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Appropriations bill would bar SEC from requiring political spending disclosure

January 13, 2018 GMT

WASHINGTON The appropriations bill that the Senate and House must pass by Friday to avoid a government shutdown forbids the Securities and Exchange Commission from making publicly traded companies disclose their political spending to shareholders.

The language has been embedded in every major federal spending bill since 2016. The prohibition comes as politicians talk about open government and critics lament unlimited corporate contributions allowed under the 2010 Citizens United Supreme Court decision that they say are reshaping elections.

Telling regulators they cannot increase shareholder and public awareness of the influence of business on politics is controversial, but not so contentious that its inclusion in the 2018 appropriations bill will lead to a government shutdown, most observers believe.

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It would, however, have consequences.

People want transparency, said John Stout, a corporate governance specialist in the Minneapolis office of the Fredrikson Byron law firm. You have to wonder about those who are trying to force transparency out of the system. For big companies, political spending is a micro part of annual spending, but youd like to know who has influence.

Stout recalled protests and boycotts that followed revelations that Target Corp. and Best Buy had given six-figure donations to MN Forward, a Republican group supporting GOP candidate Tom Emmer in the 2010 Minnesota governors election. Emmer opposed same-sex marriage. The donations came to light because Minnesota state law required the companies to disclose them.

Both companies have since revamped political spending policies, as have many of Minnesotas biggest companies. Two General Mills and U.S. Bank ranked as trendsetters for disclosure in 2017 national ratings by the Carol and Lawrence Zicklin Center for Business Ethics Research at the University of Pennsylvania.

Three other Minnesota companies UnitedHealth Group, Best Buy and Target Corp. ranked in the first tier. The rest spread across the second, third, fourth and bottom tiers.

Bruce Freed, a Zicklin board member and director of the Center for Political Accountability, said 300 of the top 500 U.S. companies have adopted some form of political spending review and disclosure.

Setting policies for political disclosure manages risk, said Freed. Political spending can associate companies with candidates and causes that hurt their brand.

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Freed thinks the country needs an SEC rule to have disclosure uniform and universal.

No Minnesota companies contacted by the Star Tribune would say if they supported a federal standard. Nor would they comment on including a prohibition of a national SEC rule in the current appropriations bill.

But most of these corporations belong to the U.S. Chamber of Commerce, which has strongly criticized a federal mandate for disclosure of corporate political spending. Trade associations such as the chamber are the driving force behind the language placed in the spending bills by Republican majorities in the Senate and House, Freed said.

Trade associations make significant payments for independent expenditures [which include attack ads], he noted. This is going to be a titanic election year.

The chamber argues that efforts to advance social or political goals through SEC-mandated corporate disclosures risk eroding investor confidence in the integrity of securities regulation.

Corporate boards have a legal responsibility to shareholders that supersedes the SEC, critics of mandated disclosure argue.

If shareholders own the corporation, said University of Minnesota business professor Ian Maitland, they have a right not to have information exposed if exposure exposes the company to lawsuits and harassment Businesses want to keep a low profile.

Tracy Wang, Maitlands colleague on the Carlson School of Management faculty, says her research has found that political spending actually hurts shareholders more than it helps them. Wang distinguishes political contributions from lobbying.

Corporate political spending is more a reflection of managers political preferences or ambitions, she said. Political contributions are about ideology. Lobbying is about policy.

The push for corporations to disclose their political spending intensified with Citizens United. The case equated companies and unions with people and allowed them to spend as much as they wanted on certain kinds of campaign ads and political communications.

Robert Jackson, now an SEC commissioner, led a blue-ribbon panel that petitioned the SEC for a corporate disclosure rule in 2011. It generated 1.2 million responses. In January 2013 the SEC placed an item on its agenda indicating it would propose a rule, but never acted on the item and removed it in 2014. In December 2015, Republicans in Congress placed a rider on the 2016 appropriations bill forbidding the SEC to develop a corporate disclosure rule. Since then, the rider has been attached to several other spending bills.

Any move to limit disclosure of corporate political spending undermines the very campaign finance system envisioned by the [Supreme] Court, said a letter from 40 Democratic senators that urged Senate leadership to cut the SEC rule prohibition from the 2018 appropriations bill.

In the seven years since Citizens United, there has been an unprecedented flow of special interest cash into political campaigns, said Sen. Amy Klobuchar, D-Minn., who signed the letter along with then-Sen. Al Franken. A Securities and Exchange Commission rule requiring public companies to disclose how they use their resources for political activities would provide valuable information for shareholders and would be an important step toward increasing the transparency of political spending.

Sen. Tina Smith, appointed by Minnesota Gov. Mark Dayton to fill the Senate seat created by Frankens resignation after sexual harassment accusations, called it regrettable that congressional Republicans keep trying to hamstring the very agency that could take these long overdue steps toward more disclosure and transparency in our elections.

Emmer, now a Republican member of U.S. House of Representatives, did not say whether he supported making an SEC disclosure rule prohibition as part of the current spending bill, or if he opposed a federal requirement for corporate disclosure of political spending.

Representatives Erik Paulsen and Jason Lewis, the other Republicans in Minnesotas congressional delegation, did not respond to requests for comment.

If the anti-disclosure rider makes it into the 2018 spending law, Fredrikson Byrons Stout said the issue of corporations revealing their political spending will only get hotter.

Huge stock investment funds have started to produce disclosure guidelines, said Stout. By forbidding the SEC from helping make things more transparent, you could end up with more activism than youre going to eliminate.

Jim Spencer 202-662-7432

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