Law experts say court not the way to get SEC to change political spending disclosure rules

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Rob Swystun, Pristine Advisers

In an effort to prompt the US Securities and Exchange Commission to change its rules regarding public companies and disclosure of their political spending, some advocates have deci — oh, wait. Hold on a sec here …

… Ah, correction; In an effort to prompt the SEC to develop rules regarding public companies and political spending disclosure, some corporate transparency advocates have filed a lawsuit in federal court in Washington, DC seeking an injunction that would get this whole corporate spending rulemaking thing kickstarted.

However, taking their case to court is the exact opposite of helpful, at least according to the very people who initiated this whole disclosure thing.

Back in July 2011, Lucian Bebchuk, Professor of Law, Economics, and Finance at Harvard Law School, and Robert J. Jackson, Jr., Professor of Law at Columbia Law School, served as co-chairs of the Committee on Disclosure of Corporate Political Spending (consisting of 10 law and securities experts), which filed a rulemaking petition requesting the SEC to require all public companies to disclose their political spending.

Since then, the petition has received more than 1.2 million comments, which Bebchuk and Jackson say in a posting on the Harvard Law School Forum on Corporate Governance and Financial Regulation is more than any other rulemaking petition in the SEC’s history.

So, obviously people are interested in this and a lot of them are eager to see this happen, even a little too eager, according to Bebchuk and Jackson, who say the court injunction wasn’t the right way to go about it, regardless of how much the SEC drags its feet on the issue.

The Director of the SEC’s Division of Corporation Finance did acknowledge the strong support for the petition, and the Commission actually did place the proposal on its regulatory agenda for 2013, the pair said, but SEC Chairwoman Mary Jo White faced a lot of political pressure from Congress not to develop rules that would require disclosure of corporate spending on politics [pause for sarcastic gasp of shock]. The Commission has since delayed further consideration of corporate political spending rules.

“We view the delay as unfortunate and unwarranted in light of the compelling arguments for disclosure, the breadth of support that the petition has received, and the weakness of the objections that opponents have been able to raise,” Bebchuk and Jackson wrote.

Although the pair are obviously in favor of the SEC to get on that whole rulemaking thing, doing it via court injunction is unhelpful, they say, for two reasons:

  1. The SEC’s actions (or lack thereof, if you will) are frustrating, but not nearly bad enough to warrant court intervention. Given this, it shouldn’t be expected that the court will provide the injunction requested by the lawsuit.
  1. Further to that, in order for the rulemaking process go as well as it can, it should be done when the Commissioners are in support of it, as it will require their expertise and judgement, as well as that of their staff. Rulemaking done under the force of a court order would almost certainly not go as well as one done via a more organic process.

Bebchuk and Jackson urge supporters of transparency to continue their lobbying efforts to persuade the SEC to act on rulemaking regarding political spending rather than trying to force it through via litigation.

The pair urge anyone interested in the subject to file comments with the SEC, which can be done by following the instructions on the SEC website here.

Are you for or against the idea of the SEC making rules that would require publicly held companies to disclose their political spending?


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