When Schapiro Steps Down, SEC Should Step Up on Political Spending Disclosure

U.S. PIRG Education Fund

WASHINGTON – As Chairwoman Mary Schapiro ends her term at the Securities and Exchange Commission, U.S. PIRG urges President Obama to appoint a chairperson who will prioritize rulemaking that would bring post-Citizens United “dark money” corporate political spending into the light.

“The SEC can protect both shareholders and our democratic process by requiring publicly traded corporations to disclose their secretive dark money political spending upfront,” said U.S. PIRG Democracy Advocate Blair Bowie. “The public has already overwhelmingly supported a reform and the next chair must take it seriously.”

In August 2011, in response to that Supreme Court decision, a group of scholars submitted a petition for rulemaking requiring corporations to disclose on the front end disbursements meant to influence elections, including those to non-profit corporations which funnel money into the electoral process. The petition has since shattered records for public comments becoming the most publicly supported rulemaking in the history of the commission, with over 301,000 comments in favor of disclosure.

A recent U.S. PIRG/ Demos analysis found that nearly a quarter of all election spending in 2012 came from dark money groups that do not disclose the source of their funds, including almost 40% of all advertising in the presidential race. We can be certain that a sizable portion of this dark money comes from a set of undisclosed publicly traded corporations, for example, all of the $36 million spent by the U.S. Chamber of Commerce in key Senate and House races across the country. Furthermore, both voluntary and accidental disclosures from major corporations, such as Aetna, give us strong reason to believe that a significant amount of the remaining dark money originates in publicly traded corporations which likely choose to spend through these backdoor channels to avoid public accountability.

U.S. Supreme Court Justice Anthony Kennedy’s opinion in Citizens United v. Federal Election Commission – the case that opened the floodgates to corporate cash in elections – strongly endorsed comprehensive disclosure requirements as a fundamental necessity for a healthy democracy. The SEC can and should put these assumed requirements in place for the publicly traded companies they oversee.

According to Bowie, beyond its responsibility to the democratic process, evidence shows that the SEC must enact disclosure rules to protect the interests of shareholders. “Several studies show that political spending may have a negative effect on a company’s return on investment; that makes this need-to-know information for investors,” she pointed out.

An April study by researchers at the University of Kansas and the University of Minnesota found a decline of 7.4 basis points (or 0.074 percent) in risk-adjusted stock return for every $10,000 in political donations, in other words, a negative correlation between contributions and value. A Rice University study backed up those results concluding that, “firms’ political investments are negatively associated with market performance.”

“Mandating transparency is well within the SEC’s authority,” concluded Bowie. “The next chairperson must help the public and shareholders hold CEOs accountable for what they spend in politics.”