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Sept. 7, 2011

Report: Companies Disclosing Electoral Spending Are More Valuable Than Companies Keeping Spending Secret

In Wake of Citizens United Decision, New Report by Public Citizen and Harvard Professor Shows Value of Disclosure

WASHINGTON, D.C. – Publicly held companies that disclose their electoral spending are more valuable than the politically active companies that fail to disclose their donors, according to a report released today by Public Citizen and a professor at Harvard Law School.

The report, “Fulfilling Kennedy’s Promise,” analyzed the value of 80 S&P 500 companies that disclose electioneering spending (including donations to politically active trade associations and front groups) and compared them to the values of politically active S&P 500 companies that do not disclose their activities. Companies that disclosed their political activity had a 7.5 percent higher industry-adjusted price/book ratio – a commonly used metric to compare values – than other politically active companies as of the end of 2010.

The finding dovetails with research by one of the paper’s co-authors, Harvard Law Professor John Coates, showing that companies spending less on politics also tend to have higher price/book ratios. The report does not claim that disclosure policies cause higher price/book ratios, only that companies with pro-disclosure policies are generally more valuable. But the data are inconsistent with claims that disclosure will harm corporations.

The new finding provides added evidence that the Securities and Exchange Commission (SEC) should require corporations to disclose their political activities, the report concludes. More specifically, the SEC should issue rules that ensure comprehensive disclosure of political activities by publicly traded companies and facilitate the ability of shareholders to adopt bylaws requiring that managers get their political budgets approved.

“Many people would agree that disclosing political activities is the right thing for publicly traded companies to do,” said Coates, a professor of law and economics at the Harvard Law School. “Our study provides new evidence that it is also the thing that smart companies do.”

The U.S. Supreme Court changed the scale of corporate political spending when it decided in 2010 that corporations could spend unlimited amounts of money to influence elections. Its decision in Citizens United v. Federal Election Commission opened the floodgates for the corporate spending to influence elections. But the decision was predicated on an incorrect assumption that corporations are required to reveal the details of their political spending.

In the 2010 elections, the first post-Citizens United election, many corporations funneled their money into third-party front groups with obscure-sounding names; most of these outside groups kept secret their funders. In fact, of the more than $266 million spent by outside groups to influence elections that year, more than $135 million was spent by groups that revealed no information about their funders – almost double the amount of all spending by outside groups in 2006, the previous midterm election cycle.

As for how this political activity affected the corporations’ value, after the 2010 elections, politically active firms had, on average, a 24 percent lower price/book ratio than their industry peers, Coates’ previous research has shown.

   “Justice Anthony Kennedy’s opinion in Citizens United incorrectly assumed that comprehensive disclosure requirements were already on the books,” said Taylor Lincoln, research director for Public Citizen’s Congress Watch division and a co-author of the report. “At least for publicly traded companies, the SEC should close this gap.”

Thus far, efforts to close the disclosure gap since Citizens United have been rebuffed. The DISCLOSE Act, which would have required organizations to reveal the identity of any donor behind a campaign ad giving $1,000 or more, was passed by the then-Democratic House in September 2010 but was blocked by Republicans in the Senate. It has yet to be reintroduced. The Shareholder Protection Act, which would require companies to obtain shareholder approval of their political budgets and to disclose the details of their political spending, stalled in the last congressional session but has been reintroduced in both chambers and is pending before lawmakers now.

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