Citizens United and the SEC (Part 2)

We are discussing the SEC's role in requiring disclosure of political expenditures.  The issue was recently addressed by  Commissioner Aguilar at SEC Speaks in February.  SEC Speaks is a special forum.  It's an annual conference about the SEC.  Because the conference takes place in Washington, most or all of the commissioners typically speak.  Moreover, the broad based nature of the conference and the emphasis on the SEC effectively provide commissioners with a broad range of choice in selecting an appropriate topic. 

And in fact, the talks spanned the gamut.  The Chair gave a "state of the SEC" address, reviewing a number of changes and initiatives that have taken place at the Agency.  Commissioner Walter essentially did a retrospective on her long tenure at the Commission (as a staff member and as a commissioner). Commissioner Gallegher spoke about liability for the failure to supervise by compliance and legal personnel at broker dealers and investment advisors.  Commissioner Paredes discussed the Volker Rule. 

Commissioner Aguilar's talk wasn't about the merits of political contributions by corporations but about the need to protect shareholders and investors by ensuring adequate disclosure.  The existing disclosure regime, he reasoned, often left shareholders "in the dark as to whether the companies they own, or contemplate owning, are making political expenditures." Without adequate disclosure, shareholders and investors could not "can make informed decisions about whether to purchase, hold, or sell shares – and how to exercise their voting rights."

He noted the calls on the Agency to initiate rulemaking on the issues.  A group of law professors submitted a rulemaking petition.  So has 21 civic organizations.  In addition: 

The Commission has also received letters from Members of Congress, from elected government officials with fiduciary responsibility for nearly one trillion dollars in pension fund assets, and from a coalition of United States Senators. Each of these letters asked the Commission to take action to require public disclosure of corporate political spending.

The staff has taken some steps in the direction of disclosure by refusing to allow for the exclusion of shareholder proposals addressing campaign contributions.  They have become popular.  According to Commissioner Aguilar:  

in 2011, out of the 465 shareholder proposals appearing on public company proxy statements, 50 proposals were related to political spending.  In fact, more proposals of this type were included in proxy statements than any other type of proposal.  During the 2011 proxy season, 25 of the companies in the S&P 100 included proposals on their proxy statements requesting disclosure of corporate spending on politics. 

For the most part, however, these proposals are precatory and, as a result, need not be followed even if adopted.   

The Commission could be actively pursuing rulemaking efforts in this area, with the efforts still nonpublic.  The speech from Commissioner Aguilar, however, suggested that the development of disclosure standards was not an area of priority.  He called on the Commission the "act swiftly to rectify the situation by requiring transparency."

Any lack of priority may have a number of understandable explanations.  For one thing, the Agency is busy with the burdens of Dodd-Frank.  Political disclosure is not mandated and, as a result, operates under no required time frame.

Another possibility is that the SEC is hesitant to enter a thicket that will almost certainly result in serious attack, no matter what position it takes (the pactice of unprecedented criticism mentioned by Commissioner Walter described in her talk at SEC Speaks).  Indeed, if even settlement in the Goldman case can generate criticism (over whether it involved coordination with the Administration), there is little doubt that something as volatile as political contributions will produce the same result. 

But having said that, there is a potentially serious draw back to any inactivity by the Commission.  It may well lose control over the issue and see corporate disclosure regulated by yet another agency.  We will address that in the next post. 


J Robert Brown Jr.