Is the famously tough Securities and Exchange Commission Chair Mary Jo White caving to political pressure?
When White was nominated to head the investor protection agency, she was greeted with accolades that focused on her tough reputation as a federal prosecutor in New York, where she brought cases against mobsters and terrorists. But amidst the accolades, an undercurrent of concern was expressed: White's toughness did not so clearly extend to prosecutions against Wall Street miscreants. And she left public service to work for Wall Street. Exactly who would Mary Jo White reveal herself to be as head of the SEC and to whom would she listen?
A few months into her tenure, the early signs are mixed, but the SEC's recent action to pull from its rulemaking agenda a proposal to require corporations to disclose their political spending is an atrocious move in its own right, and gives great cause for worry about what else investors should expect from the White-led SEC.
In 2011, 10 corporate law professors petitioned the SEC for a rule requiring corporate political disclosure. In their petition, they argued that "disclosure of corporate political spending is necessary not only because shareholders are interested in receiving such information, but also because such information is necessary for corporate accountability and oversight mechanisms to work." The law professors noted that the Supreme Court's Citizens United decision was based in part on the ability of shareholders to assess whether a corporation's political speech advanced their interest; the professors made the common sense observation that shareholders cannot make this assessment without disclosure of what that political spending is.
Investors thought the professors' petition was a good idea. A spectacularly good idea, in fact. The SEC has received 700,000 comments in favor of the proposal, including from a large group of firms managing more than $690 billion in assets, the Maryland State Retirement Agency, John Bogle, the founder and former CEO of the major mutual fund the Vanguard Group, and six state treasurers.
In 2012, the SEC responded to the deluge of investor support for the idea and put a corporate political disclosure rule on its rulemaking docket for the coming year.
Last month, however, with the publication of the SEC's rulemaking agenda for 2014 – the first such agenda of White's tenure – the political disclosure rule was nowhere to be found.
SEC staff suggested that the rule was removed because the agency has a backlog of rules from the Dodd-Frank financial reform law, and that it needs to focus on getting those congressionally required rules issued.
The SEC is, in fact, behind on its Dodd-Frank rulemaking, and it is institutionally stretched thin. But surely the agency has the ability to do more than one thing at a time, if it chooses.
Notably, a political disclosure rule would be easy to draft. There are some choices that need to be made in drafting a rule: For example, is there a de minimis exception for disclosure of small expenditures, and what constitutes de minimis? But the technical components of a political disclosure rule are quite simple.
Moreover, the cost of compliance with a political disclosure rule would be minimal. Companies already keep records of their political spending, so a rule would not require new calculations or investigations. And the cost of publishing spending information on the Internet is negligible. There is no question as to feasibility; many companies already make full or partial disclosures of their political spending.
The only hard thing about a political disclosure rule is the political resistance of Big Business trade associations – like the U.S. Chamber of Commerce – that serve as conduits of undisclosed corporate election funding, the companies for which they front and their political allies in Congress.