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Sunday, October 23, 2016

If you own a share of a company, how much information about the company are you entitled to? That is the question embedded in the debate over a proposed Securities and Exchange Commission rule that would force publicly traded companies to disclose their political spending to their shareholders.

As of this month, a 2011 petition to the SEC proposing the rule has received more than 1 million comments — most of them in favor of the mandate. Supporters of the rule, some of whom demonstrated outside the SEC last week, say that’s the highest number of public comments ever submitted in response to a petition for a SEC rule. That level of public engagement, the proponents say, means the agency must stop delaying and implement the proposal. They also say that as hundreds of millions of dollars flood into politics through anonymous “dark money” sources, the rule is more needed than ever.

If adopted, the proposal, written by law professors, would codify and standardize disclosures shareholders have long been requesting from various companies. Those requests have been among the most common proposals at annual shareholder meetings. At the same time, major institutional investors such as the New York state and city pension funds have used their shares to press companies to disclose their political expenditures.

Thanks to that pressure, the Center for Political Accountability reports “almost 70 percent of companies in the top echelons of the S&P 500 are now disclosing political spending made directly to candidates, parties and committees,” and “almost one out of every two companies in the top echelons of the S&P 500 has opened up about payments made to trade associations.” The center calls that a dramatic increase from a decade ago when “few, if any, companies disclosed their political spending.”

In early 2013, the SEC placed the proposal on its regulatory calendar, signaling that the agency would be moving towards a formal rule to make such disclosures a legal requirement rather than a voluntary act. However, major corporate lobbying groups like the American Petroleum Institute and the U.S. Chamber of Commerce filed comments opposing the proposal. Those lobbying groups represent corporations that would have to disclose their political spending under the new rule — including the budget spent on those lobbying groups themselves. Following the pressure from those groups, the SEC removed the proposal from its calendar.

In combating the proposed SEC disclosure rule, business groups are making a constitutional argument, claiming imposing disclosure rules only on one type of entity — publicly traded corporations — violates the First Amendment. In a 2012 Georgetown Law Journal article, two of the lawyers pressing for the SEC rule countered that claim.

“The court’s First Amendment analysis has long given the SEC considerable deference in the development of rules that provide investors with information necessary to facilitate the functioning of securities markets,” wrote Lucian A. Bebchuk of Harvard University and Robert J. Jackson Jr. of Columbia University. They noted the Supreme Court’s Citizens United decision reaffirmed the right of the government to mandate disclosure of political spending.

Though the complex legal arguments are important, this all comes back to the aforementioned question: Should shareholders have the right to know how their money is being spent? That question will ultimately be contingent on the answer to an even more fundamental question: Is the government going to side with shareholders or management?

On the merits, it should be an easy call. But a political system dominated by big money rarely is motivated by the merits of an argument. It is anyone’s guess how or whether the SEC will act.

David Sirota is a senior writer at the International Business Times and the bestselling author of the books Hostile Takeover, The Uprising and Back to Our Future. Email him at [email protected], follow him on Twitter @davidsirota or visit his website at

Photo: “kaje_yomama” via Flickr

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  • FireBaron

    This will be a win for all of us.

  • HowardBrazee

    Bosses need to know what their employees are doing when they are working. This is most important when the bosses are voters and the employees are politicians, but it is also very important when the bosses are stockholders, and the employees are CEOs.

    • Sand_Cat

      That’s why neither voters nor stockholders are allowed much say in how the institutions are run.

  • Whatmeworry

    and yet no such requirement exists for unions especially Federal Unions that are subsidized by the taxpayers

    • Allan Richardson

      The truth is that unions do NOT use general union funds to run any political ads or campaigns. They ask (often BEG) for special additional donations for this purpose. I know because I worked a union job and went to union meetings before retiring.

      And that is what CEOs should do: collect money under a PAC that is not allowed to receive corporate money, but is allowed to receive identifiable contributions from anyone.

      In an ethical sense, if a CEO spends corporate money on political action to enhance the company’s bottom line, that is, by definition, bribery. And if a CEO spends that money to promote his or her own personal views, that is, by definition, embezzlement (and worse if the CEO is not a citizen, and thus would not be allowed to donate his or her personal funds to political action; imagine if Putin could use Gazprom money to influence American elections — oh wait, maybe he can).

      Until we finally outlaw corporate money in politics (which may take many more Congressional votes with CHANGES in the persons holding Congressional seats), at least the stockholders of a PUBLIC corporation have the right to know whether a company’s management is spending THEIR money the way they would have approved, or not. And customers also have a right to know if they want to patronize a company which agrees with their politics or opposes them.

      • Whatmeworry

        I’ve belonged to more than 5 unions over the years and EVERYONE spent the dues collected as they saw fit. Without vote and often on political elections.
        Congress ended up having to pass a law In the 90’sthat said that union members who disagree on having their dues spent on elections could force the union to refund them their $$$.
        As taxpayer we have a right to know how much our tax dollars are being used to subsidized unions so they can then use their money to promote politicians.
        And I agree that unons are guilty of bribery and extortion