11.21.2011In the past few years, pay-to-play restrictions have flourished, particularly in the context of contracts related to the management of public pension plan assets and similar government investment accounts. While some regulations such as MSRB Rule G-37 have been in place for some time, there has been a flurry of activity to pass additional regulations, such as the recently-passed SEC Rule 275.206(4)-5. Now comes a new trend: shareholders seeking disclosure of corporate political spending. For example, in March 2011 the SEC agreed with a Home Depot shareholder that Home Depot must include on its proxy ballot a proposal recommending that the Home Depot Board disclose its policies on political contributions and give shareholders an advisory vote on those policies. In August 2011 a group called the Committee on Disclosure of Corporate Political Spending, which is comprised of ten corporate and securities law professors, submitted a rulemaking petition to the SEC urging the SEC to develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities. And this month, the California State Teachers’ Retirement System (“CalSTRS”) passed amendments to its shareholder voting guidelines stating that if CalSTRS concludes that a company in which it holds an interest lacks sufficient policies on the disclosure of political activity, it is likely to vote with proponent shareholders to establish such policies. The amendments also call for corporate boards to exercise oversight over political contributions through the adoption of written policies and procedures. The Supreme Court’s decision in Citizens United v. FEC opened the doors to freedom for companies to participate in the political process, but today we realize that freedom may come with a price: transparency. Transparency, or at least disclosure of political contributions in the context of independent expenditures, was upheld by the Court in Citizens United. The reality is that due to increased shareholder interest, many public companies have voluntarily adopted policies requiring disclosure of corporate political spending. Voluntary disclosure also means increased shareholder (and public) scrutiny, and the savviest of companies will carefully weigh the choice.