If there was an award for “political law issue of the year,” corporate political disclosure would be a front-runner. About a year ago, the Securities & Exchange Commission (“SEC”) asked the Office of Information and Regulatory Affairs (“OIRA”)—housed within the Office of Management and Budget as part of the Executive Office of the President—to add to the semi-annual, federal-government-wide “Unified Agenda” a potential rule requiring public companies to disclose to shareholders the use of corporate resources for political activities. The decision to include the issue on the Unified Agenda, a move heralded by reform groups, was a first step in formally proposing a rule requiring such disclosure. The decision was prompted by a rulemaking petition from academics which ultimately garnered hundreds of thousands of favorable (though largely cookie-cutter) comments gathered by labor unions and members of the campaign finance reform community.
At the time, we cautioned that the placement of the proposal on the Unified Agenda did not obligate the agency to act, but simply preserved the SEC’s ability to take action if it ultimately chose. We noted that the presence of statutorily-required rulemakings and a history of SEC Unified Agenda items that saw no further action raised doubts about whether the SEC would actually propose a rule.
The SEC’s decision last week to drop the issue of corporate political disclosure from its list of regulatory priorities for 2014 might therefore come as no surprise. At least in the short-term, the SEC is unlikely to force public companies to disclose their political activities.
Corporations concerned about forced disclosure, however, should hesitate before breathing a sigh of relief. The SEC could still decide to address the issue at some point. Moreover, efforts to encourage the SEC to take action were merely one tactic in a multi-front campaign to compel corporations to disclose their political activities:
- For years, activist shareholders have been (largely unsuccessfully) filing proposals that would require corporations to disclose this information. Indeed, Institutional Shareholder Services, a prominent proxy advisory firm, recently amended its proxy voting policies to provide that it would now consider whether companies provide disclosure about trade associations when ISS evaluates how it will recommend that its clients vote with respect to political spending shareholder proposals. This change is significant because it is an implicit endorsement of one of the key objectives of some activists in the space, namely, enhancing disclosure about participation in trade associations. This change is likely to provide more impetus for public companies to include information about trade associations in their political spending disclosures.
- Litigation has also been pursued. Early this year, the New York State Common Retirement Fund (the public employees’ pension fund in New York State) sued Qualcomm in Delaware Chancery Court, seeking to compel production of Qualcomm’s internal books and records concerning political expenditures. (Covington represented Qualcomm in that litigation, which was ultimately dismissed.)
- The Center for Political Accountability’s annual CPA-Zicklin Index of Corporate Political Accountability and Disclosure ranks public companies on their disclosure efforts. This report is increasingly used by activists to pressure low-scorers to voluntarily enhance disclosure.
With the SEC taking a pass (for now), activists will likely begin to increasingly focus their disclosure efforts on one or more of these other avenues.