Supreme Court boosts shareholders’ right to information

What does campaign finance law have to do with proxy season? The answer: disclosure. The Supreme Court's decision this month in McCutcheon v. FEC was rightly described as an “evisceration” of the current campaign finance regime.  But the controlling opinion of Chief Justice John Roberts also contained a small silver lining for those concerned with protecting the integrity of our democracy from dark money and irresponsible corporate political spending:  enthusiastic support for transparency. 

Such transparency can be a powerful tool for shareholders to hold corporate managers accountable ... but only if it actually exists.  Today, in many companies, it does not. The Court’s recent campaign finance decision shows why the U.S. Securities Exchange Commission must make corporate disclosure a top priority.

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McCutcheon invalidated the overall federal limits on what individuals can contribute to candidates, political parties, and PACs.  The chief justice’s opinion expands on the Court’s reasoning in Citizens United v. FEC, which struck down the federal ban on political spending by corporations and unions and paved the way for individuals and organizations to spend unlimited funds on elections.

While both McCutcheon and Citizens United were setbacks for those favoring robust campaign finance laws, the discussion of disclosure in both cases is noteworthy.  In McCutcheon, Roberts praised online disclosure of political spending as “a particularly effective means of arming the voting public with information.”  And in Citizens United, Justice Anthony Kennedy (writing for eight of nine justices) embraced disclosure not only for the sake of voters but also shareholders — who, he said, should have the information they need to judge “whether their corporation's political speech advances [its] interest in making profits.” 

For Roberts, Kennedy, and their conservative colleagues (excepting Justice Clarence Thomas) disclosure is not just an end in itself, but the lynch pin for their entire approach to (not) regulating money in politics. They seem to believe comprehensive disclosure requirements will sufficiently protect voters and shareholders.   Other rules are unnecessary.

Even if you agree with them, however, there is one glaring problem:  A great deal of political spending goes undisclosed.  Corporations in particular can easily keep their electoral spending secret, either by making donations through shell entities or by giving to “dark money” organizations that do not have to disclose their donors.  There are no limits to how much money a corporation can spend in this way.  True, a few states have tighter rules — but they generally cannot force companies incorporated elsewhere to abide by them.

All this secrecy is bad for business.  Aggressive political spending carries significant risks for a company.  There is a growing body of research to indicate that corporate managers who drive this spending sometimes do so for their own reasons, and not to maximize shareholder value.  Shareholders need transparency so they can monitor how their money is being spent and keep the company’s focus where it belongs — on the bottom line. 

Understanding this reality, a number of America’s most successful companies already disclose their political spending voluntarily.  But others refuse, to the overall detriment of our economy as well as our democracy.

To give all shareholders the information they need to keep track of their investments, there should be a uniform federal rule requiring transparency for political spending by companies — the type of rule the Supreme Court endorsed in McCutcheon and Citizens United

Unfortunately, federal disclosure legislation to provide such transparency has stalled, as have rulemaking efforts at the Federal Election Commission (notwithstanding vigorous advocacy from some Commissioners).

Until recently, a more promising path seemed to run through the SEC, which is considering a petition asking the agency to require publicly-traded companies to disclose political spending.  The petition has already drawn more than 750,000 comments — virtually all in support.   Late last year, however, the SEC dropped this effort from its list of regulatory priorities. 

SEC Chair Mary Jo White has expressed doubts about using agency rules to bring “societal pressure” on publicly-traded companies. But to fulfill the Supreme Court’s vision of disclosure law, she must make the issue a top priority again. 

Shareholders have the right to know how their money is being spent — not to “pressure” companies but to protect their investments.  Providing such transparency is at the heart of the SEC’s mission.  Corporate managers have more latitude than ever before to spend other people’s money on politics. The SEC should step back up to the plate and give shareholders the tools they need to hold managers accountable.

Weiner serves as counsel in the Democracy Program at the Brennan Center for Justice at NYU School of Law.