Opposition to Proposed Rulemaking Regarding Mandated Disclosure of Corporate Political Spending

We are discussing possible Rulemaking Regarding Mandated Disclosure of Corporate Political Spending

On August 3, 2011, the Committee on Disclosure of Corporate Political Spending, comprised of ten academics focusing their careers on corporate and securities law issues, called on the SEC to adopt rules requiring public companies to disclose corporate political spending (petition available here). Despite the overwhelming support of the rule, no action has been taken in over three years. According to Bloomberg, on September 4, 2014, the Corporate Reform Coalition renewed the call to the SEC to engage in rulemaking on the matter.  

While the SEC has received over one million comment letters in support of the rule, there are some who stand firm in their support of corporate personhood. Many organizations, including the National Mining Association, the Small Business and Entrepreneurship Counsel, and the Aircraft Owners and Pilots Association, came together to submit one comment letter opposing the rule. Likewise, the American Petroleum Industry (“API”), “the largest trade association for the oil and gas industry in the United States,” has submitted a comment letter expressing opposition to the rule.

The organizations submitting the joint comment letter claim that the rule has no direct impact on shareholder value. Specifically, they claim that fiduciary obligations require corporations to speak out against government policies that could impact the company financially. Like individuals, corporations engage in political activity in order to protect their interests. The disclosure is immaterial, the organizations claim, because it would allow corporations to be attacked for acting in the best interests of shareholders through political contributions. Likewise, these organizations assert that the disclosure is immaterial such that the SEC has no authority to mandate such disclosure.

The organizations also claim that the cost of compliance is significant for both corporations and investors. The disclosures are likely to be used to attack the companies and pressure them to stop engaging in political spending, even where such spending is in support of policies that will benefit the company in the future. The organizations claim that the rule would violate the First Amendment by curtailing corporation’s freedom of speech as recognized by the Supreme Court in Citizens United v. Fed. Election Comm'n, 558 U.S. 310 (2010). API agrees with this position, arguing that shareholders have the right to engage in corporate governance through shareholder proposals. It states that while this right should not be curtailed, mandating disclosure of corporate political activity is entirely at odds with the holding of Citizens United.

The API letter claims that mandated disclosure of corporate political spending is “neither necessary nor desirable and would burden corporations without benefiting shareholders.” In support of its claim that the rule is unnecessary, API discusses the adequacy of existing political spending disclosure requirements. For example, the Federal Election Commission (“FEC”) requires that any “independent expenditure” or “electioneering communication” by a corporation be disclosed to the FEC and subsequently posted on the Internet. Further, all states require some sort of disclosure of corporate political contributions, and many states impose limits on such contributions. Therefore, SEC regulations regarding corporate political spending would be duplicative.

In addition, API expressed concern with the complexity of such disclosure, including the petition’s silence as to what constitutes corporate political spending. If the definition of political spending includes contributions to trade associations, such associations may be subject to “political or economic retaliation for expenditures unrelated to political activity.”

API further maintained the position that adoption of such a rule was premature considering the Shareholder Protection Act, which would have required shareholder approval for political spending, was on the floor of both the Unites States House of Representatives and the Senate.

In sum, many corporations argue that they will be negatively impacted by the adoption of a rule requiring disclosure of corporate political spending. Not only would such a rule curtail freedom of speech, they argue, but it would also impose unnecessary burdens that would discourage companies from advancing governmental policies that would enhance profit-making capabilities—which benefits shareholders. Further, they argue, corporate political spending is already regulated such that any additional rulemaking by the SEC is unnecessary and duplicative.

Gabrielle Palmer