Thursday, October 20, 2011

House Democrats Urge SEC to Require Disclosure of Corporate Political Spending to Shareholders

In a letter to the SEC, 43 House Democrats urged the Commission to issue regulations requiring corporations to disclose their political spending to shareholders. The scope of the required disclosures would embrace independent expenditures, electioneering communications, and donations to outside groups for political purposes. The disclosures would be contained in proxy statements, quarterly and annual reports, and registration statements. Requiring disclosures of corporate political spending does not have to be overly burdensome on business, reasoned the House Democrats, since the SEC can utilize these existing mediums of communication with shareholders to facilitate disclosure.

The letter is partially driven by last year’s US Supreme Court ruling in Citizens United v. Federal Election Commission that corporations have the same First Amendment rights as American citizens to independently spend unlimited amounts of money for or against candidates running for public office. Shortly after the decision, Rep. Gary Ackerman (D-NY) introduced the Corporate Politics Transparency Act, which would require corporations to disclose their political spending to shareholders. The measure, H.R. 2728, was reintroduced in August, but has stalled in the House Financial Services Committee.

In the wake of the Citizens United decision, Rep. Ackerman noted that corporations can now donate unlimited amounts of shareholder funds to PACs without ever telling shareholders how their money is being used. He asked the SEC to empower shareholders with the ability to hold corporate management accountable for their decisions by requiring transparency in corporate political spending.

In their letter to the SEC, the House Democrats noted that shareholders have demonstrated both a clear desire to be informed of corporate political spending, and have also shown their concern over a lack of transparency surrounding political activity. As indicated by the Committee on Disclosure of Corporate Political Spending in its August 3, 2011 petition to the SEC for rulemaking, even before Citizens United, a 2006 poll showed that 85 percent of shareholders believed there was a lack of transparency surrounding corporate political activity.

Further, out of 465 shareholder proposals that appeared on 2011 public company proxy statements, 50 proposals were related to political spending. There were more proposals related to political spending than board declassification, majority voting, separation of the Chairman and CEO positions, elimination of supermajority voting requirements, executives’ golden parachutes, clawback of incentive compensations, and requirements that executives retain equity in the company.