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January 20, 2012

On Second Anniversary of Citizens United, Coalition Calls on SEC to Mandate Disclosure
    by Robert Kropp

The Corporate Reform Coalition holds a press conference in which members express support for a petition requesting that the Securities and Exchange Commission establish rules mandating that public corporations disclose their political spending activities. -- This week marks the second anniversary of the Supreme Court's controversial Citizens United decision. To give an example of the impact of the decision, Tim Smith, senior vice president of Walden Asset Management, said at a press conference yesterday, "Outside groups spent almost four times as much money to influence elections in 2010 as they did in 2006."

The ways in which concerned investors, governance advocates, and others have sought to limit the impact of Citizens Unites have been several. Grassroots support for a constitutional amendment reversing the Citizens United decision is growing. The Center For Political Accountability (CPA) has successfully engaged with some 90 companies�including more than half of those in the S&P 100�in an effort to convince them to publicly disclose their political expenditures, as well as payments to trade associations such as the US Chamber of Commerce that actively seek to influence the political process.

And this week, Trillium Asset Management and Green Century Capital Management introduced shareowner resolutions at three companies, requesting that they refrain entirely from political spending.

But at the very least, what all concerned parties seem to agree upon is that the Securities and Exchange Commission (SEC) should establish rules mandating that public corporations disclose their political spending activities.

Also speaking at yesterday's press conference�held by the Corporate Reform Coalition, a group which include institutional investors managing $800 billion in assets, legislators, academics, and others�Ted Wheeler, Oregon State Treasurer, said that as a result of Citizens United, "Companies have the ability to spend heavily on political causes, and they have the right to do so. However, companies also have the ability to obscure that spending from their shareholders. And that's wrong. Shareholders of any company have the absolute right to know the activities that the companies they own, particularly when those actions impact their bottom line."

The group's efforts to have the SEC mandate corporate disclosure of political spending activities grew out of a petition filed with the Commission last year by a group of academics calling itself the Committee on Disclosure of Political Spending. Two of the committee's members�Lucian Bebchuk, the director of the Program on Corporate Governance at Harvard Law School, and Robert Jackson of Columbia Law School�were present at the press conference.

"The petition presents data that indicates that the public has become increasingly interested in receiving information about corporate political spending," Bebchuck said. "Indeed, during the last proxy season proposals that are related to political spending appeared on proxy statements of companies with greater frequency than any other type of proposal."

During the 2011 proxy season, resolutions addressing political spending and disclosure were included on the ballots of 32 companies. Vote totals for eight of the resolutions exceeded 40%, and an additional 14 resolutions gained more than 30% of shareowner support. At Sprint Nextel, a majority of shareowners approved the resolution.

"Our petition also shows that disclosure of corporate political spending is critical for corporate accountability," Bebchuck continued. "There is a strong case that SEC rules should require that such information be disclosed."

While the SEC has not yet signaled its intent on moving ahead on the issue, shareowner activists are heartened by the fact that the Commission has consistently supported their proposals when they have been challenged by companies.

"The SEC has for a long time paid close attention to the interests of investors on these questions, and that is the metric they will use to decide what to do about corporate spending on politics," Jackson said. Referring to the political spending by trade associations and other outside groups, he added, "The current rules don't provide any information about corporate spending on politics through intermediaries. This type of spending may be a very considerable source of campaign finance, but almost nothing is known about it."

Led by Domini Social Investments, an international coalition of investment professionals representing more than $690 billion in assets under management sent a letter to the SEC in November, expressing support for the petition filed by the academics.

Noting that Domini has been part of CPA's campaign for disclosure for more than seven years, Adam Kanzer, the firm's managing director and general counsel, said at the press conference, "We argue that undisclosed corporate political activity can encourage behavior that poses legal, reputational, and operational risks to companies, as well as systemic risks to our economy and to our political and judicial institutions."

"This is a very simple and practical rule to craft," Kanzer continued. "We've demonstrated that it can be done and that shareholders want this information. Corporate political disclosure and accountability has become a best practice corporate governance standard."

"Undisclosed political spending distorts the marketplace. We like to see companies compete and win with better products and services, not by better access to lawmakers."

Senator Robert Menendez, Democrat from New Jersey, also spoke at the press conference. Last year, Menendez introduced the Shareholder Protection Act, which would require a vote by shareowners before corporate treasury funds are spent on political campaigns.

"We need to know who is contributing billions of dollars to influence American elections," Menendez said. "It's unconscionable that two years after Citizens United, we still don't have rules in place to let the public know about that special interest influence."

"I don't think Citizens United was an endorsement of free speech. It was an endorsement of free cash."

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