The Independent View: Companies Should Show Us the Money

In a petition to the S.E.C. by 10 legal scholars in August 2011, would mandate that publicly held corporations disclose their political spending. In the months since the petition was posted, the commission has received nearly half a million comments on it, more than on any other issue in its 79-year history, that have been overwhelming in favor of the proposal. (Typically, S.E.C. rule-making petitions get fewer than 100 comments.)

But despite this broad support from the investing public, experts in securities law, institutional money managers, and numerous public officials, the S.E.C. has yet to write an official rule on which the commission can actually vote.

Federal law already requires political action committees to disclose corporate donations. By putting in place comprehensive disclosure rules, however, the S.E.C. can plug a major loophole in the law, forcing companies to also reveal what they give to tax-exempt “social welfare” groups and trade associations, including chambers of commerce. These entities have often been used as vehicles for political spending by way of so-called issue ads, ads that purport to be educational but are often veiled attempts to support a specific candidate or even party.

In other words, the S.E.C. could, in a single stroke, do what Congress and the courts have been unable or unwilling to do: require publicly traded companies to report all of their political spending.

Since the Supreme Court, in its 2010 decision in Citizens United v. Federal Election Commission, opened the floodgates of corporate spending in elections, the S.E.C. has been under pressure to demand transparency in how those dollars are spent. The rule in the petition under consideration wouldn’t close every avenue corporations have for influencing elections, but it would shine the bright light of public disclosure on their political activities as never before.

The Center for Responsive Politics estimates that an unprecedented $6 billion was spent on electoral races in 2012. Because of the current gaps in disclosure rules, though, we may never know how many millions of shareholder dollars were used to influence races at all levels of government.

Those dollars are unlikely to serve shareholder interests. Study after study has shown that political spending is a bad investment. Corporate political donations can drain financial resources and create risks to its reputation. And as John C. Bogle, founder of Vanguard, has pointed out, “corporate managers are likely to try and shape government policy in a way that serves their own interests over the interests of shareholders.”

Pension officials and other fiduciaries have a compelling interest in knowing that money invested on behalf of thousands is being invested appropriately. Employees and retirees need to know if the funds for their retirement are being used to bankroll a political campaign, and not for the benefit of shareholders. I have always thought that shareholders should have the ability to opt-out of using their money for political campaigns.

A national coalition has begun to pressure the S.E.C. to act, bringing together Republicans and Democrats representing 90 million constituents and fiduciaries holding more than $1 trillion in pension assets. And some companies have already agreed to make such disclosures. But there are more than 5,000 companies listed on major United States stock exchanges. We need a comprehensive and uniform rule that will force them to reveal how they are using shareholder money to affect the political process.

On Tuesday, the Senate Banking Committee gave Mary Jo White, President Obama’s choice to lead the Securities and Exchange Commission, a rousing show of support, voting 21 to 1 to send her nomination to the full Senate for a vote. Ms. White, who is likely to be confirmed as the S.E.C. chairwoman, will need that bipartisan backing as she takes on a host of challenges at the nation’s top financial regulator.

But if she really wants to make a difference, Ms. White, a former federal prosecutor, should tap into some of that good will in her first days in office and push forward the vital proposed rule on corporate disclosure that the S.E.C. has been considering for over a year and a half. The power to push this reform forward will rests in her hands.

All that would be required would be a “yes” vote by Ms. White and two of the current four commissioners, two of whom are Republicans and two, Democrats.