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Disclosure is hardly un-American
By Adam Kanzer, Managing Director and General Counsel, with Lisa Gilbert and Leslie Samuelrich
In “SEC rule on corporate political giving too extreme,” Paul Atkins’ defense of corporate political secrecy, the former SEC commissioner argues that a rule requiring corporations to disclose their use of corporate treasury funds for political purposes would be inconsistent with the SEC’s mandate to protect investors. He claims that those investors working for corporate political transparency have not been acting as fiduciaries, on behalf of their investors, but rather on behalf of “special interest” groups bent on destroying the First Amendment and capitalism as we know it.
Investors have been seeking full disclosure of the funds corporations spend to influence elections for more than ten years, but with increasing urgency since the U.S. Supreme Court’s ruling in Citizens United v. FEC, which exponentially amplified the risks of this spending. The SEC is the only agency with the clear authority to mandate disclosure of this information, which is necessary to enable fully informed investment decisions.
A rulemaking petition, filed by a bipartisan coalition of prominent corporate law professors, enjoys unprecedented support from investors and the general public. Atkins dismisses the more than 380,000 emails the commission has received. Ironically, these were sent by the very people he claims the SEC ought to protect: “folks who depend on a reasonable return from their investments to put their kids through college and provide for a comfortable retirement.” Corporate political activity presents broad concerns to the general public and significant risks to our economy. A study conducted by the International Monetary Fund, for example, drew a link between banks’ political spending and heavy involvement in risky sub-prime mortgages. The Financial Crisis Inquiry Commission concluded that deregulation was a contributing cause of the financial crisis. Corporate campaign contributions certainly helped pave the way. Companies have also faced indictments and public scandals.
Atkins neglects to mention that the petition’s supporters also include five state treasurers writing as fiduciaries, Jack Bogle, the founder and former CEO of Vanguard, the Council of Institutional Investors and a global coalition of investors managing more than $690 billion.
Shareholder proposals seeking corporate political transparency have received strong and growing support, with votes often in the 30-40 percent range. Five of the largest U.S. mutual fund families supported them more than 80 percent of the time during the 2012 proxy season.
Corporate political transparency is necessary for the efficient functioning of our capital markets and as a risk management tool for shareholders, corporate management, and directors. Corporations claim this spending is necessary to protect their interests, but we have no way to monitor these activities, or assess their risks.
In addition, trade associations and similar groups have become significant conduits for ‘indirect’ corporate political spending. These organizations are not required to disclose the source of their funding, often leaving companies in the dark about the use of their money as well as exposing them to unnecessary and dangerous risks.
Atkins seeks to demonize disclosure as a plot – a smokescreen to disguise more nefarious goals. He claims our tactics are “un-American,” and the law is not on our side. He fails to note that eight Supreme Court justices supported real-time disclosure of corporate political spending in the Citizens United decision, when they said, “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.”
Justice Antonin Scalia has said “that running a democracy takes a certain amount of civic courage. And the First Amendment does not protect you from criticism or even nasty phone calls when you exercise your political rights ….” If there’s a plot here, then Justice Scalia must be in on it.
Finally, Atkins claims – without any evidence whatsoever – that disclosure would harm shareholder value. This view is not shared by executives at IBM, Microsoft, Merck, Pfizer, Wells Fargo or any of the more than 100 major companies that have voluntarily embraced corporate political transparency in the name of good corporate governance.
The SEC’s move to consider this rule shows that they are adapting to the new way corporate money is being used in the marketplace, and that they take their mandate to protect investors seriously. Disclosure will help us distinguish between companies that compete and win through superior products and services, and those, like Enron, that merely appear to do so due to superior access to lawmakers. We are told this spending is for our benefit. We look forward to an SEC rule that will allow us to assess this claim for ourselves.