The regulation would force tens of millions of dollars in up-to-now secret political donations from corporate general funds into the light.
SEC spokesman John Nester issued a statement last week that didn't contain specifics, but indicated the proposed regulation would be up to bat in the coming weeks or months.
"The [SEC] staff is considering whether to make a recommendation [on the proposal]," Nester said in an email, "the timing of which will be influenced by the ongoing workload of Dodd-Frank and JOBS Act rulemaking."
The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Barack Obama July 21, 2010. It forces transparency throughout the U.S. financial industry.
The Jumpstart Our Business Startups Act, or JOBS Act, was signed into law by Obama April 5, 2012, and was designed to ease regulations and support funding for small businesses.
The SEC is formulating regulations that implement those laws. The campaign finance proposal is on deck.
The much-criticized 5-4 Supreme Court ruling in Citizens United vs. Federal Election Commission came in January 2010. It swept away federal restrictions on independent "electioneering communications" by corporations and unions, and similar restrictions in two dozen states.
Writing for the 5-4 majority, Justice Anthony Kennedy said the political speech of corporations was protected by the First Amendment. That applied even if the funds corporation executives were spending in political races belonged to stockholders.
"When government seeks to use its full power, including the criminal law, to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought," Kennedy said. "This is unlawful. The First Amendment confirms the freedom to think for ourselves."
The ruling did not mean corporations could contribute directly to candidates, only that they could make independent expenditures to support a candidate or party. If the money is used in "issue" campaigns, corporate donors do not have to be disclosed.
The Supreme Court's four-member liberal bloc dissented from the majority's main holding.
"When corporations use general treasury funds to praise or attack a particular candidate for office," Justice John Paul Sevens wrote in dissent, "it is the shareholders, as the residual claimants, who are effectively footing the bill. Those shareholders who disagree with the corporation's electoral message may find their financial investments being used to undermine their political convictions."
But -- in a little discussed side issue -- eight of the nine justices agreed Congress could force corporations to make donations public, though it chose not to do so.
This evoked dissent, only to that part of the main ruling, from conservative Justice Clarence Thomas, who insisted some contributions must be allowed to remain secret.
Citing high court precedent, Thomas wrote, "Congress may not abridge the 'right to anonymous speech' based on the 'simple interest in providing voters with additional relevant information.'"
Thomas referred to friends of the court briefs that cited alleged horror stories of retaliation by political activists and elected officials against conservative fundraisers.
"I cannot endorse a view of the First Amendment," Thomas said, "that subjects citizens of this nation to death threats, ruined careers, damaged or defaced property, or pre-emptive and threatening warning letters as the price for engaging in 'core political speech,' the 'primary object of First Amendment protection.'"
The effect of the Supreme Court's Citizens United decision was immediately evident. Common Cause said the 2010 midterm election was the most expensive in U.S. history.
Common Cause also said 2010 numbers compiled by the Center for Responsive Politics show "$293 million came from groups operating independently of the candidates or political parties. Those groups, known as 'super PACs,' '527 organizations' and '501(c) organizations,' were free to spend without limits and accept unlimited donations from corporations, trade associations and unions."
A little less than half of that independent money in 2010, $138 million, came from 501(c)(4) groups -- named for a section of federal law.
The U.S. public may never know how much money was spent in the 2012 presidential and congressional elections. Unlike super PACs, regular political action committees and direct contributions to candidates and party committees, 501(c)(4) groups do not have to report donations or donors.
The New York Times said in 2012 the secrecy allows corporations to donate money to 501(c)(4) groups while "shielding corporate contributors from shareholders or others unhappy with their political positions."
Post-Citizens United, Americans were faced with the prospect of increasingly expensive elections funded by increasingly covert political donations from corporations, not from individuals, with both major parties, Democratic and Republican, scrambling for their share of unlimited money.
But in August 2011, 10 professors of corporate law who call themselves the "Committee on Disclosure of Corporate Political Spending" submitted a "petition for rulemaking" to the Securities and Exchange Commission.
"We ask that the commission develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities," the petition said.
In other words, if executives want to participate in high-stakes politics using corporate funds, they should have to publicly tell stockholders what they're doing. After all, those corporate funds belong to the stockholders, not corporate managers who may have their own political agendas.
The committee is composed of "10 academics [from Harvard, Columbia, Yale and similar institutions] whose teaching and research focus on corporate and securities law."
"We differ in our views on the extent to which corporate political spending is beneficial for, or detrimental to, shareholder interests," the group told the SEC in its petition. "We all share, however, the view that information about corporate spending on politics is important to shareholders -- and that the commission's rules should require this information to be disclosed."
As early as 2006, the petition argued, "polls indicated that 85 percent of shareholders held the view that there is a lack of transparency surrounding corporate political activity. According to these polls, 'intensity among shareholder opinion was pronounced,' with 57 percent of shareholders 'strongly agreeing' that there is too little transparency with respect to corporate spending on politics."
However, the petition said, the interest of shareholders is not the only driving force supporting disclosure.
"Disclosure of corporate political spending is necessary not only because shareholders are interested in receiving such information, but also because such information is necessary for corporate accountability and oversight mechanisms to work," the petition argued. "The Supreme Court has often recognized, and indeed relied upon, these accountability mechanisms, particularly when corporations use shareholder resources for political purposes. In particular, in its recent decision in Citizens United vs. FEC, the court relied upon 'shareholder objections raised through the procedures of corporate democracy' as a means through which investors could monitor the use of corporate resources on political activities. ...
"For this mechanism to work, however, shareholders must have information about the company's political speech; otherwise, shareholders are unable to know whether such speech 'advances the corporation's interest in making profits,'" the petition said. "Because the commission's current rules do not require public companies to give shareholders detailed information on corporate spending on politics, shareholders cannot play the role the court described. Absent disclosure, shareholders are unable to hold directors and executives accountable when they spend corporate funds on politics in a way that departs from shareholder interests."
Public comments, hundreds of thousands of them, on the proposal appear to be overwhelmingly positive.
But not everyone is convinced of the virtues of transparency.
In an opinion piece in The Wall Journal in January, J.W. Verret, assistant law professor at George Mason University Law School and a senior scholar at the Mercatus Center, pointed out that Congress has rejected a law that would have expanded SEC authority to require disclosure, even of small political expenditures.
"Proponents of new disclosure rules at the SEC often quote Justice Louis Brandeis' admonition that 'sunlight is the best disinfectant,'" Verret said. "Sunlight is a powerful disinfectant, but in the wrong proportion it can be deadly. So too can disclosure in the financial markets damage investor value if not properly calibrated."
Verret said the "SEC is the investor's advocate. Its vital mission is to combat financial fraud by ensuring companies disclose important information to investors about the value of their investments. Companies selling stock must disclose things such as profit projections or possible liabilities that could threaten investor value. Disclosure of political expenditures in the vast majority of companies would be irrelevant to the average investor. One may then ask: What's the harm in requiring disclosure anyway? Consider the case of Target Corp."
Target contributed to Minnesota Forward, a political action group promoting economic growth, and supported candidates who favored pro-growth policies.
"One of those candidates also happened to oppose gay marriage, though neither Target nor Minnesota Forward endorsed that position," Verret said.
A boycott of Target stores was later organized anyway by gay-marriage activists, Verret said, and Target eventually had to apologize.
"In short, the company was successfully bullied for using its free-speech rights to create value for its shareholders," Verret wrote. "It wasn't the legal political expenditure that potentially harmed the company, it was public disclosure of that expenditure that threatened to harm the company and its shareholders. A mandatory disclosure rule at the SEC will suppress corporate political speech on a much larger scale."
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