Fallout from the Supreme Court’s 2010 Citizens United decision has clouded the outlook for President Obama’s nominees to the Securities and Exchange Commission.
Two nominees for the commission saw their candidacies stalled at the committee level this month partly because of a push by Senate Democrats to force the SEC to take on corporate political spending.
Campaign finance oversight would be an awkward role for the SEC, which is tasked with overseeing markets and protecting investors.
But the senators, Chuck Schumer of New York, Elizabeth Warren of Massachusetts, Robert Menendez of New Jersey and Jeff Merkley of Oregon, who voted against the nominees were just carrying out one part of a larger campaign to pressure the SEC to delve into campaign finance as a response to Citizens United.
Schumer and company voted against the two nominees, one Democratic and one Republican, after neither one would commit to backing a rule mandating that companies disclose political contributions.
Liberal groups and lawmakers have pushed for the SEC to write such a rule since shortly after the Citizens United decision.
The Supreme Court ruling deregulated political spending by groups outside of campaigns and by political nonprofits that do not have to disclose their donors, a result that Schumer called a “poison on our elections, our politics, and ultimately our country” at the confirmation hearings.
Campaign finance reformers’ efforts to respond to Citizens United through the normal legislative means have fallen short. But one way to accomplish the same goals would be to force the public companies thought to be behind much of the spending to disclose their spending to their investors.
That is where the SEC comes in. The agency already requires corporations to disclose any material information to their investors. The thinking goes that the agency could require political donations to be added to the required disclosures. The question is whether corporate political contributions are really of material interest to investors.
Activists have sent 1.2 million comments to the SEC asking for the rule since 2011, many of them form letters but also some from institutional investors.
The SEC is not considering such a rule, having been blocked from doing so by language added to the government funding bill passed in December. Testifying before Senate appropriators last week, SEC Chairwoman Mary Jo White downplayed the possibility that it might try.
“Pressures, interests of various sorts are sort of part of that territory,” White said of the campaign. She later said that “the hallmark of the SEC’s disclosure powers is materiality to investment decisions and voting decisions and that’s been sort of our lodestar.”
White, an Obama appointee, has come under fire from Democrats because the commission has not passed a rule. The lack of a rule is one of the reasons Warren called White “extremely disappointing” last June.
The majority of Democratic senators and dozens of House Democrats wrote White in December, telling her that “the case for disclosure is clear and convincing — purely as a matter of corporate governance and investor protection. This information is material to how shareholders decide where to invest their money and how to vote in corporate elections.”
Corporate political spending is of particular interest to investors, because businesses can hurt themselves by getting involved in political controversies, activists say.
“There’s just a lot of potential for it embroil a company in hot-button political topics,” said Lisa Gilbert, public interest group Public Citizen’s director of Congress Watch. “And there’s no way for investors to gauge unless there are those sort of unexpected leaks of information whether what they’re doing is actually in the best interest of the company.”
One example Gilbert cited was in 2010, when Target donated to a Minnesota political group that backed a Republican candidate for governor. Some customers were outraged because the candidate opposed gay marriage, while Target has been aggressively pro-gay rights.
Business groups, however, argue that such logic is a misdirection, when it is the activists who are looking to provoke controversy once political spending is disclosed.
“It is obvious that its proponents are seeking to infringe upon significant First Amendment interests by trying to convince the SEC to pursue their narrow, partisan political goals,” said Blair Holmes, a representative for the U.S. Chamber of Commerce. “Campaign finance reform is not, has never been, and should never be a function of the SEC.”
“I would argue that there’s an equally large, if not larger risk from political activists using information about a corporation’s’ political stances to go after the corporation,” said David Primo, a senior scholar at the Mercatus Center, a libertarian think tank, and a professor at the University of Rochester. “It’s a roadmap for activists.”
Opponents of a political spending disclosure rule have argued that it’s in corporations’ interest to weigh in on political matters, even anonymously.
James Copland, director of legal policy at the conservative think tank the Manhattan Institute, argued that it’s in investors’ interests to have corporations contribute to political groups such as the Chamber of Commerce without disclosure because individual companies have an incentive to free-ride on political speech of interest to them.
He noted that in almost all cases in which corporations have voted on disclosing political spending, investors have voted it down. “That’s about as good a market test as you’re going to have,” he said. “Shareholders have spoken on this.”
Further, a disclosure rule could burden free speech, commenters have argued, by providing a clear disincentive for companies to weigh in on public affairs.
Gilbert argued, however, that proponents of the rule aren’t trying to stop corporations from being involved in politics, but rather to inform investors. If investors approve of the way their money is being spending, they can invest. If not, they can divest.
And the stakes are high: The hope for the rule would be for it to “capture the spending that happens in the dark,” Gilbert said.
Spending by groups that do not disclose their donors has grown from less than $5.2 million in 2006 to $300 million in the 2012 cycle and $174 million in the 2014 midterms, according to the Center for Responsive Politics.
To liberals, that dynamic justifies strategies such as getting the SEC involved in campaign finance. “It’s time to stop this wave of dark money that is drowning out the voice of the people,” Merkley said in voting against the nominees.
