SEC Rulemaking Should Not be a Popularity Contest

Today, two Ivy League law professors touted the groundswell of support for an SEC petition that would require corporations to disclose otherwise-immaterial political spending – including contributions and dues to industry associations that could, hypothetically, in turn engage in political advocacy.

Specifically, the professors note that more than 250,000 comments have been submitted to the SEC, and that “the petition has drawn considerably more commentary than any other rulemaking petition in the SEC’s history.”

But you know what they say about quantity versus quality.

The fundamental problem with celebrating these comments is that virtually none of them address corporate governance, corporate profitability, securities regulation, or anything else that is actually within the authority of the SEC.

Instead, they are, for the most part, a totally uninformed response to Citizens United – a case which, regardless of its merits, is the law of the land. It is not the job of the Securities and Exchange Commission to overturn the Supreme Court.

Let’s look at some details.

Most of the comments are form letters. For instance, the overwhelming majority of comments (216,124 as of this morning) say the following

I am deeply concerned about the influence of corporate money on our electoral process.

In particular, I am appalled that, because of the Supreme Court’s ruling in Citizens United v. Federal Election Commission, publicly traded corporations can spend investor’s [sic] money on political activity in secret.

I am writing to urge the Securities and Exchange Commission to issue a rule requiring publicly traded corporations to publicly disclose all their political spending.

Both shareholders and the public must be fully informed as to how much the corporation spends on politics and which candidates are being promoted or attacked. Disclosures should be posted promptly on the SEC’s web site.

Thank you for considering my comment.

That’s it. Concerns over corporate money in politics, a complaint against Citizens United, and an appeal for the SEC to do something. Nothing about corporate governance, profitability, markets, or anything else that actually concerns the SEC.

That’s not the worst – 11,105 comments  are simply wrong:

Right now, Super PACs don’t have to disclose their unlimited corporate donations. That means they can keep the public in the dark about who’s funding the attack ads that bombard their TV screens daily.

That’s why I’m joining with the 14 United States senators who formally asked you to use your regulatory authority to require that corporations disclose their spending in elections.

SEC: Exercise your regulatory authority to require public disclosure of corporate political contributions.

Of course, Super PACs have to disclose all their donors over $200, just like every other PAC (and candidate committees, for that matter). Given the misleading news coverage on this topic, I understand why private citizens are confused. But that doesn’t mean the SEC may rely on comments that blatantly misstate the law.

The blog post notes that in addition to these form submissions, 487 unique submissions were made, including 460 by unaffiliated individuals.

Lacking the time for a scientific analysis, I pulled three of these unique comments at random. These are the first three I saw, quoted in their entirety and verbatim, but with the submitters’ names removed:

Our founding fathers must be rolling in their graves. They felt corporations should be licensed and controlled. What an outrage it is to allow corporations to secretly control our government. If it is not controlled again, there will be blood.

http://www.sec.gov/comments/4-637/4637-475.htm

Dear members of the Securities and Exchange Commission:

Step up to the plate and help save our democracy.

Fight Citizen’s United!

http://www.sec.gov/comments/4-637/4637-472.htm

Disclosure of corporate spending/contributions is a MUST. How else can people know what they are supporting?

If your actions are just and honest, there is NOTHING TO HIDE

http://www.sec.gov/comments/4-637/4637-457.htm

I think the quality of these comments is obvious.

In short, nearly all of the comments submitted to support this petition are not about good corporate governance, or helping corporations remain profitable, or even about the macroeconomy. They are about the continuing, largely partisan, and hugely misinformed backlash to Citizens United.

The SEC has a specific mission. It may not engage in social engineering, and it may certainly not attempt to undo a Supreme Court decision. These comments simply cannot form the basis for an SEC rulemaking, and they help illustrate that many complaints about corporate political activity have nothing whatsoever to do with the health or governance of the corporations themselves.

The debate over Citizens United should take place during campaigns and in the courts. Not before the SEC.