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.