Because the S.E.C.
shouldn't stand for "S-E-C-RET."

What's the Problem?

Your money — the investments you’ve made to put your kids through college, buy a house, or save for retirement — is being used by companies as a political slush fund. 

As investors, we don’t need to know where every dime we invest goes, but we do need to know if companies are using our money to sway elections or fund controversial politicians and causes. Prior the Supreme Court’s decision in Citizens United, companies were limited to public avenues for political spending. Now companies have their pick of dark money conduits — shutting investors out of the process and increasing the likelihood that executives will use the company dime as a spring board for their personal political aspirations. 

Right now, there's no way to be certain about how much dark money is coming from publicly traded companies. In the last election, an estimated $310 million in dark money was spent. The next election will only get more controversial and more expensive. If a corporation you invest in is funding a candidate that could harm the company brand, don’t you want to know before you invest? 

We play by the rules, but we cannot control what goes on in the dark. We’ve lost the power to steer clear of companies with bad judgment and poor governance.

The game has changed, but the rules have not.

What Can the SEC Do?

The U.S. Securities and Exchange Commission has one job: Protect investors. 

A petition for rulemaking filed with the agency asks the SEC to create a rule that would require publicly traded companies to disclose information on their political spending to investors. It’s a simple solution that would put investors back into the discussion on political spending, and not overly burden companies because many already keep this information internally.

Why Should the SEC Act?

The SEC’s job is to protect us by arming us with information. The agency has been at the nexus of corporate governance and campaign spending since WatergateBy failing to act in this changed landscape, the SEC leaves investors open to huge risks incurred by reckless corporate political spending.

For example, you know that latest off-the-cuff gaff by an insensitive politician? Without a disclosure rule, all you can do is hope that the company you’ve invested in wasn’t funding that fiasco. 

We need disclosure because without it we won’t even see the risks before our investments go down the drain. According to Bloomberg, “a corporation’s political campaigns — like its marketing, advertising or public-relations campaigns — can have a disproportionate impact on its reputation.”

The risks don’t stop at potentially destroying a company brand. Research has shown that political spending is not tied to increased shareholder value. And that companies that excessively spend money in politics are more likely to get a bailout and avoid detection for fraud

Nearly a million people, from investors to academics to securities lawyers, have weighed in to support the rulemaking. Two sitting SEC Commissioners support the rule, as well as several state treasurers, and John Bogle of Vanguard Investments.

The SEC can ensure free markets and fair deal for investors, and there’s no doubt that’s why many of the people who work there do what they do. Creating a political spending disclosure rule will give investors important oversight over their money, and the power to make the right decisions in this new landscape.

Additional Resources

A Cost-Benefit Analysis of Corporate Political Spending Disclosure
Concludes that the cost to companies for disclosure would be minimal, but the benefit to investors would be substantial.

The SEC and Dark Political Money: A Historical Argument for Requiring Disclosure
Documents the SEC’s place at the nexus of corporate political activity and campaign finance since Watergate.

Corporate Politics, Governance, and Value Before and After Citizen’s United
Concludes that politically-active firms in 2008 had lower value than firms in 2010, consistent with political activity partly causing lower value. 

Political Connections and Corporate Bailouts
Concludes that politically-connected firms are disproportionately more likely to receive government bailouts.

Corporate Lobbying and Fraud Detection
Analyzes the relationship between corporate lobbying and fraud detection and concludes that 
companies’ lobbying make a significant difference in the likelihood of being detected for fraud.

The Quality of Accounting Information in Politically Connected Firms
Documents that the quality of earnings reported by politically-connected firms is poorer than that of similar non-connected firms. 

Who Decides When a Corporation Spends Money in Politics?
Explains how shareholders can, or cannot, influence corporate election spending.