One of the hottest SEC rulemaking topics over the past two years—disclosure of corporate political spending—quietly took a significant hit a few weeks ago when the SEC removed it from its rulemaking agenda.
The clamor for political spending disclosure arose following the Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission, which allows companies to spend unlimited amounts in their own names or to contribute unlimited amounts to trade associations and other non-profit groups (but left in place limitations on contributions directly to federal candidates and political parties). Perhaps the most visible response was an SEC petition spearheaded by Public Citizen (a major non-profit watchdog organization) requesting a rule requiring disclosure of corporate political spending. According to various reports, the petition has received more 600,000 public comments, far and away the largest number in the history of the SEC and most of which favor such a rule.
The petition and the prospect of SEC rulemaking gained momentum when the media adopted it as a cause. Numerous legislators and other prominent newsmakers also have weighed in. Those of us watching from afar had begun to think that some form of rulemaking was inevitable, given the groundswell of support and the SEC’s emergence as a conduit for all manner of political and social engineering you might not have expected (think conflict minerals).
But notwithstanding all of this activity, the likelihood, at least in the foreseeable future, of mandated political spending disclosure dropped significantly when the SEC withdrew it from its rulemaking agenda for fiscal 2014 (November 2013 through October 2014). Its official withdrawal form states simply that the priority of such rulemaking is “nonsignificant.”
Of course, this doesn’t mean the issue has gone away completely. First of all, the trend toward voluntary disclosure continues, with the majority of the 200 largest public companies disclosing at least some information and the number of disclosers steadily increasing. However, this is not a concept that has caught on as you drop much below that group, and it’s hard to say whether the SEC’s de-prioritization of the issue will derail the voluntary disclosure momentum.
Action Step: Because voluntary political spending information may be on its way to “best practices” disclosure, consider whether to raise the issue proactively with management, the company’s disclosure committee or the board of directors to determine whether there is sentiment to do so. Keep in mind that, because there currently is no mandating rule, any such disclosure can be tailored to fit your company’s situation and thereby facilitate both activist-desired transparency and the company’s broader interests (within the bounds of Rule 10b-5, of course).
Also, nearly half of all social issue shareholder proposals in 2013 related to political activities. Therefore, it would not be surprising to see shareholder proponents re-double their efforts going forward to counteract the SEC’s inaction.
And finally, various pieces of legislation have been introduced at the federal and state level on both sides of the issue, and members of the House and Senate have written SEC Chair White to express their dismay over this rulemaking development.
It’s dangerous to read too much into which items are currently on or off the SEC’s rulemaking agenda. But for now, if mandatory political spending disclosure isn’t dead at the SEC, it’s at least cryogenically frozen until conditions are favorable to resurrect it.