December 1, 2014
The Wallace Global Fund is a private foundation with invested assets of approximately $160 million. We commend the SEC for conducting this review of the effectiveness of existing disclosure requirements, and write to associate ourselves generally with the comments of the Corporate Reform Coalition submitted to the SEC on July 2, 2014, regarding the importance of the SEC mandating disclosure of political spending.
As investors, we deeply appreciate the SEC compelling disclosure of information which corporations may prefer to keep secret because it may be provocative to many shareholders, such as executive compensation. The utility of such information to shareholders is obvious, allowing them to see how the board and management choose to allocate the shareholders' money among diverse possible priorities such as lavish pay for executives, growing the business through acquisitions or RD, or measures specifically to enhance shareholder value, like dividends and buy-backs.
Political contributions are of similar interest to shareholders. It is the type of information that corporations would naturally prefer to keep secret -- every single contribution has the potential to offend roughly half of the shareholders, and an even larger proportion may be unhappy at supporting politicians of ANY party. Indeed, the case for mandatory disclosure of political contributions is far stronger than for executive compensation. The latter involves huge amounts of money being given to people who work for the corporation and are directly accountable to its board and/or managers, and there are very precise things that the corporation expects in return. But the former involves huge amounts of money going to people who do not work for the corporation and are directly accountable to no one in it, and there is no clear understanding of what the corporation can expect in return. Indeed, the Supreme Court has explained that if there were a clear quid pro quo for a political contribution, it would constitute corruption. There is absolutely no other category of significant corporate spending where it is flatly illegal to expect anything specific in return. And where accountability is at its nadir, the need for transparency must be at its peak.
Finally, we wish to associate ourselves with the comments of US SIF and the Sustainability Accounting Standards Board on the increasing importance of disclosure regarding sustainability factors, particularly on the need for strengthening disclosure requirements related to climate change. The potential risks and liabilities are only growing as the science becomes more overwhelming, climate-driven events increase in number and severity, and the momentum for governmental consensus and action intensifies in the run-up to the UN climate meetings in Paris in December 2015 -- widely considered to be the world's last chance for significant corrective action to avert the most destructive consequences. For energy companies in particular, financial analysts are warning that legal liabilities and the problem of "stranded assets" -- fossil fuel assets which must stay in the ground because of caps imposed by treaty, law or regulation -- may result in material misrepresentation of a corporation's balance sheet, to the significant harm and detriment of shareholders.
Respectfully submitted,
H. Scott Wallace
Co-Chair, Wallace Global Fund