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SEC official Luis Aguilar says firms should have to disclose political spending

By David S. Hilzenrath,February 24, 2012

View Photo Gallery - In probes of companies, U.S. relies on firms’ internal investigations…

The Securities and Exchange Commission should require corporations to disclose their political spending so that shareholders can see how their money is being used, one of the agency’s five commissioners said Friday.

Commissioner Luis A. Aguilar, a Democrat, urged the agency to address the fallout from the Supreme Court decision lifting restrictions on corporate expenditures.

Without mandatory, uniform disclosures, “it is impossible to have any corporate accountability or oversight,” Aguilar said in a speech prepared for a conference in Washington.

Investors, money managers and members of Congress have made similar pleas over disclosure. Last year, a group of law professors petitioned the SEC to require publicly traded companies to reveal their political expenditures.

The Supreme Court decision in the Citizens United case has transformed the political landscape. The SEC, which regulates corporate financial disclosures and is supposed to be the investor’s advocate, has a responsibility to demand transparency, Aguilar said.

In its Citizens United decision, Aguilar said, the Supreme Court said the government may regulate corporate political speech through disclosure requirements. But the court has incorrectly assumed that shareholders could raise objections “through the procedures of corporate democracy,” Aguilar said. “Unfortunately, the court envisioned a mechanism that does not currently exist.”

Citing comments that members of the public have submitted to the SEC, Aguilar said there are several reasons that shareholders are entitled to the information. They may not want to invest in companies that engage in political spending, and they may not want to invest in companies that back candidates or causes that they oppose.

In addition, he said, the political spending could be used to further the interests of corporate managers at the expense of shareholder interests, and it could foster “destructive pay-to-play corruption,” in which campaign spending buys business advantages.

While some companies are publicizing their donations voluntarily, many others are not, and the transparency may not be adequate, Aguilar said.

A “true investor’s advocate would be focused on whether shareholders and investors receive adequate disclosure about companies they own or may buy,” Aguilar said.

Aguilar has a history of criticizing what he sees as the agency’s failures and shortcomings. Addressing the same conference last year, he said he wished for a world in which SEC enforcement actions had obvious deterrent value.