In the turmoil of today’s politics, Justice Anthony Kennedy’s affirmation of corporate political disclosure in the Supreme Court’s landmark Citizens United decision is more relevant than ever.
“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,” Kennedy wrote. “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.”
As undisclosed money floods elections—significant amounts of which from publicly traded companies—shareholders and the public are entitled to know the source. What Justice Kennedy described has not become a reality, however.
A rule requiring companies to disclose their political spending has been stalled at the Securities and Exchange Commission since 2011 despite little, if any, opposition from companies. Adopting this rule would serve not only investors and their companies but our democracy. The blight of secret money shouldn’t be allowed to infect our elections: It’s bad for the country and for business.
Moreover, a political disclosure rule is hardly a radical step; an increasing number of companies are recognizing that disclosure mitigates risk. Since investors first raised the issue in 2004, the number of S&P 500 companies that disclose some or all of their political spending has reached close to 300, according to an annual benchmarking study our organization co-authors.
To protect companies, investors and our democracy, the SEC needs to act now to codify what companies are doing voluntarily. This step is simple, and it would make the disclosure that Justice Kennedy envisioned in Citizens United a reality.
Today, companies face heightened pressures to contribute to candidates, political committees, super PACs and shadowy advocacy organizations. A company’s participation in this secret world of political finance exposes it to legal and reputational risks. One prominent feature is the loss of accountability; when companies contribute to third-party groups and lose control over how their money is spent, it can too often end up supporting candidates and causes at odds with the company’s values or business goals. In other cases, it can end up lining the pocket of political operators or financing illegal activity. And in an era of the 24-hour news cycle and a vigorous social media, companies face heightened risks from these contributions.
Companies with strong commitments on climate change, diversity, and gender equity may find that their money has been used to undermine those commitments. In today’s supercharged environment, companies have attracted headlines such as: “Meet the Fortune 500 Companies Funding the Political Resegregation of America;” “Contraceptive Makers Helped Elect Republican Congress Ready To Defund Planned Parenthood;” and “These companies support climate action, so why are they funding opposition to it?”
Investors, meanwhile, shouldn’t be left in the dark. As Justice Kennedy’s opinion affirmed, shareholders have a right to know the details of a company’s political spending so they can raise objections or reconsider their investment. Similarly, the darkness that obscures political spending prevents management and directors from evaluating benefits and risks associated with it.
Political disclosure is recognized as good corporate governance and is increasingly the norm. As Arnold J. Johnson, Senior Vice President, General Counsel and Corporate Secretary for Noble Energy, told a roundtable at New York University’s Stern School in 2015, “We’re at the point in the corporate world where I think transparency is critical, but it needs to be good and understandable transparency.”
Why is voluntary disclosure insufficient? When some companies pull aside the veil completely and others do not, it creates an uneven playing field. This demands correction. Companies perform best when they all operate on the same footing with no company at a competitive advantage – or disadvantage – as a result of strong, weak, or no disclosure.
To protect companies, investors and our democracy, the SEC needs to act now to codify what companies are doing voluntarily. This step is simple, and it would make the disclosure that Justice Kennedy envisioned in Citizens United a reality.
Bruce Freed is president and co-founder of the Center for Political Accountability. In addition to heading the Center, he is a member of the advisory board of the Zicklin Center for Business Ethics Research at the University of Pennsylvania’s Wharton School and Transparency International–USA’s Policy Advisory Council. He has over 30 years of experience in politics, strategic public affairs, and journalism, as the business and politics columnist from 1998 to 2003 for The Hill.
Karl Sandstrom is counsel for the Center for Public Accountability and a former vice chair of the Federal Election Commission. In addition to being of counsel in the political law practice of Perkins Coie, he is an adjunct professor at American University’s Washington College of Law and is a member of the advisory board of the Zicklin Center for Business Ethics Research of the University of Pennsylvania’s Wharton School.
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