SEC Rulemaking: Mandatory Corporate Political Expenditure Disclosures Are Invisible

On August 3, 2011, the Committee on Disclosure of Corporate Political Spending, composed of academics, submitted a petition to the Securities and Exchange Commission (“SEC” or “Commission”) requesting that the Commission develop rules requiring public companies to disclose corporate political expenditures. The petition suggested that through required political expenditure disclosures, shareholders can “ ‘determine whether their corporation’s political speech advances the corporation’s interest in making profits,’ and discipline directors and executives who use corporate resources for speech that is inconsistent with shareholder interests.”

The issue with regulating corporate political spending arose after the Supreme Court issued its opinion in Citizens United v. Federal Elections Commission, 558 U.S. 310 (2010), which lifted restrictions on corporate political expenditure. The Court noted, however, that the “[g]overnment may regulate corporate political speech through disclaimer and disclosure requirements,” and that today’s advanced technology would allow prompt disclosure to shareholders and the public. Such disclosure would provide transparency for the electorate to make informed decisions as well as accountability to the shareholders with respect to whether the political expenditures are in the corporation’s best interests.

According to Bloomberg, the SEC has received over one million comments in support of the political spending disclosure rule. Most commentators to the petition have responded by emphasizing the utmost importance of public disclosure in carrying out the SEC’s mission to maintain fair markets and protect investors. Recent anonymous comments highlight the Court’s suggested government regulation through disclosure and requested the Commission to enact a political spending disclosure rule.

The Commission has yet to consider the political spending disclosure rule. The Commission did at one point indicate that a possible rule was on the Commission’s long term rulemaking agenda. The Commission, however, removed the subject from the rulemaking agenda a year later.

According to Reuters, SEC Chair Mary Jo White has not commented on the removal of the initiative from the long term agenda, but has expressed a general opposition to regulating companies in response to societal pressures. The SEC may also have removed the item due to possible uncertainty concerning rulemaking authority. Or the SEC may have removed the item because it felt the legislative branch was better equipped for amending the Exchange Act.