SEC should require political-spending reports, ex-chairs say

(Bloomberg) — Two former chairmen of the U.S. Securities and Exchange Commission urged the regulator to force companies to disclose campaign donations, pressuring the agency to weigh in on a politically explosive issue ahead of the 2016 presidential election.

In a bipartisan letter to SEC Chair Mary Jo White on Wednesday, Arthur Levitt and William Donaldson said corporate political spending is of "paramount public interest and growing concern to investors." They pointed to a record 1.2 million comment letters supporting a 2011 petition by a group of securities law professors as evidence that the agency should act.

"The Commission's inaction is inexplicable," Levitt and Donaldson said in the letter, which was also signed by former SEC commissioner Bevis Longstreth. "It flies in the face of the primary mission of the commission, which has since 1934 been the protection of investors."

Debate over corporate political spending flared after the U.S. Supreme Court ruled in 2010 that companies and unions could spend unlimited money on election ads. Corporations also aren't required to report contributions they make to third parties that fund ads, including industry groups such as the U.S. Chamber of Commerce.

In the letter, the former officials said the Supreme Court's decision was based on the expectation that companies would disclose political spending, a requirement that would fall on the SEC to enforce.

Cartoon Ads

The four-year debate has been heating up recently. Last month, some advocates of the regulation funded a series of cartoon-style ads at Washington subway stations that urge White to seize on the issue. Monsters representing big business are depicted pummeling the Capitol and White House with money. White is portrayed in a cape and tights as the lone superhero who can stop unlimited campaign donations.

The issue puts White between many Republicans and trade groups who oppose a new rule and Democratic senators, including Elizabeth Warren and Sherrod Brown, who support it. The issue has also divided the five-member commission along partisan lines. SEC spokeswoman Gina Talamona said the agency hasn't yet received the letter but will review it.

So far, White has signaled that she is unlikely to pursue the rule. In a speech in October 2013, she lauded the SEC for resisting past calls to mandate reporting of political contributions, emphasizing that the independent agency should stay away from politics. One month later, she pulled consideration of the rule off of the agency's regulatory agenda.

Many Republicans say the SEC should stay out of the issue because investors have voted against forcing companies to disclose political expenditures when the company's management opposes it. According to Institutional Shareholder Services, which advises large investors on governance and compensation, shareholders have rejected 20 ballot resolutions this year that asked companies to report campaign contributions.

"Real shareholders shoot these down," said Paul Atkins, a former Republican SEC commissioner and now chief executive officer of Patomak Global Partners LLC. "They crash in flames year after year."

Distorting Politics

Even if White decides to reopen discussion on a new regulation, it would only apply to public companies, leaving politically-active private companies such as Koch Industries Inc. unaffected.

Levitt, a Democrat, was SEC chairman from 1993 to 2001. He is a director of Bloomberg LP, the parent of Bloomberg News. Donaldson, a Republican, served as chairman from 2003 to 2005. Longstreth, a Democrat, was an SEC commissioner from 1981 to 1984.

"In an era where money has so distorted the politics of America, the very least we can do is add whatever transparency the law allows us to," Levitt said in an interview.