For years, Capitol Hill has gridlocked over proposals to mandate new public disclosures of corporate political money. So, activists like Bruce Freed have turned to shareholder-driven campaigns to get corporations to report details of such spending on their own.

Now, under pressure from big business lobbies like the U.S. Chamber of Commerce and the Business Roundtable, the Securities and Exchange Commission is considering new rules that could thwart efforts like Freed’s. If adopted, the proposed regulations could block myriad shareholder resolutions targeting everything from companies’ political disclosures to environmental and corporate governance policies.

“This is a huge battle,” said Freed, president of the Center for Political Accountability. His center, along with the Zicklin Center for Business Ethics Research at the University of Pennsylvania’s Wharton School, puts out an annual index rating companies on how forthcoming they are on where they spend money used for electioneering and how they oversee that spending.

“With a legislative process that is essentially broken down, addressing political or election-related disclosure, climate change, board diversity and other issues, the only way that these have been able to be raised and addressed is through a shareholder resolution,” Freed said.

The SEC made public its proposals to overhaul the process of shareholder resolutions and proxy voting late last year and solicited comments into February. The agency is now tasked with reviewing those submissions. SEC staff shifted to remote work amid the coronavirus pandemic; Christopher Carofine, a spokesman for the agency, said by email that the SEC declined to comment on the rule-making and whether COVID-19 would delay the process.

Agenda-driven distractions

On the other side of the fight, K Street lobbying groups argue that the rules governing shareholder resolutions are outdated and can result in people with tiny stakes in a corporation pushing a political agenda, with the backing of unions or liberal organizations, while costing companies’ resources and creating distractions for corporate boards.

Erik Rust, a director at the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, said the rules are long overdue for an update. Echoing comments the chamber submitted to the SEC, Rust noted that the rules dated back to the 1950s and hadn’t been revised since the 1990s.

“We see proposals submitted year after year, even when a majority votes against it,” he said. He noted that the chamber has talked with lawmakers and administration officials and had meetings with the SEC about the matter, which he said his group hopes the agency can finalize in the coming months.

New rules

The SEC’s proposed changes would require new disclosures of proxy adviser firms, which offer recommendations to investors. The proposed rules also would increase the thresholds for who could bring such resolutions and increase the voting thresholds for whether resolutions that fail can be taken up again in subsequent years.

“The Proposals would substantially restrict shareholder rights and limit corporate accountability,” Ohio Sen. Sherrod Brown and fellow Democrats wrote in a March letter to SEC Chairman Jay Clayton. Brown is the top Democrat on the Banking, Housing and Urban Affairs Committee. “Rather than furthering the SEC’s investor protection mission, the Proposals take the side of companies instead of shareholders and could have the unintended consequence of discouraging investment,” the senators wrote.

The letter added: “The Shareholder Submission Proposal would make troubling changes to the shareholder proposal requirements, denying many Mom and Pop investors the opportunity to submit proposals for a vote by all of a company’s shareholders. The proposed changes to the initial ownership levels for filing a proposal and to the resubmission thresholds would mean small shareholders effectively lose the ability to raise corporate governance concerns.”

In addition to the U.S. Chamber, which regularly discloses spending the most of any entity on federal lobbying, other K Street organizations pushing for the SEC changes include the National Association of Manufacturers, the Investment Company Institute and the Business Roundtable, among others.

Companies that endorsed the changes in written comments included ExxonMobil, General Motors and FedEx, though some offered modifications.

In comments about the changes, the Business Roundtable, which represents the CEOs of major corporations, wrote that it “believes that the shareholder-proposal process must be improved so that it promotes long-term value, which serves all corporate stakeholders including investors, employees, communities, suppliers and customers. Some of the most significant problems with the current shareholder-proposal system relate to the low eligibility requirements for filing a proposal. Currently, a shareholder needs to own only $2,000 in market value of a company’s stock for one year in order to be eligible to submit a proposal.”

Liberal backlash

Liberal organizations, such as Public Citizen, have also weighed in — against the proposed SEC changes.

“This appears absolutely to be coming from the big corporate trade associations,” said Rachel Curley, a democracy advocate for Public Citizen’s Congress Watch division, who focuses on calling on companies to disclose information about how much money they spend to influence elections.

Though the political action committees of corporations must disclose the donations they make, there’s no disclosure requirement for companies’ dues and other payments to trade associations that engage in election-related spending. Groups like Freed’s center work with companies to make such disclosures.

Hidden spending

Curley said much is at stake in the lobbying battle.

Shareholder proposals around so-called ESG, or environmental, social and corporate governance, matters “have been on the rise,” she said. Corporate-backed groups, she added, are “pushing the SEC to make it harder to have these types of proposals come up.”

Those who decry undisclosed money that goes to nonprofit groups that can run political advertising called on the SEC not to adopt the new proposals.

“The past decade had shown that shareholders are similarly concerned with the lack of transparency of corporate political spending,” wrote Ciara Torres-Spelliscy, a professor at Stetson University College of Law. “Shareholder proposals about corporate dark money have been one of the most frequently filed topics in the past few years.”

Freed, whose center reported the biggest increase in companies adopting political disclosures late last year, said the success of such shareholder resolutions has made them commonplace for other companies. Similar efforts are underway in other areas, such as corporate environmental practices.

“The shareholder process has been so important to bringing the attention of these issues to companies,” Freed said, but that would change if the SEC adopts the changes. “It would be harder to file shareholder resolutions, and it would be harder to re-file them. Sometimes it can take several years of filing a resolution to get a company to adopt a policy.”

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