Six years ago, ten respected academics petitioned the Securities & Exchange Commission to adopt a rule forcing companies to publish detailed reports about their political spending. In the ensuing years, reform groups, labor unions, and others orchestrated a sophisticated campaign that generated over a million form-letter comments pressuring the SEC to act. These groups argue that a corporate political disclosure rule will enhance transparency and protect shareholders from executives who waste corporate dollars on their own pet political projects. This well-intentioned proposal, however, is the wrong approach by the wrong agency.
The proposed disclosure rule is, in many ways, a solution in search of a problem. Advocates for the rule suspect that the country’s largest public companies secretly inject enormous sums into U.S. elections. But little empirical evidence supports that assumption.
According to an analysis by the Institute for Free Speech, a public charity, campaign spending by so-called "dark money" non-profits dropped to just 2.9 percent of the total amount spent in the 2015-2016 election cycle. And recent disclosures suggest the vast majority of this 2.9 percent comes from wealthy individuals, not public companies. In two recent enforcement cases, state regulators in California and Massachusetts forced groups that contributed to state ballot initiatives to reveal their donors. When these groups eventually released their donor rolls, not a single public corporation was found. If a secret flood of public company money bankrolls U.S. elections, one would have expected to see it there.
Further, public online databases already make easily accessible an enormous about of information about corporate political activities. Corporate PACs file reports listing the candidates they support. Super PACs file reports identifying the sources of their contributions. Corporate contributions to non-profits are disclosed when made for the purpose of furthering an advertisement that advocates for or against a federal candidate or that names a federal candidate shortly before an election. Similar rules exist at the state and local level. The proposed rule would therefore needlessly force companies to spend money to produce detailed reports comprised almost entirely of information already available to the public via a Google search.
Given its poor track record, the unnecessary costs the rule would impose on companies, and potential unintended consequences, the SEC should not wade deeper into campaign finance regulation
Even if the rule was warranted, regulating federal elections ought to fall under the purview of the Federal Election Commission, not the Securities & Exchange Commission. With a Congressional mandate and over 50 years’ experience regulating political disclosure, the FEC is far better suited to address corporate political disclosure.
Indeed, the SEC—whose organic statutes say nothing about campaign finance—has only recently begun regulating elections, with troubling results. In 2010, the SEC promulgated its constitutionally dubious “pay-to-play” rule, intended to reduce the influence of political contributions on decisions about where public pension funds invest money. As a result of that overbroad rule, investment firms are forced to shell out huge sums paying lawyers to review proposed employee political contributions or to bar employees from contributing altogether.
Many Americans are therefore effectively prohibited from making meaningful contributions to candidates they support for purely ideological or personal reasons simply because they work in the financial industry. The rule might even be contributing to our current polarized environment, as sitting state and local officials covered by the rule find it more difficult to raise money to run for federal office, while "outsider" candidates face no such restrictions.
Given its poor track record, the unnecessary costs the rule would impose on companies, and potential unintended consequences, the SEC should not wade deeper into campaign finance regulation. If companies are to disclose more—and the rule’s proponents have not met their burden here—elected representatives in Congress should task the FEC with creating these rules. The consequences of yet another layer of government regulation of the political process are too far-reaching to be left in the hands of unelected government employees with no Congressional charge for regulating politics.
Zachary Parks advises corporations, trade associations, campaigns, and high-net worth individuals on their most important and challenging political law problems. His expertise includes the Federal Election Campaign Act, the Lobbying Disclosure Act, the Ethics in Government Act, the Foreign Agents Registration Act, and the SEC pay-to-play rules. He routinely advises corporations and corporate executives on instituting political law compliance programs and conducts compliance training for senior corporate executives and lobbyists.
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