By Michael R. Siebecker, Professor of Law, University of Florida Levin College of Law
Recently, a group of law professors petitioned the Securities & Exchange Commission (SEC) to adopt rules requiring corporations to disclose expenditures for political activities. The petition advances a variety of convincing yet fairly conservative arguments supporting both the need to adopt new political disclosure rules and the mechanisms for disseminating sufficient information. Although the petition adopts a properly dispassionate tone and focuses on pragmatic steps the SEC could easily take, the potential implications of a failure to adopt a political expenditure disclosure rule, or of a defeat of any new disclosure rule based on a First Amendment challenge, are much more striking than the petition conveys.
First, the failure to require public corporations to disclose their political expenditures would exacerbate a tragedy of transparency that already threatens the collapse of the market for corporate social responsibility (CSR), where consumers and investors employ various political, social, environmental, or ethical screening criteria before purchasing a company’s stock or products. On a worldwide basis, owners or managers of assets exceeding $14 trillion make investment decisions based on one or more CSR criteria.
In an efficient market, fully informed consumers and investors could reward companies that engage in desired CSR practices by purchasing their products or stock, and, conversely, could punish companies that fail to engage in desired practices by refusing to purchase their products or stock. To the extent consumer and investor preferences for CSR provide compliant companies greater economic benefits (e.g., through higher consumer prices, stock premiums, or cheaper access to capital) than the cost of embracing CSR practices, an opportunity for true wealth creation exists that satisfies the preferences of consumers, investors, and corporate shareholders alike. That classic win-win opportunity quickly devolves into economic waste, however, if investors and consumers stop rewarding companies for engaging in socially responsible behavior.