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In the Wake of Recent Scandals and Brewing Federal Investigations, The D.C. Council Appears To Be Taking Another Look at Pay-To-Play Reform

With all apologies to 1980s rockers Great White, it would have been quite easy for D.C.Councilman Tommy Wells (D – Ward 6) to take a “Once Bitten, Twice Shy” approach to pay-to-play reform in the District of Columbia. After all, two of his 2011 proposals on the subject were  actively left out of the final version of the city’s recently-passed comprehensive ethics reform bill. Those two proposals would have prohibited bundled corporate campaign contributions and barred District officials from accepting donations from city contractors, but both were met with universal opposition from the other members of the Council.

Rather than give up on the idea of reform, however, Wells went back to the drawing board, reconfigured his pay-to-play proposals, and waited for the opportune moment to reintroduce them before the Council. Just this week, after three months of waiting, Wells seems to have found his moment. . . . thanks in large part to the parade of federal corruption investigations being initiated against current and former D.C. officials, as well as the District’s largest corporate contractor.

For those who have missed the media coverage, since the beginning of the year, federal investigators from myriad agencies have been exploring various corruption allegations lodged against a number of Washington, D.C. officials and political kingmakers. For example, nearly two months ago, Mr. Harry Thomas, Jr., who previously represented Ward 5 on the D.C. Council, was forced to resign his post before pleading guilty to felony charges related to the theft of $353,000 in taxpayer funds. Likewise, Mayor Vincent Gray has been the subject of an ongoing investigation by the U.S. Attorney’s Office for the District of Columbia concerning potential violations of city campaign finance laws during his 2010 election run against Adrian Fenty. Now, just this past week, federal investigators raided the home and offices of Mr. Jeffrey Thompson, the city’s single-largest contractor and a prolific political donor, as part of what appears to be an investigation into his business and political ties to the Mayor and other District officials.

With a growing number of District officials under the microscope, Wells found just the opportunity he was looking for – a more fertile environment for the reintroduction of his pay-to-play proposals. This time, with the support and co-sponsorship of Ms. Mary Cheh (D – Ward 3), Wells has introduced a piece of legislation that would limit “pay-to-play” politics by forbidding District procurement contracts from being granted to individuals who have given more than $2,000 in the aggregate within the three previous calendar years to any political organization authorized to make contributions to or expenditures on behalf of any official or candidate who can vote on such agreements. This $2,000 limit would apply to contributions made to District campaign committees, political committees, political party committees, PACs, exploratory committees, legal defense committees, inaugural committees, and constituent-service programs.

In addition to this strict pay-to-play provision, the Wells-Cheh bill seeks to prohibit individuals who have raised more than $10,000 for any District official or candidate during an election cycle from receiving any procurement contract, lease or appointment from the District for a period of three years following the fundraising activity. The legislation also includes an outright ban on corporate political contributions in the District and a strict prohibition on political contributions by District contractors during any period of procurement application or performance.

Will this latest effort at pay-to-play reform gain any traction with any of Wells and Cheh’s fellow D.C. Council members? It depends on how desperate their colleagues are to distance themselves from the investigative storm clouds rolling in on the Mayor and Mr. Thompson… For those Council members up for reelection in 2012, the pressure to get on the right side of the corruption issue might lead some to reconsider last year’s opposition to pay-to-play restrictions. The Washington Post Editorial Board and a citizen-led ballot initiative group are doing their part to support the reform efforts, but on a Council that counts Marion Barry as one of its own, passage of any type of pay-to-play legislation is far from a sure thing….

Regardless of that fact, however, individuals and corporations that do business with the District of Columbia and actively participate in its politics should keep a close eye on the Wells-Cheh bill and the parallel ballot initiative. The implementation of any one of the provisions set forth in either the proposed legislation or initiative would fundamentally change the nature of contract procurement and political participation in the District, bringing Washington, D.C. into line with some of the more restrictive pay-to-play jurisdictions in the country. As things progress along the Potomac, Pay-to-Play Law Blog will keep you updated….

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In the Wake of Recent Scandals and Brewing Federal Investigations, The D.C. Council Appears To Be Taking Another Look at Pay-To-Play Reform

Transparency Advocates Look to the SEC to Accomplish What Congress, The White House, and the IRS To-Date Have Not

It has been almost exactly 19 months since the Supreme Court handed down its controversial decision in Citizens United v. Federal Election Commission, but the plot continues to thicken as those favoring mandatory corporate disclosure of political activities look for a non-judicial fix to the ruling.

To date, the fields are littered with detritus of failed efforts at identifying a mechanism that compels corporations and wealthy individuals to disclose all exercise of their newly-recognized First Amendment freedoms. This blog has previously reported on failed efforts to mandate such disclosure in Congress, as well as the Obama White House’s proposed executive order circumventing both Congress and the Supreme Court.  To achieve these same goals, groups such as Democracy21 and the Campaign Legal Center have promoted changes to the Internal Revenue Code, while the American Bar Association has encouraged Congress to make pertinent amendments to the Lobbying Disclosure Act.

Our latest contestants in this Sisyphean legal drama are a united band of like-minded law school professors looking to utilize the Securities and Exchange Commission (SEC) as a vehicle to counter the perceived negative impact of Citizens United. It appears this group has concluded that the imposing moniker “Committee on Disclosure of Corporate Political Spending” (the “Committee”) sounds more authoritative than “a united band of like-minded law school professors”. I think I agree with them on that.

Under either moniker, this group has filed a petition for rulemaking with the SEC requesting draft regulations that require public companies to disclose to shareholders information regarding the use of corporate resources for political activities. The main gist of its petition – stricter SEC disclosure rules are necessary to ensure that corporate political activities are subject to the appropriate level of shareholder scrutiny in the wake of Citizen’s United. The Committee bases this conclusion on the following contentions:

First, it asserts that there is strong data indicating that public investors have become increasingly interested in receiving information about corporate political spending. To support this statement, the like-minded professors reference a 2006 Mason-Dixon poll indicating that 85% of shareholder respondents held that “there is a lack of transparency surrounding corporate political activity.” They also make note of a FactSet Research Systems analysis that indicates 50 out of 465 shareholder proposals appearing on public-company proxy statements in 2011 involved political spending issues.

Second, the Committee grounds its request in the belief that there is increasing momentum toward political spending transparency in the corporate community, as evidenced by the growing number of large public companies that have voluntarily adopted policies requiring disclosure of their political expenditures. To this point, and perhaps undercutting the urgency of their call to action, the professors highlight a study by the Center for Political Accountability indicating that nearly 60% of S&P 500 companies voluntarily provide shareholders with information regarding corporate spending on political activities.

Third and finally, the Committee bases its request on the idea that stricter SEC regulation of corporate political disclosure will lead to better corporate oversight and accountability mechanisms. At present, the professors assert, shareholders are unable to hold directors and officers accountable when they spend corporate funds on politics in a way that departs from the interests of the company. From the Committee’s point of view, this is due to the fact that public information regarding corporate political activity is out of the average shareholder’s reach (because it is either dispersed among too many regulatory bodies or not gathered at all). By requiring companies to disclose to one central entity (the SEC), it is the professors contention that there will be better information available to shareholders, and in turn, a subsequent improvement in corporate accountability.

Based upon these assertions, the Committee’s petition recommends that the SEC initiate a rulemaking project to adopt a series of regulations that mandate periodic disclosure of corporate political spending. Whether the SEC will take heed of the Committee’s request remains to be seen, but the petition itself has already begun to draw a mix of criticism and support from members of the business, legal, and academic communities.

For example, just a few days after the Committee’s petition was submitted, Keith Paul Bishop – the former California Commissioner of Corporations and an adjunct professor at the Chapman University School of Law – filed a response letter with the SEC refuting the professors’ contentions and requesting that no such rulemaking project be initiated by the Commission. In his response, Bishop contends that the Committee’s proposal will only add to the already extensive public disclosure burden faced by reporting companies and that it is unnecessary in light of the growing trend toward voluntary corporate disclosure. He also argues that it is not the role of the SEC to mandate corporate expenditure on public disclosure of political activity when statistics show that not even a third of 2011 proxy proposals on the subject enjoyed shareholder support.

In contrast, official comments filed by Mark Latham, founder of VoterMedia.org, and executives from the International Corporate Governance Network expressed strong support for the Committee’s request. Specifically, both comments revealed a common respect for the Committee’s belief that the disclosure of corporate political spending is necessary to help stave off abuse or the breach of business ethics by officers and directors.

The debate over who has the better side of the argument will rage on in the coming months as the SEC weighs the proposal and determines whether to take any action. One would have to expect the Obama Administration to lend its support to the Committee’s cause in it’s typical “no fingerprints here, I don’t know what you’re talking about” approach. The response from the corporate community will undoubtedly be more mixed and more direct, but it will be interesting to see what reaction emerges from groups such as the U.S. Chamber of Commerce and The Conference Board’s newly formed Committee on Corporate Political Spending (to which, BIAS ALERT, I am an advisor). Stay tuned….

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Transparency Advocates Look to the SEC to Accomplish What Congress, The White House, and the IRS To-Date Have Not