Two years ago, an idiosyncratic band of 10 law professors wrote to the Securities and Exchange Commission asking it to require public companies “to disclose to shareholders the use of corporate resources for political activities.” Their immodest proposal has since become a popular cause: The proposed rule has generated half a million public comments, a record.
More transparency, in both politics and finance, is almost always better. The question sometimes is whether the means justify the end. In this case, they do.
The U.S. Chamber of Commerce, among others, objects that the SEC is being asked to make up for the failings of the Federal Election Commission, which is charged with regulating campaign finance but diligently fails to do so. There is merit to this argument: If the FEC actually regulated the disclosure of political spending, SEC action wouldn’t be necessary.
Critics of the rule also argue that most corporate political spending doesn’t pass the threshold for “materiality,” meaning the spending isn’t substantial enough (relatively speaking) to warrant disclosure. This is also true: In any large company, it’s unlikely that political spending will amount to more than a rounding error.
Politics, however, is about more than finance, and its costs and benefits are not always apparent on the bottom line. A corporation’s political campaigns — like its marketing, advertising or public-relations campaigns — can have a disproportionate impact on its reputation.
Consider the case of Target Corp., which in 2010 donated $150,000 to a business group supporting Minnesota Republican gubernatorial candidate Tom Emmer, an opponent of same-sex marriage. Disclosure of that contribution was justified on two grounds: First, shareholders had a right to know that their money was being spent on causes or candidates they might not support. (Shareholders are not empowered to stop the activity, but they are empowered to sell their shares.) Second, had an internal company disclosure process been in place, Target executives might have thought twice about making such a contribution, which resulted in damaging publicity and a nationwide boycott of Target stores by gay-rights supporters.
That is precisely what the Chamber and allied business groups say they fear — that disclosure will enable corporate opponents to “illegitimately” put public companies “in a poor light.”
Here’s where their argument wears thin. If corporations want to play in the political arena, they should have the fortitude to do so openly and be held accountable for it. The voting public might not care to have a role in the matter (not all companies are as dependent on consumers as Target). But shareholders, at least, will be in a position to accept or reject the use of their money for political ends.
The SEC shouldn’t, and can’t, substitute for the FEC in policing political spending. But corporate disclosure is well within its purview; it already requires disclosure of expenditures such as executive pay.
There is also the possibility that the proposed rule may improve corporate governance as much as campaign finance. “Corporations will have a process in place, as they should, to determine when to spend,” former FEC chairman Trevor Potter, president of the Campaign Legal Center, told Bloomberg News. “It will not be a single corporate officer responding to a phone call from a friend but rather will reflect a measured, thoughtful spending of shareholder money.”
Those corporations worried about disclosing their spending should probably stay out of politics. For the rest, a little sunlight will benefit shareholders, executives and the public alike. The SEC should adopt the rule.
Bloomberg News (May 9)