HASTY LAW WON’T PREVENT RULE ON POLITICAL DISCLOSURE
WASHINGTON A bit of last-minute skullduggery in Congress blocking efforts to make companies disclose political contributions may fall short of its goal.
Buried in the 2,000 pages of the $1.1 trillion spending bill passed into law this month was one of those nasty little riders that has nothing to do with funding the government but are slipped into a must-pass bill at the last minute.
This one specifically prohibited fiscal 2016 funding for the Securities and Exchange Commission to finalize or implement any rule to force political disclosure. But the wording of the law does not prohibit the SEC from going ahead with the long rulemaking process anyway, according to 94 Democratic lawmakers who sent a letter to SEC Chair Mary Jo White last week, backed up by a legal opinion from a Harvard professor.
“This provision does not bar the SEC from discussing, planning, investigating or developing plans or possible proposals for a rule or regulation relating to disclosure of political contributions,” said the letter, signed by Sens. Charles Schumer of New York and Elizabeth Warren of Massachusetts, along with 26 other senators and 66 representatives.
At issue is the principle that shareholders have a right to know how company executives are spending the funds that rightfully belong to them. “The ability of corporate executives to spend company resources without shareholders’ knowledge raises significant investor protection and corporate governance concerns,” the lawmakers said in their Dec. 22 letter.
The need for such disclosure has grown even more urgent since the 2010 Supreme Court decision in Citizens United allows companies to make unlimit- ed donations to political parties or candidates, they said.
“Since Citizens United, investor demand (for disclosure) has greatly — and justifiably — intensified, as the magnitude of the problem and the potential for abuse has skyrocketed,” the letter said.
The prohibition on using SEC funds “to finalize, issue or implement any rule, regulation or order regarding the disclosure of political contributions” ends with fiscal year 2016, on Sept. 30.
The legal opinion written by Harvard Law Professor John Coates argues that this wording does not in the meantime restrict the preparatory tasks of issuing a rule — internal discussion, planning, investigation, analysis, evaluation and development of possible proposals.
“These steps often take years and consume significant agency funds and other resources,” Coates wrote in his Dec. 17 opinion. If the rider had really wanted to block work on the rule altogether, it would have used much broader language, such as “plan, propose, finalize, issue or implement,” he said.
In fact, the shortcomings of the rider may give lawmakers new leverage to goad the SEC into action on a political disclosure rule.
Under White, the agency has dragged its feet on formulating a rule despite repeated petitions from consumer and investor advocates, which have drawn some 1.2 million public comments in favor of such disclosure, making it the most-requested rulemaking in SEC history.
Lawmakers have tried in the past to prod White on political disclosure and took the opportunity once again in last week’s letter to urge agency action on preparing a rule proposal.
“We expect the SEC to move forward with such plans including, but not limited to, a public roundtable and other actions to prepare a rule on the disclosure of political contributions,” the 94 lawmakers said.
Public Citizen, one of the many consumer rights advocacy groups urging political disclosure, also asked the SEC to move on the rule, suggesting that the Sept. 30 expiration of the ban on issuing a rule sets a deadline for it to act.
“SEC Chair Mary Jo White should acknowledge the strong demand for a rule requiring disclosure of corporate political spending and press forward,” Lisa Gilbert, director of Public Citizen’s Congress Watch division and co-chair of the Corporate Reform Coalition, said in a statement last week. “The clock is ticking, and the SEC needs to have the disclosure rule all but finalized by fall.”
In the meantime, more and more companies are voluntarily choosing to disclose political disclosures as it becomes an accepted “best practice.”
When the Center for Public Accountability, an advocacy group on this issue, published its annual CPA-Zicklin Index in October, it noted that this rating of companies on disclosure “has documented a continuum whereby more leading American companies have been establishing political disclosure as a mainstream corporate practice.”
But, as the report goes on to note, “it also has reflected gaps that shroud too many corporate spenders in secrecy at a time of explosive hidden political spending.”
Regulation is still needed to cover those companies whose executives continue to hide their personal political agenda.
In any case, a law passed under the cover of darkness designed to keep investors in the dark about how executives spend company money has now been put under a spotlight.