On behalf of Demos we respectfully submit this comment supporting the petition requesting a rulemaking to require public companies to disclose to shareholders the use of corporate resources for political activities. Demos is a public policy organization that works at the intersection of political and economic inequality.  Demos has extensive legal and policy expertise on the subject of transparency and accountability for the use of money in politics, and has written extensively regarding its necessity, utility, and constitutionality.1

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It is the responsibility of the SEC to act to prevent further failure of regulatory responsiveness to the changed circumstances brought about by the Supreme Court’s 2010 decision in Citizens United v FEC. Millions of dollars from publicly traded companies have already been spent in federal and state elections; this is known as a result of both voluntary and inadvertent disclosures. More than $300 million was spent in the 2012 elections by dark money groups who hide the identity of their donors, evading transparency and shirking accountability. Many millions of dollars in undisclosed corporate money may have already been spent on politics.2

The Commission has the authority and responsibility to move forward in promulgating a rule to require disclosure of corporate political spending by public companies to protect investors and the market from risky secret corporate political spending and to vindicate investors’ right to information necessary to exercise accountability in this arena.  We urge the Commission to do so for the reasons set forth in the petition and in the one million comments the Commission has received supporting the rule. 

I. Introduction

One of the enduring lessons of the Great Depression and the Great Recession is that the most effective capital market in the world cannot function without appropriate oversight. 

Regulating in the public interest and to protect investors is at the core of the mission of the Securities and Exchange Commission. The Securities and Exchange Commission (SEC) was given broad authority to protect the integrity of the markets and its participants, and it has clear statutory authority to determine what information companies must disclose to their shareholders. 

“We note, first, that Congress, in the 1933 and 1934 Acts, has seen fit to delegate broad rulemaking authority to the SEC. … The SEC, charged with swiftly and effectively implementing this national policy, was necessarily given very broad discretion to promulgate rules governing corporate disclosure. The degree of discretion accorded the Commission is evident from the language in the various statutory grants of rulemaking authority.” Natural Res. Def. Council, Inc. v. Sec. & Exch. Comm'n, 606 F.2d 1031, 1050 (D.C. Cir. 1979).

Section 14(a) of the Securities Exchange Act of 1934 empowers the SEC to prohibit the solicitation of proxies “in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C. Sec. 78n. Courts have found that “[t]he Commission is given complete discretion…to require in corporate reports only such information as it deems necessary or appropriate in the public interest or to protect investors.” Natural Res. Def. Council, Inc., 606 F.2d at 1051 (quoting S.Rep.No. 792, 73d Cong., 2d Sess. 10 (1934)).

In Citizens United v FEC the Supreme Court allowed business corporations to spend money from their general treasuries to support or oppose political candidates, which had been previously banned. But the Supreme Court assumed that all newly allowed political spending by publicly traded corporations from their corporate treasuries would be disclosed to shareholders and the public. In his decision, Justice Anthony Kennedy wrote: 

With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are “‘in the pocket’ of so called moneyed interests.” The First Amendment protects political speech; and disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.”3

In other words, Justice Kennedy relied on transparency for corporate political spending to assuage concerns about oversight and accountability for corporate political spending. Yet there are currently no federal rules that require a publicly traded corporation to disclose their use of shareholder money for political activities. 

In 2011, a bi-partisan committee of law professors, The Committee on Disclosure of Corporate Political Spending, filed a petition calling on the SEC to require public companies to disclose their corporate political activities. They wrote “[s]hareholders need to receive such information for markets and the procedures of corporate democracy to ensure that such spending is in shareholders’ interest,”4 but noted that “[m]ost political spending remains opaque to investors in most publicly traded companies.”5

In 2012, the SEC indicated on its 2013 regulatory agenda that the Division of Corporation Finance was considering “whether to recommend that the Commission issue a proposed rule to require that public companies provide disclosure to shareholders regarding the use of corporate resources for political activities.”6 But the Commission failed to include the rulemaking on its 2013 agenda without any formal explanation, amid reports of fierce political pressure to ignore the issue despite its merits.7

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  • 1. Testimony of Liz Kennedy, Counsel at Demos Submitted to the United States Senate Committee on Rules and Administration, “Dollars and Sense: How Undisclosed Money and Post-McCutcheon Campaign Finance Will Affect the 2014 Election and Beyond” (Apr. 30, 2014), available at http://www.demos.org/sites/default/files/publications/Kennedy_TestimonyPostMcCutcheon2.pdf; Testimony of Liz Kennedy, on behalf of Demos, Submitted to the United States Senate Committee on Rules and Administration Hearing on the DISCLOSE Act of 2012, S. 2219 (Mar. 29, 2012), available at http://www.demos.org/sites/default/files/publications/DISCLOSE_Testimony_SenateHearing_3_29.pdf; Liz Kennedy, Citizens Actually United: The Overwhelming, Bi-Partisan Opposition to Corporate Political Spending And Support for Achievable Reforms, Demos (2012), http://www.demos.org/sites/default/files/publications/CitizensActuallyUnited_CorporatePoliticalSpending.pdf; Brief of Amici Curiae Communications Workers of America et al. in Support Appellee, McCutcheon v. Fed. Election Comm’n, No. No. 12-536 (U.S. 2013) (counsel for amici curiae), available at http://www.demos.org/sites/default/files/publications/mccutcheon_sc_demos_cwa_amici_brief.pdf.
  • 2. Nicholas Confessore, S.E.C. is Asked to Require Disclosure of Donations, N.Y. Times A1 (Apr. 23, 2013), available at http://www.nytimes.com/2013/04/24/us/politics/sec-is-asked-to-make-companies-disclose-donations.html?pagewanted=1 
  • 3. Citizens United v. Fed. Election Comm’n, 130 S. Ct. 876, 916 (2010).
  • 4. Letter from the Committee on Disclosure of Corporate Political Spending to Elizabeth M. Murphy, Sec'y, U.S. Securities and Exchange Commission (Aug. 3, 2011), at http://www.sec.gov/rules/petitions/2011/petn4-637.pdf .
  • 5. Id.
  • 6. Office of Information and Regulatory Affairs, Office of Management and Budget, Disclosure Regarding the Use of Corporate Resources for Political Activities (Dec. 12, 2012), http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201210&RIN=3235-AL36.
  • 7. Alec MacGillis, Mary Jo White Doesn’t Scare Anybody, New Republic (May 4, 2014), http://www.newrepublic.com/article/117632/secs-mary-jo-white-whiffs-transparency-wall-street-dark-money