SEC may require companies to disclose political donations

There was an interesting story in the New York Times about the intersection of the business and political worlds. Several lawmakers are urging the Securities and Exchange Commission to require companies to disclose political contributions, creating some transparency in the murky world of big donations.

Here are some of the details:

A loose coalition of Democratic elected officials, shareholder activists and pension funds has flooded the Securities and Exchange Commission with calls to require publicly traded corporations to disclose to shareholders all of their political donations, a move that could transform the growing world of secret campaign spending.

S.E.C. officials have indicated that they could propose a new disclosure rule by the end of April, setting up a major battle with business groups that oppose the proposal and are preparing for a fierce counterattack if the agency’s staff moves ahead. Two S.E.C. commissioners have taken the unusual step of weighing in already, with Daniel Gallagher, a Republican, saying in a speech that the commission had been “led astray” by “politically charged issues.”

A petition to the S.E.C. asking it to issue the rule has already garnered close to half a million comments, far more than any petition or rule in the agency’s history, with the vast majority in favor of it. While relatively few petitions result in action by the S.E.C., the commission staff filed a notice late last year indicating that it was considering recommending a rule.

In response to the growing pressure, House Republicans introduced legislation last Thursday that would make it illegal for the commission to issue any political disclosure regulations applying to companies under its jurisdiction. Earlier this month, the leaders of three of Washington’s most powerful trade associations — the U.S. Chamber of Commerce, the National Association of Manufacturers and the Business Roundtable — issued a rare joint letter to the chief executives of Fortune 200 companies, encouraging them to stand against proxy resolutions and other proposals from shareholder activists demanding more disclosure of political spending.

Tax-exempt groups and trade associations spent hundreds of millions of dollars on political advertising during 2012 elections, but they are not required to disclose their donors. Evidence has mounted that a significant portion of the money came from companies seeking to intervene in campaigns without fear of offending their customers, their shareholders — or the lawmakers they target for defeat.

While the Times isn’t the first to report on the subject, it definitely helped gain attention for the issue with mentions in CNN Washington update and in a Fiscal Times blog.

But the real issue is what do shareholders want? From the USA Today story:

At the same time, companies holding annual meetings this spring face 126 shareholder resolutions encouraging them to reveal more about their campaign contributions and lobbying activity or calling on them to curb political spending, according to Heidi Welsh, executive director of Sustainable Investments Institute. She tracks shareholder proposals on social and environmental issues. Many come from investor activist groups and labor unions.

That’s up from 61 such resolutions in 2010 – the year the Supreme Court’s Citizen United ruling helped pave the way for unlimited corporate spending by corporations and unions.

The disclosure push is part of the continuing battle over corporate political spending in the post-Citizens United era. Trade associations and other tax-exempt groups that are not required to disclose their donors poured more than $300 million into the 2012 election, according to the Center for Responsive Politics, which monitors money in elections.

Some institutional investors argue political spending poses financial risks for shareholders. Leading business groups say the disclosure is unnecessary and motivated by partisan politics.

From the Times:

While campaign finance regulations are usually the province of the Federal Election Commission, advocates for the new proposal have pressured the S.E.C. to issue its own disclosure rule. They argue that shareholders should be able to evaluate business executives’ oversight of company resources and that S.E.C. regulations already require disclosure of similar information, like executive compensation.

“Shareholders have been demanding this information for some time” said Robert J. Jackson Jr. a law professor at Columbia University who helped write the original petition to the S.E.C. “It’s a basic precept of American securities law that shareholders should be given the information they need to evaluate their companies.” The California Public Employees’ Retirement System, the A.F.L.-C.I.O., Bill de Blasio, the New York City public advocate, and others have lobbied the S.E.C. in support of the petition.

Opponents argue that the agency does not have the authority or expertise to issue regulations about political spending, and that a disclosure rule would infringe on companies’ free speech rights — and damage shareholder value — by exposing them to criticism and attack from political opponents.

“The Chamber believes that the funds expended by publicly traded companies for political and trade association engagement are immaterial to the company’s bottom line,” said Blair Holmes, a spokeswoman for the business group, who added that the advocates’ “apparent goal is to silence the business community by creating an atmosphere of intimidation under the cover of investor protection.”

But according to a Huffington Post story on April 16 talking about how comments on the proposal had passed the half a million mark, companies are able to give money to alternate groups that don’t have disclosure rules:

Despite companies’ post-Citizens United freedom, few large corporate donations have been reported to the FEC, the agency in charge of enforcing campaign finance laws. Many campaign observers believe that corporations are giving to politically active groups that, unlike candidate campaigns or super PACs, are not required to name their donors — groups such as trade associations like the U.S. Chamber of Commerce or social welfare nonprofits like Crossroads GPS, American Action Network or Citizens for Strength & Security. An inadvertent disclosure by the health insurer Aetna revealed that the company had donated $4.05 million to the Chamber of Commerce and $3 million to the conservative American Action Network in 2011.

While it is another layer of regulation and compliance for companies, as responsible shareholders, many investors likely want to know how their money is being spent. It’s an important check in the system that has opened the floodgates of corporate donations.