SEC May Force Disclosure of Political Contributions

Photograph by Joel Sartore/Getty Images

The U.S. Securities and Exchange Commission quietly announced last month that it’s considering forcing publicly traded companies to disclose political contributions. Such a regulation could transform the way money gets spent on elections, so it’s no surprise that two opposing camps are already preparing to try influence the agency’s decision.

On one side are such trade associations as the U.S. Chamber of Commerce, which spent nearly $30 million trying to defeat Democratic candidates during the 2012 election cycle. Because of their tax-exempt status with the IRS, trade associations aren’t required to reveal their donors. That essentially gives companies a free pass to donate to trade associations and influence elections without having to face public backlash. But the Chamber is arguing that investors don’t need to know about political donations because they’re too small to have a significant effect on a company’s bottom line. This may be the case, but right now investors have no way to confirm it because the amounts don’t have to be disclosed.

Opposing those groups are academics and shareholder activists who have long crusaded for greater disclosure. In 2011, Columbia University Law Professor Robert Jackson and nine other academics petitioned the S.E.C. to make companies report their political spending to investors. The petition got 322,000 favorable responses—reportedly the most the agency has ever received on any topic.

If the S.E.C. goes through with the regulation, corporations will have a blueprint to follow. Some of these shareholder activists, as I wrote last year, have been successful in getting companies to put disclosure policies in place. In 2012, Hershey and Aflac agreed to publish their contributions to super-PACS and tax-exempt groups, joining 36 S&P 500 companies in doing so. Also last year, Boston-based State Street barred trade associations from using the bank’s membership dues for political purposes (PDF).

When Microsoft decided to make changes to its disclosure policy several years ago, Dan Bross, the company’s senior director of corporate citizenship, had to look through the company’s books to see which divisions were paying money to trade associations. He then organized the giving under one division to better track how Microsoft’s money was spent. “Companies don’t want to appear ideological,” Bross told me.

Since the Supreme Court’s Citizens United decision, which paved the way for unlimited political spending by corporations, liberal groups have tried to fight back against corporate spending on politics in many ways. There’s a campaign urging states to pass laws overturning the High Court’s ruling. Senator Max Baucus (D-Mont.) has pressed for a similar amendment to the U.S. Constitution. And on Tuesday, New York Attorney General Eric Schneiderman called for greater disclosure for tax-exempt groups based in the state.

Those efforts face steep challenges. Even if they succeed, their scope would be limited. Action by the S.E.C., however, would have nationwide impact. As Bross at Microsoft points out, forcing disclosure could cause public companies to think twice about spending on elections—or even to shun the practice altogether. This could be a game-changer.

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