Political spending disclosure and the SEC

Earlier this month, we were treated to an exciting hearing as Lisa Fairfax and Hester Peirce faced off with the Senate Committee on Banking, Housing and Urban Affairs over their potential confirmations to serve on the U.S. Securities and Exchange Commission (SEC). During the hearing, Peirce and Fairfax fielded sharp questions from all of the Democrats on the important topic of corporate political spending. U.S. Sen. Charles SchumerCharles (Chuck) Ellis SchumerOvernight Health Care — Presented by the Association of American Medical Colleges — Trump officials move to expand non-ObamaCare health plans | 'Zero tolerance' policy stirs fears in health community | New ObamaCare repeal plan Selling government assets would be a responsible move in infrastructure deal Ignore the naysayers trying to disrupt US diplomacy with North Korea MORE (D-N.Y.), future Democratic leader of the Senate, began his questions by saying, "a giant hole was ripped in our democracy by Citizens United. It has had a corrosive effect on our country. The SEC has a role to play." He concluded his remarks, warning Peirce and Fairfax, that "if you give a mushy answer on political spending, I would lean against your nomination."

Sens. Robert MenendezRobert (Bob) MenendezSchumer: Obama 'very amenable' to helping Senate Dems in midterms The Hill's Morning Report: Can Trump close the deal with North Korea? Senate must save itself by confirming Mike Pompeo MORE (D-N.J.) and Jeff MerkleyJeffrey (Jeff) Alan MerkleyThe Hill's Morning Report — Sponsored by PhRMA — Defiant Trump meets with House GOP amid border blowback Senate passes 6B defense bill Amnesty International rips family separation policy: 'This is nothing short of torture' MORE (D-Ore.) piled on and spent the bulk of their time asking questions about this critical rule. Menendez began by saying that "political disclosure is a shareholder interest as well as a societal good" and spoke eloquently about the importance of this information for investors trying to make decisions about where to entrust their money. Sens. Elizabeth WarrenElizabeth Ann WarrenWarren on family separation policy: Trump is ‘taking America to a dark and ugly place’ Overnight Defense: States pull National Guard troops over family separation policy | Senators question pick for Afghan commander | US leaves UN Human Rights Council On The Money — Sponsored by Prudential — Markets roiled by Trump's new tariff threat | Trump lashes out at Canada over trade | Warren looks to block Trump pick for consumer agency MORE (D-Mass.) and Jack ReedJohn (Jack) Francis ReedOvernight Defense: States pull National Guard troops over family separation policy | Senators question pick for Afghan commander | US leaves UN Human Rights Council Senators question Afghanistan commander nominee on turning around 17-year war Reed: ‘Preposterous’ for Trump to say North Korea is no longer a nuclear threat MORE (D-R.I.) mentioned the issue as well, with Warren pointedly spending time on the obvious conflict between the nominees' stated support of the SEC's mandate — investor protection — and either of them eventually making a choice to ignore the 1.2 million investors that have asked for this rule. Both Fairfax and Peirce stayed fairly neutral, though Fairfax commented, "I think there is certainly an argument to be made that it is material."

This line of questioning should not have come as a surprise to the nominees. Since the U.S. Supreme Court's 2010 decision in Citizens United v. Federal Election Commission, politically active nonprofit groups and trade associations have offered vastly expanded conduits for political spending, and as a result, corporations are under more pressure than ever to spend to influence our elections. Corporate political spending has flourished in the shadows (aside from those companies that choose to share the information voluntarily.) In fact, in this election cycle, one of every eight dollars collected by super-PACs has come from corporate coffers, including millions flowing from opaque and hard-to-trace entities, according to a Washington Post analysis of federal campaign finance filings.

For investors who wish to assess the kinds of risk associated with their companies' political spending, Citizens United made corporate accountability and transparency even more essential and they have demanded it vocally from the agency that can provide it: the SEC. To that end, 44 U.S. senators, 70 investing endowed foundations, the founder of the largest mutual fund in the country, a bipartisan group of former chairs and members of the SEC, five state treasurers, pension funds, securities lawyers and a historic 1.2 million retail investors have all asked the SEC to shine a light on unlimited corporate political spending by requiring disclosure.

This issue has taken on unstoppable velocity.

At the hearing, that momentum was obvious, as the topic was brought up repeatedly, making clear that members of the Senate believe this should be a top priority and are seeking specificity on this issue as they consider nominees to the agency. At the conclusion to his remarks, Schumer added that "shareholders remain in the dark as executives of public corporations funnel money into our political system with no transparency or accountability," and noted that he was unsatisfied with the answers he was given during the hearing. He requested more complete replies in writing on this topic from both nominees.

At the SEC, which is charged with protecting investors above all else, the idea that a commissioner might come into office and work to protect the secrecy of corporate political spending (while investors are demanding its transparency) seems inherently problematic. By pushing on this issue, the Democratic committee senators aim to ensure that these nominees place the protection of Main Street and the markets above any allegiance to industry. A disclosure rule is a perfect marker, as support of it will demonstrate an awareness of the risk inherent in political spending that can threaten a company's bottom line by embroiling it in hot-bottom political issues.

In the pursuit of good corporate governance and new commissioners who put Main Street first, we heartily agree with the case made by the Banking Committee senators in the hearing and look forward to the more fulsome answers on the topic of political spending as requested by Sen. Schumer. Support for a rule requiring disclosure of corporate political spending should serve as a metric for a qualified commissioner, and the outcry for this rule by investors must no longer be ignored.

Gilbert is the director of Public Citizen's Congress Watch division.