Political Spending Not on SEC's Radar Amid Rulemaking Slowdown, Internal Strife

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By Yin Wilczek

May 27 — Adding to the mounting pressure, two former Securities and Exchange Commission chairmen and an ex-commissioner May 27 called on the commission to mandate political spending disclosures.

In a letter to SEC Chairman Mary Jo White, William Henry Donaldson, Arthur Levitt and Bevis Longstreth charged that the commission is failing investors and its mission by not requiring the disclosures.

“To use a metaphor, mandatory disclosure of corporate political activities should be a ‘slam dunk' for the Commission,” they said. “Its failure to act offends not only us, who are alumni of this agency struggling to retain our deep pride of association, but investors and the professionals who serve them.”

Donaldson (R) was SEC chairman from February 2003 to June 2005. Levitt (D), who led the SEC from 1993 to 2001, thus far is the longest serving chairman of the commission. Levitt also is a director of Bloomberg LP, which owns Bloomberg BNA.

Longstreth (D) was commissioner from 1981 to 1984.

No Action in Near Future 

SEC spokesman John Nester did not immediately respond to a request for comment. However, securities attorneys told Bloomberg BNA that they don't expect the agency to act on the matter anytime soon.

The commission's latest unified agenda submitted to the Office of Information and Regulatory Affairs also suggests that its rulemaking is bogged down. Most items—including many previously identified by SEC Chairman Mary Jo White as key priorities—have been pushed to spring 2016, suggesting that the commission, by its own estimates, doesn't anticipate much more to be accomplished this year.

The major items under the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Jumpstart Our Business Startups Act that are slated to move next year include:

• pay ratio disclosures;

• compensation clawbacks;

• disclosure of hedging by employees, officers and directors;

• resource extraction payment disclosures;

• swaps requirements;

• crowdfunding; and

• Regulation D amendments.


The SEC's unified agenda is accurate as of March 24, the date on which the SEC staff completed compiling the data.

Latest Push 

The letter from the ex-chairmen and commissioner is the latest urging the commission to act on political spending transparency.

In the wake of Citizens United v. Federal Elections Commission, 558 U.S. 310, 2010 BL 15350, diverse groups, including institutional investors, private citizens and investor advocates, have pressed the SEC on the issue. A 2011 petition by a group of law professors asking for the disclosures has garnered more than 1.2 million comments, the overwhelming majority in support of the rulemaking.

The commission also has been sued over its failure to act. 

In Citizens United, the U.S. Supreme Court lifted long-standing limits on corporate political expenditures. In their letter, Donaldson, Levitt and Longstreth argued that the ruling was premised on the expectation that the SEC would promulgate a rule requiring disclosure of how companies use their resources to influence political activities.

Nonetheless, despite the strong support, attorneys said they don't expect the commission to initiate a rulemaking. Among other factors, they pointed to the sharp division within the commission on this issue.

2016 Election 

“You have a commission divided politically on the wisdom of requiring the disclosures and you have a very strong chair who announced earlier that this was not a topic that she believed belonged on the commission’s agenda,” said Alan Dye, a Washington-based partner at Hogan Lovells US LLP.

Dye added that there certainly will be more visibility on political spending as the U.S. moves into the 2016 election cycle. “But whether that will influence the commission to take on the issue and address the rulemaking petition from 2011 remains highly uncertain and probably doubtful,” he said.

John Olson, a Gibson Dunn & Crutcher LLP partner in Washington, also cited the coming departures of Commissioners Luis Aguilar and Daniel Gallagher.

Aguilar's term ends in June and according to three people familiar with the matter, Gallagher recently announced his resignation. 

Once President Barack Obama announces appointments for the departing commissioners and Senate hearings are held on the appointments, there may be a better sense of whether the political spending transparency issue will have legs in the coming years, Olson told BBNA. “My guess is that the Republican majority on Senate Finance will make it clear to the nominees in its hearings that this should not be a priority issue for the SEC, particularly with campaigning and fund raising already starting for the general election next year,” he said.

That will not stop more companies from voluntarily enhancing their disclosures of political and lobbying expenditures, as they respond to investor pressure, Olson added. “But I think the likelihood of an SEC mandate on disclosure anytime in the next two years is remote.”

‘Gold Standard.'

Brian Breheny, a Washington-based Skadden, Arps, Slate, Meagher & Flom LLP partner who formerly was a deputy director in the SEC's Division of Corporation Finance, noted that for most major companies, it has become “kind of a gold standard” to disclose certain key information about their political spending, including who decides how the money is spent and which board committee oversees the process.

Breheny added that he suspects the slowdown in commission rulemaking isn't due to staffing issues. Most of the rules on the agenda probably already have been written and now await commission approval, he said. He also defended White against recent criticism over her failure to move things on the agenda.

It may be that the chairman—caught between two warring factions—isn't willing to compromise her own standards, Breheny suggested. “So maybe people should be applauding her for that,” he said.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The letter is available at http://op.bna.com/car.nsf/r?Open=ywik-9wwtph.


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