Is SEC Regulation of Political Spending Dead?

It is unlikely that it is dead, but it certainly is on life support.  But, I believe that board oversight, and disclosure, of corporate political expenditures will continue to increase.

In 2011, the Committee of Corporate Political Spending, a group of ten academics focusing on corporate and securities law, submitted a petition for rulemaking to the SEC asking the SEC to adopt rules to require public companies to disclosure to shareholders the use of corporate resources for political activities. In the following months, the SEC received in excess of one million comments to the petition. Reportedly, most of the comments expressed support for the requested rulemaking. In 2012, the SEC placed disclosure by public companies of their political expenditures on its rulemaking agenda. It would seem that with disclosure of political expenditures being on the SEC’s rulemaking agenda, combined with broad public interest in such a rule (as evidenced by other one million comments on the petition), the SEC would move forward with rulemaking. But, that didn’t happen.

The SEC dropped from its rule making agenda political expenditures disclosure in 2013.   But, the issue was not dead; press coverage continued.   For example, on October 29, 2014, the New York Times published an editorial advocating for an SEC rule requiring disclosure of corporate political expenditures. In a letter to the editor of the New York Times responding to the editorial, Commissioner Daniel M. Gallagher stated “[m]andatory political contribution disclosure deserves no place on the agency’s agenda, and I will fight to keep it that way.” Given the removal of political expenditures disclosure from the SEC’s rulemaking agenda and Commissioner Gallagher’s public opposition to any such rule, it is probably a fairly safe bet that, unless prodded by congress, the SEC will not take any rulemaking action with respect to disclosure of corporate political expenditures in the near future.

While it appears that the SEC will not take action any time soon, the idea of requiring public companies to disclose political expenditures has certainly not gone away. As we have written about in the past, Institutional Shareholder Services continues to generally recommend that shareholders vote for proposals to require greater disclosure of a company’s political contributions and trade association spending policies and activities. Further, a majority of companies reviewed by the Center for Political Accountability and the Zicklin Center for Business Ethics Research (generally, the top 300 companies in the S&P 500) continue to have some level of board oversight of their political contributions and expenditures. The Shareholders Protection Act of 2015 was also recently introduced in the House of Representatives. If passed (which is unlikely), the bill would amend The Securities Exchange Act of 1934 to require not only disclosure, but shareholder approval of political expenditures and require national securities exchanges and associations to require a board of directors vote for political expenditures in excess of $50,000.

I, for one, hope that Commission Gallagher is successful in his efforts to keep political expenditures disclosure off the SEC’s rulemaking agenda. Existing disclosure documents are already far too long and far too complex. Heaping more disclosure obligations on public companies would simply contribute to that problem. While new SEC rulemaking appears to be unlikely, pressure from shareholders, shareholder groups and others will likely lead to increasing board oversight, and increased voluntary disclosure, of corporate political expenditures.

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