHOTO: A sign for the Securities and Exchange Commission (SEC) is pictured in the foyer of the Fort Worth Regional Office in Fort Worth, Texas June 28, 2012. REUTERS/Mike Stone 

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