SEC Should Require Corporate Political Spending Disclosures: Report

09/07/2011 01:22 pm ET | Updated Nov 07, 2011

WASHINGTON -- Corporations should not fear disclosing their political spending, says a report co-authored by a Harvard Law School professor and the watchdog group Public Citizen. The report, which calls on the Securities and Exchange Commission (SEC) to require corporations to disclose their political expenditures, found that S&P 500 companies that voluntarily disclose their political spending have a higher shareholder value than those that do not disclose.

The report comes as the the U.S. enters its first presidential election cycle since the Supreme Court ruled in Citizens United vs. Federal Election Commission (FEC) that corporations and unions could spend money on electoral activities, allowing a massive infusion of often undisclosed money into elections.

Justice Anthony Kennedy, author of the majority opinion in Citizens United, firmly backed the disclosure of all political election spending. But an increase is undisclosed election spending appears to be the biggest effect of the Supreme Court ruling.

Outside groups, empowered by the Citizens United decision, spent $266.4 million in the 2010 midterm elections, with $135.6 million coming from groups that were not required to disclose the source of their funding, according to the report.

"The corporate spending that was permitted by Citizens United ought to be disclosed," said report co-author Tyler Lincoln, who is Public Citizen's research director.

The report calls on the SEC, which regulates publicly-held companies, to require those companies to disclose their political spending to their shareholders and the public. SEC disclosure would partially fill the gaps in campaign finance disclosure left by the Citizens United ruling.

In 2010, Congress failed to pass the DISCLOSE Act, which would have required disclosure of all the new spending allowed under Citizens United. The Senate fell one vote short of cloture on the bill. The Obama administration has been considering an executive order requiring all government contractors to publicly disclose their political spending when they apply for contracts. This order has been vehemently opposed by the U.S. Chamber of Commerce, the highest-spending outside group in 2010, and other business groups, delaying its release.

The push for the SEC to require disclosure of companies' political spending is the most recent attempt to reverse the trend towards non-disclosure by those concerned about "dark money" in elections. SEC action has been sought by a group of law professors who have petitioned the commission to enact political spending disclosure rules.

Yet much of the money flowing to outside groups is believed to be coming from privately-held companies, such as Koch Industries, rather than publicly-held companies that would be affected by any SEC disclosure rules. Still, big spenders like the Chamber of Commerce do get huge sums from some of the largest publicly-traded companies.

"You've got your front groups, like the Chamber of Commerce, who gets a lot of checks of $100,000 or $1 million, and a lot of these contributions come from public companies," Public Citizen's Lincoln said.

Some examples of disclosed political contributions to the Chamber in 2010 include a $1.9 million contribution from Dow Chemical, a $141,000 contribution from Microsoft, a $50,000 contribution from Norfolk Southern, and a $35,000 contribution from Alcoa.

The report's look at the value of S&P 500 companies was conducted by Harvard Law School Professor John Coates. He found that companies that disclosed their political activity had the highest shareholder value.

"When you control for all the things that effect market valuation, the companies that disclose their political spending have a higher market valuation," Coates explained.

The study covered 80 S&P 500 companies that publicly disclose their political spending and found "companies with policies calling for political disclosure had a 7.5 percent higher industry-adjusted price/book ratio than other firms as of year-end 2010."

"Our findings are consistent with the idea that [political spending disclosure] would be good for the firms," Coates said. "It would raise their valuations. It would make it easier for them to raise capital. It would make it easier for them to grow."

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