Imagine a world where corporate money didn’t flood our election process. Imagine that powerful companies weren’t secretly funneling hundreds of millions of dollars to shadowy political action committees. Imagine a place where corporate riches didn’t sway lawmakers.
Oh, the horror.
Yes, that’s the gist of the argument made by a group of corporate interests in a recent letter to the Securities and Exchange Commission. As reported by my colleague Sue Reisinger at Corporate Counsel, the U.S. Chamber of Commerce and others are trying to squash efforts to require corporations in this post-Citizens United world to disclose their political spending in securities filings. A disclosure proposal, which you can read here, was submitted a year-and-a-half ago by a group of prominent law professors, led by Robert Jackson Jr. of Columbia Law School and Lucian Bebchuk of Harvard Law School. In late December, the SEC quietly announced that it’s considering a rule that would require some type of disclosure of political spending.
The business group’s nightmare scenario, as presented in its Jan. 4 letter to the SEC, goes like this: If a corporation is forced to disclose its political spending, then special interests (i.e., unions and outside rabble rousers) will make a fuss over the spending, the company’s directors will cave to the pressure and curb the contributions, the company will be deprived of the financial advantage of its political influence, and shareholder value will suffer.
Even if I agreed that a river of corporate money running through our political process led to a greater good, there’s still something I don’t get about this argument. The Chamber of Commerce contends that corporations shouldn’t have to disclose political contributions because directors can be trusted to act in shareholders’ best interests when they write huge political checks without public oversight. In other words, they can be trusted to make the right decisions when no one is watching. But once those decisions are exposed to the light of day, they can’t be trusted to do the right thing. If political contributions are disclosed, the argument goes, directors won’t be able to withstand pressure from activist shareholders and outside agitators. They’ll wilt in the face of supposedly ludicrous demands, even if that action harms the company and its shareholders.
I talked to Andrew Pincus at Mayer Brown, who helped draft the business group’s letter to the SEC. “Directors can be trusted to do the right thing generally,” he said. “This is a question about whether our management and board system works. There’s no evidence that there’s some failure in the system.” And, Pincus added, “If there is disclosure, there will be uneven-handed disclosure,” since unions, for example, won’t have to disclose all their political spending.
That may be a more reasonable argument: I’m all for transparency for political expenditures across the board. Following the cue of Citizens United, the business group raised the First Amendment flag in their SEC letter, arguing that selective disclosure is vulnerable to a First Amendment attack. But is this really a First Amendment problem? Heightened transparency and disclosure are part of the price a company pays for accessing the public markets.
Columbia Law School’s Jackson told Corporate Counsel that the First Amendment argument was “extreme and meritless,” and he noted that in Citizens United, “the U.S. Supreme Court expressly rejected an argument like this, 8 to 1.” In fact, Justice Anthony Kennedy, writing for the majority, heartily endorsed disclosure of corporate contributions as a crucial check on the ability of corporations to make unlimited political donations. The corporations counter this argument by maintaining that Kennedy supported disclosure for all contributors, not selective disclosure for public companies.
Both sides in this debate contest whether political activism enhances or suppresses shareholder value. Disclosure supporters point to studies that maintain that companies perform less well when they’re politically active; the business groups cite contrary findings. In a related case, the New York State Common Retirement Fund filed a lawsuit this month against Qualcomm Inc. seeking disclosure of political contributions, based on studies indicating that companies that are politically active perform less well.
Pincus also questions whether information about political spending is material to an investment decision. It’s a valid point. Just because we’re curious about something doesn’t mean we get to know it. But I go back to one of the business group’s main arguments: Political spending enhances shareholder value. In that case, rational shareholders should want their companies to engage in such spending, but they should also have a right to assess its effects on the bottom line. To do that, they need more information, not less.
