The Grinch that stole Elizabeth Warren’s Christmas

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Christmas, or more precisely the Grinch, came early for Senator Elizabeth Warren (D-Mass) and the cottage industry of public interest groups and academic “reformers” urging the Securities and Exchange Commission to require disclosure of corporate political spending. This collection of nonprofits, mostly, subsists off of bemoaning the supposed corrupting influence of money (or worse, corporate money) in politics and it’s having to regroup after the Commission recently shelved a well-publicized rulemaking petition by a cadre of reformist law professors.

But the Commission’s decision is a victory for democracy. SEC Chairwoman Mary Jo White’s principled stand correctly tethers the agency to its mission while tacitly acknowledging the paucity of credible evidence supporting the petition. Instead of transparency and sound principles of corporate governance, the reformers’ primary aim is corporate disarmament in the public-policy battles that define our times.

The SEC is an independent agency with a tri-partite mission: to protect investors, facilitate capital formation, and ensure fair and orderly markets. Fulfilling this mission requires the SEC operate free of partisan jockeying. As Chairwoman White recently stated, “[the SEC’s] independence – and the agency’s unique expertise – should be . . . respected by those who seek to effectuate social policy or political change through the SEC’s powers of mandatory disclosure.”

In typical Warren fashion, the senator recently urged the SEC to ignore its mission and the dangers of partisan capture because disclosure is the “right thing.” The professor-petitioners have sought to buttress Ms. Warren’s moralizing with arguments about protecting minority-shareholder rights and possible misuse of funds by self-interested corporate executives. The professors fail, however, to validate their concerns with substantive empirical evidence.

The shareholders clamoring for “transparency” in corporate spending are not political neutrals. They often have agendas anathema to their fellow shareholders and corporate bottom lines. As Center for Competitive Politics scholars Brad Smith and Allen Dickerson discovered, special-interest funds use their standing as shareholders to pursue ideological agendas, not necessarily corporate profits.

These groups include union pension funds, social investment funds, and government pension funds controlled by elected officials with policy positions hostile to corporate bottom lines. For instance, a UAW pension fund chairman voiced discontent last year at the revelation Aetna had substantially contributed to the Chamber of Commerce and America Action Network — both staunch opponents of Obamacare.

Another category is “social justice” funds who buy shares specifically to promote what they view as virtuous corporate priorities like human rights, environmentalism etc. Indeed, progressive groups like NorthStar Asset Management often hold only enough shares to be eligible to participate in corporate governance but not enough to have any financial stake in the outcome.

More telling is the argument about duplicitous corporate executives not properly acting as shareholder fiduciaries. Academics have offered hypotheticals whereby executives direct political spending via personal ideological preferences or to create pathways to future political careers.

But evidence of self-interested spending is sparse, as acknowledged by two leading reformist professors in a telling footnote: “Existing empirical work on the frequency with which, and the extent to which, the interests of directors and executives with respect to political spending actually diverge from the interests of Shareholders is limited.” In other words, it could happen. But any decision by a corporate executive, for instance where to locate a new headquarters, is subject to this criticism and without more information is simply conjecture.

Finally, reformers argue disclosure is necessary because it has recently evolved into an issue of immense shareholder concern. They point to the volume of comments — over 600,000 and mostly supporting disclosure — responding to the professor-petition. But the vast majority are form letters downloaded from reformer websites, with no evidence they actually originate from shareholders.

Warren and her cohorts well recognize a simpler, more partisan, reason for forcing corporate political disclosure. It would subject image-conscious corporations to harassment, bullying, and perhaps lawsuits by those demanding they do the “right thing.” Negative publicity about “income inequality” or some other progressive moral indignation — aided by a compliant media — could force risk-averse corporations to disengage from generation-defining political battles, such as Obamacare.

Chairwoman White’s decision preserves the SEC’s critical independence and leaves public policy battles where they belong: the political sphere not the financial disclosure form.

Paul H. Jossey is a lawyer living in Alexandria, Virginia. His interests include First Amendment law and environmental policy. Please follow him on Twitter.