Ciara Torres-Spelliscy: American Corporate Political Transparency Is 44 Years Behind the UK
posted by Frank Pasquale
Ciara Torres-Spelliscy is an Assistant Professor at Stetson University College of Law and the co-author along with economist Dr. Kathy Fogel of Shareholder-Authorized Corporate Political Spending in the United Kingdom. I am posting her views on American corporate political transparency below [FP]:
by Ciara Torres-Spelliscy
As I told my law students in a recent class, when I was in law school, no one cared a fig about corporate political spending. I did not hear about it in Constitutional Law, Corporate Law or Fed. Tax. It was a non-issue because for the most part, it was banned. It made sense that back then, the SEC would not have a corporate political spending reporting requirement. That would have been tantamount to the agency’s asking, “have you committed any federal election crimes?” Now that such political spending is legal, the SEC should respond to the growing calls for a new disclosure rule.
Much has changed in the years since I was on the business end of a Con Law exam. In particular, in 2010, the Supreme Court did away with corporate source limits on election ads altogether in the infamous Citizens United case. The upshot of this case changed not just federal law going back to 1947, but also state laws, some of which dated back to the turn of the twentieth century.
The new normal is corporations can spend an unlimited amount of their treasury funds on independent political expenditures in local, state and federal elections. This brings us back to the SEC and its utter lack of political disclosure rules. Because of this gap, publicly-traded corporations can spend in elections without ‘fessing up. This seems odd given how passionate shareholders are about transparency.
In the summer of 2011, ten corporate law professors petitioned the SEC for a new disclosure rule to rectify this situation. These professors are both conservative and progressive, yet they all agree transparency of corporate political spending is a must.
Economists have already written in support of the professors’ petition. Economist Dr. Michael Hadani of Long Island University noted that one of the reasons why shareholders should want more reporting on corporate political spending is that it can backfire. His regression analysis of over 1,100 companies over an 11 year period found political spending had a negative impact of firms’ market value.
Economist Dr. Susan Holmberg, Program Director at the Center for Popular Economics, also argued that transparency would bring more efficiency to the market by reducing monitoring costs for investors of managers’ spending corporate resources in politics.
Shareholders have also weighed in loudly in support of more transparency of corporate political spending. Over the past few years, shareholders have been calling for transparency company by company in shareholder resolutions. And shareholders are asking the SEC for a new rule as well: on November 1, organizations managing $690 billion on behalf of individual and institutional clients filed a comment urging the SEC to act.
As I pointed out in my comment to the SEC, the US is embarrassingly over four decades behind the UK which has required disclosure of corporate political spending since 1967 under the Companies Act. The UK can offer some pointers on how a rule might work here. In the UK, political expenditures over £2,000 are included in the directors’ report to shareholders. The company must say where the money was spent and the law covers not just political spending in the UK, but also in all EU member nations.
The SEC, of course, has a lot on their plate, including finishing the Dodd-Frank rules. But this is important to the integrity of our markets as well. And the Commissioners don’t have to look very far for model language. They could copy some from the Shareholder Protection Act pending in Congress or they could lift some language from our friends in jolly old England. The ball is now in the SEC’s court. As an investor, I hope they step up and do the right thing.
November 16, 2011 at 11:53 am
Posted in: Corporate Law, Corruption, First Amendment
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Responses (4)
A.J. Sutter - November 16, 2011 at 10:06 pm
I agree with the goal of more transparency, but why is the discourse focused on the impact on shareholders? Why should the inquiry be, as in the Hardani report, “Are firms truly able to improve their financial bottom line by engaging in corporate political activity?” — if they could, would that make more such activity OK? Why should arguments based on efficiency and share price be given priority over more basic political issues? It seems to me that this issue is a good one for a stakeholder or social responsibility point of view. This is not a purely or even primarily economic issue, and should not be allowed to be hijacked by economistic discourse.
Soren Dayton - November 17, 2011 at 8:31 am
What are we actually talking about in terms of corporate political spending in the UK? This is a country where political broadcast communications are illegal.
Corporate contributions to parties? Do contributions to think tanks count? Would contributions, if such things were to exist, c4s count?
Are these systems really comparable?
Ken JP Stuczynski - November 24, 2011 at 7:07 pm
Awesome article, one that is extremely pertinent to our times, and echoes the sentiments of such groups as the Coffee Party movement, to some extent the Occupy movement, and even to a small extent, the TEA Party.
The shareholder’s demands for transparency are an obvious right, and I would guess the reason it turns out badly for the companies that do disclose are simply because such corporations are not used to such transparency and are still making decisions inconsistent with the will of the shareholders versus their own intentions or belief that political influence is desirable (ethics aside).
However, the fact that corporations can spend on such things at all should not be a question off the table. However, recent legislative efforts at reducing this influence were blocked by Republicans, and for good reason — it did not cover the undue similar influence of unions and therefore was a partisan attack on their political base funding.
I also think the discussion should be broadened to acknowledge it takes two to tango — it is, after all, the politicians themselves willing and able to be beholden that allows this to be an issue. Strict, nonpartisan, independent oversight into conflicts of interest between Parties, PACS, and individual politicians would bring this whole government-corporatist machination to a grinding halt.
David R. Beemer - November 28, 2011 at 3:08 am
Corporations are, by law, required to do whatever will produce the greatest return for their shareholders. Yet, shareholders have little power other than to vote with their feet and buy some other stock. Why the CEO of General Motors should get four or five times as much pay as Japanese or European CEOs, who are many cases, kicking their butts, seems to me to be something that shareholders should have a say in.
But they don’t. Neither do they have any real say in how lobbying money is being spent. It may be something that is good for the stockholders of the corporation, or might just benefit the few at the top, by changing regulations about what they have to reveal on a multitude of fronts. Remember ENRON, where the people at the top were selling furiously while at the same time telling the employees (and stockholders) to hold tight. Investing one’s hard earned money requires confidence that the numbers you are trying to analyze are truthful. Without that confidence, the whole economic system falls apart. They don’t realize it, but no one needs regulation more than the ones who fight the hardest against it.
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