January 14, 2021

Political Spending: Will the Pause Change the Game?

Last week’s attack on the Capitol – I still can’t believe I’m writing those words – has prompted many companies to hit pause on their political contributions. Initially, corporate donors targeted Republican lawmakers who objected to the certification of President-Elect Biden’s victory, but many have at least temporarily halted all political contributions.

Critics have suggested that these actions are merely symbolic, and that companies will jump back into the political game once the news cycle moves on to something else. I have no doubt that they’ll be back, but it’s just possible that last week’s attack may represent a turning point when it comes to how companies approach political spending.  Why?  Well, this pause isn’t occurring in a vacuum, and it may help accelerate some existing and emerging trends:

– Institutional investors and companies are under increasing pressure to align their political spending with their stated priorities & to disclose more information about that spending. Ironically, on the day of the attack, Liz’s lead blog was all about BlackRock’s efforts to urge greater transparency among the companies in which it invests when it comes to corporate political activities.

– The results of the latest CPA-Zicklin survey indicate that companies themselves are continuing to become more transparent about & accountable for their political spending.

– Activist investors increasingly look for ESG hooks to expand their base of investor support for their campaigns. In an increasingly divided and volatile environment, a company’s political spending may prove to be low hanging fruit for activists.

It also looks like political spending disclosure will be a priority issue for the SEC under the Biden Administration. The SEC will need a little help from Congress if the agency intends to act on disclosure rules. As I blogged last month, Congress recently continued the bipartisan tradition of stealthily prohibiting the SEC from using any of its funding to adopt political spending disclosure rules.

Why Don’t Ex-SEC Enforcement Lawyers Join the Plaintiffs’ Bar?

This week’s announcements of the departure of the SEC’s Chief Accountant & its Acting Director of Enforcement are a reminder that a change in presidential administrations always results in an exodus of senior SEC Staff to positions in the private sector. The SEC’s senior accountants usually find their way to the Big 4 in some capacity, while many former SEC enforcement lawyers end up with positions in private law firms. However, few former SEC lawyers opt to work for firms on the plaintiffs’ side, despite the potentially lucrative nature of that work.

Michele Leder (aka recently tweeted about a study that explores why that’s the case. This ProMarket blog from the study’s author suggests that the reasons are likely more complex than the simplistic “quid pro quo” explanation that usually has been put forth by academics:

While traditional academic analysis of the “revolving door” focuses on evidence of a material quid pro quo — for instance, an enforcement attorney who receives an offer of lucrative private sector employment in exchange for going “easy” on that target while she’s in government — more recent work has acknowledged that government officials may come to internalize industry preferences as a result of softer mechanisms and influences.

The rapidly revolving door between the SEC and the defense bar, and the close contact SEC attorneys have with defense-side attorneys throughout investigations and enforcement actions, give SEC attorneys ample exposure to the defense bar’s characteristic skepticism and hostility towards securities class actions and the lawyers who pursue those cases. By contrast, SEC attorneys are unlikely to have any direct contact with plaintiffs’ attorneys, even when there is a parallel private lawsuit against a company they are pursuing.

Interestingly, there is one area on the plaintiffs’ side that former SEC enforcement lawyers have apparently embraced – representing whistleblowers. The blog notes that whistleblower cases differ from traditional plaintiffs’ work in that they are oriented around the SEC itself, and permit former Staff members to leverage their unique government expertise and connections for a competitive advantage.

Transcript: “Covid-19 Busted Deal Litigation – The Delaware Chancery Court Speaks!”

We have posted the transcript for the recent webcast – “Covid-19 Busted Deal Litigation: The Delaware Chancery Court Speaks!”

John Jenkins