Politico Opinion: SEC Disclosure Rule Too Extreme

The Securities and Exchange Commission is an independent agency charged with protecting investors; maintaining fair, orderly and efficient markets; and facilitating capital formation. Despite this clear mission, the SEC recently quietly disclosed that its staff is working on a rule-making that is antithetical to its goals and raises serious questions about the agency’s independence.

This potential new rule would mandate disclosure of corporate spending on political and other advocacy activities beyond existing disclosure requirements under federal and state laws. Such a rule would be yet another questionable regulation from Washington designed to serve the narrow political objectives of a few at the expense of general shareholder interests.

Not only would this rule be bad policy, but huge majorities of shareholders routinely refuse to support mandatory disclosure of this legally protected corporate information. In fact, during the 2012 proxy season, among Fortune 200 companies, 82.21 percent of shareholder votes — up from 77.04 percent in 2011 — refused to support activist proposals seeking compulsory disclosure to shareholders of amounts spent on political or lobbying activities.

These overwhelming shareholder majorities understand that sometimes, as in this case, excessive and selective disclosure is not in their economic interest. Why then would the SEC consider imposing an intrusive mandate to the detriment of the very investors that the agency is supposed to protect?

Sadly, the answer is that a small number of political and social activist investors, unions and politicized policy groups such as Media Matters for America, the Center for Political Accountability, ThinkProgress, Public Citizen and the Coalition for Accountability in Political Spending have embarked on a widespread campaign to force companies to disclose their expenditures on political and issue advocacy. Their carefully sterilized public posture of simply seeking “more transparency” is belied by their comments to their own constituencies that illustrate their true intentions to ultimately inhibit the free flow of ideas and advocacy by those with opposing views.

These groups are transparently committed to use every means available to intimidate companies whose business decisions frustrate progress on the activists’ special-interest agenda, including initiating boycotts, personal attacks on managers, protests at employees’ homes and just-say-no campaigns against directors. A leaked memo authored by Media Matters embraces a strategy to “aggressively attack” and “create a multitude of public-relations challenges for corporations that make the decision to meddle in political campaigns.” To accomplish this, Media Matters pledged to work with other organizations “to provoke backlashes among companies’ shareholders, employees, and customers and the public at large.”

In a very un-American way, these groups are on a quest to restrict free speech, not promote it. Their focus on “political activities” is but a stalking horse — their broader agenda would chill corporate public-affairs advocacy. The law is not on their side, as they have failed to achieve their policy goals through the Federal Election Commission, the courts and Congress. So they are looking for a strategic assist from the SEC.

But ensuring corporate participation in open debates regarding taxation and regulation is an essential interest of real, as opposed to politicized investors — folks who depend on a reasonable return from their investments to put their kids through college and provide for a comfortable retirement.

Investors cannot afford to be pawns in this cynical political ploy to further the agenda of special-interest groups. For their part, company executives must realize that they cannot appease these activists with more disclosure, because the activists are not satisfied until companies withdraw from the political debate altogether.

Nonetheless, the SEC staff will argue that it has received an unprecedented number of comment letters in support of this action.

However, it does not mention that 99 percent are form letters ginned up by organizations whose narrow agendas have little to do with advancing the economic performance of companies. Real grass-roots advocates chuckle when they hear that these groups produced over 300,000 letters to the SEC. In the Internet age, small special-interest organizations frequently tap into grass-roots email lists — especially in an election year — to blast out form letters and advance political causes in Washington. With one email and a submit button, poof, you have a synthetic movement.

SEC commissioners must remember their duty to protect investors by resisting special-interest efforts that would negatively affect shareholder value. If the SEC imprudently acts against the interests of real investors in this matter, it will prove itself neither focused on its core mission nor independent. At a time when our nation faces so many serious challenges squarely within the SEC’s core mission, such an outcome would truly be deplorable.

Paul Atkins served as a commissioner of the Securities and Exchange Commission 2002-08 and is CEO of Patomak Global Partners in Washington. Atkins and his firm represent their clients’ interests in U.S. and worldwide financial markets.