The panel was moderated by FCD Chair Chris Cox, a former chairman of the Security and Exchange Commission and former longtime U.S. congressman from Orange County. Cox said the Nov. 4 election “will have an impact on everything, from health care to financial regulation.”

He pointed to the 2010 Dodd-Frank financial reform, which passed without a single Republican vote in the Senate or House. Although the bill was supposed to make another financial crash less likely, instead it imposed 2,379 new pages of regulations on banks and other businesses – yet just yesterday spurred the relaxation of housing lending.

The spotlight passed to Daniel Gallagher, one of two members of the U.S. Securities and Exchange Commission who yesterday objected to the new relaxation. “Three U.S. agencies signed off on relaxed mortgage-lending rules Wednesday, helping complete a long-stalled provision of the 2010 Dodd-Frank financial law,” the Wall Street Journal reported this morning. “Two Republican SEC commissioners, Daniel Gallagher and Michael Piwowar, objected to the rules.” The three approving agencies were the Federal Reserve Board, the Securities and Exchange Commission and the Department of Housing and Urban Development.

The paper quoted Gallagher, “Today’s rule-making takes the untenable housing policy that injected irrational exuberance into mortgage lending and, as a result, caused a catastrophic financial crisis and chisels that failed policy into the stone tablets of the code of federal regulations.”

At the event in Costa Mesa, Gallagher said that, when reforms were proposed in 2011, a 20 percent down payment was going to be required for loans. But yesterday’s action dropped that to zero percent. “Here was a chance to make right what was wrong in the sub-prime bubble” of a decade ago, he said, when a similar easy-money policy first hit the housing market, then cascaded through the capital markets.

Gallagher also said the Dodd-Frank bill made the mistake of regulating the capital markets, which raise investment money, the same as banks. Which means bank regulators will be in charge of investments. The problem, Gallagher said, is that “bankers don’t understand other types of regulation.”

Fatal Conceit

Dodd-Frank’s deficiencies also were highlighted by Paul Atkins, CEO of Patomak Global Partners and a former SEC member. He referred to “The Fatal Conceit: The Errors of Socialism,” the final book of Nobel economics laureate Friedrich Hayek.

For Hayek, the “conceit” was that a group of really smart people could run millions of people’s lives better than they can themselves. Dodd-Frank’s fatal conceit, Atkins said, was to “get all the best people in Washington together and make the capital markets stable. But they’re inherently unstable. That’s the underlying falsity of the Financial Stability Oversight Council,” one of the new bureaucracies Dodd-Frank created.

Atkins was seconded by Brian Cartwright, a senior advisor at Potomak and former general counsel at the SEC. “The powers of the FSOC are broadly and vaguely enumerated,” he said. He pointed back to 50 years ago, when banks were the primary investment vehicle in America. By contrast, today “80 percent of financing comes from capital markets, not banks. There is a tension between traditional banking and capital markets, and it’s not just the U.S., it’s global.”

He said banking regulation was “fairly good,” and has to be because banks “leverage” deposits – meaning leading out money – at 10 times deposits. So stiffer regulation is needed to make sure the deposits are lent out responsibly.

By contrast, capital market leveraging is much smaller. “The notion you would impose bank regulation on this is pretty wild stuff,” he cautioned. “I’m hoping this won’t happen.”

Rep. Ed Royce

“This is worse than the Fatal Conceit,” charged Rep. Ed Royce, R-Calif., the senior member of the House Committee on Financial Services and the chairman of the Committee on Foreign Affairs. “It’s not just a bank-centric model of regulation, it’s more like a utility.”

By that, he meant government was allowing banks to gain a certain profit for a highly regulated service, such as electricity or water. But that means, “You’re not allowing bankers to be bankers. And you’re putting such additional costs on local community banks, you’re allowing them to be gobbled up” by the big banks that more easily can absorb regulatory costs.

Royce said now is the time for reforming the Dodd-Frank reform because “my Democratic colleagues are getting skittish about waiting for the economic recovery.” His analysis of the economic situation was confirmed a couple hours later at the latest Cal State Fullerton Center for Economic Analysis forecast. “Mediocre growth seems to be the new norm,” said director Anil Puri, as reported in the Orange County Register.

Royce continued that the over-regulation of Dodd-Frank was “seeping out into the rest of the capitalist system,” retarding growth.

Royce said some action could come in the lame-duck session of Congress after the Nov. 4 election. But if Republicans take over the Senate, the real action would come next year. President Obama could veto any potential straightening out of the Dodd-Frank regulations. But if some Democrats join with the potential Republican majority to comprise 2/3 of both houses, “presidents tend to take a second look at such legislation.”

This is the first article in a two-part series on the battle against corporate political speech.

The U.S. Supreme Court’s Citizen’s United decision in 2010 affirmed the right of businesses, associations and unions to freely engage in politics. Since then, leftist groups have increased the pressure on corporations to eliminate or at least disclose their spending on candidates, ballot measures, political action committees, trade associations and the like.

But when corporations cave in to such pressure, they open themselves to the possibility of boycotts and protests from leftist groups that disagree with something a candidate says or an association does.

Whether the pressure campaign has been effective — and whether corporations would be committing suicide by going along with it — were topics debated at a recent conference of the Society of Corporate Secretaries & Governance Professionals.

Bruce Freed, president and founder of the Center for Political Accountability, has been in the forefront of the corporate pressure campaign. His group publishes an annual index that tracks large U.S. companies’ policies on political spending. CPA also pushes corporations to adopt its model political disclosure resolution. It calls on companies to:

* Report soft money contributions, independent expenditures and payments to trade associations and other tax exempt organizations that are used for political purposes.

* Identify the titles of the individuals involved in the expenditure decisions.

* Disclose their political spending guidelines.

* Require the board of directors to conduct oversight of the company’s political spending.

Belly of the beast

Freed went into the belly of the beast on July 12 to urge a room full of corporate pros to do just that.

“Why has political disclosure become such an important issue to both companies and shareholders?” he asked. “I think it can be summed up in one word: risk. Over the past several years shareholders and companies have come to recognize that political spending using corporate treasury funds poses a range of risks. Those risks are reputation, business and legal. A serious problem exists today with the rise of 501(c)(4) groups. We have a real threat of extortion and shakedown. Because those groups, the 501(c)(4)s, do not disclose their donors. They are really conduits for secret political spending.”

Freed assured his audience that their companies would not be the only ones disclosing their political spending.

“What’s interesting today is that political disclosure has become a mainstream corporate practice,” he said. “Companies in ever-growing numbers are adopting disclosure and accountability policies. As of today, 118 companies — these are large companies in the S&P 500 and over half of the S&P 100 companies — have reached disclosure agreements with CPA and its partners…. [A]bout three-fourths of the companies in the S&P 500 do have policies of some sort on political spending.”

And Freed argues that transparency is good for business.

“Our experience has been that there’s no question that disclosure is good for companies and shareholders,” he said. “It allows them to know what companies are spending directly and indirectly. We have found through our surveys that directors do not necessarily know their company’s political spending. We’ve also found in discussing with companies that political disclosure really has not had serious consequences, has not led to pressure from shareholders and various stakeholders. It hasn’t led to requests for more contributions. I think we are at the point now where we find that standardized disclosure creates a level playing field. That’s something that we are finding more companies are saying to us that they want.”

Focus is on corporate speech

Although Freed argued against political spending in general, it appears that it’s mostly corporate political spending that concerns him.

“We see political spending as distorting markets in policy making and creating a skewed playing field,” he said. “That’s one of the reasons why we have been pressing companies to disclose their political spending. To at least have it out there for shareholders, others, even for directors and management to know the full extent of the company’s political spending. I think you can look at political spending and see … that it really can create problems for a well functioning market economy.”

Freed summed up his opening statement with “two important takeaways. The first is that the steady growth in the number of companies adopting disclosure and accountability is making it a corporate governance standard. We have critical mass today.

“Secondly, it’s in a company’s self interest to have robust disclosure and accountability policies. With the rise of 501(c)(4) groups, with the rise of trade associations engaged in political spending and doing it with anonymous funding, disclosure is very important in helping to protect companies from risk and it also leads to considered decision making.”

Different planets

Freed’s debate opponent Brian Cartwright, a former general counsel at the Securities and Exchange Commission, opened by saying, “It may appear that Bruce and I come from different planets. We couldn’t diverge more in our views. There’s little that he said with which I agree. I just have to set the scene as to what is really going on here from my perspective.”

Cartwright argued that businesses would be crazy to kowtow to the pressure from what he called “the anti-business community.”

“I start from the premise that the government is large enough at all levels — local, regional, state and federal,” he said. “It’s pervasive enough, it’s intrusive enough that the business community has really little choice but to engage with the government. Whether business thrives, or sometimes whether it survives, often depends on what the government does and doesn’t do. We all know that. So as a pragmatic matter you have to engage with the government; the business community does.

“The folks who view themselves as usually adverse to business — not always, but usually; the big labor federations, the trial lawyers and others, you know who they are — have got lots of money. They have got lots of manpower. They are very sophisticated. And they are very aggressive, as you all know, in their involvement in electoral politics. So, the business community really can’t afford to cede the field to them. Because if it does, it’s just going to get rolled.”

Targeting Target

The 2010 boycott against the Target Corporation is an example of what can happen when corporations engage in political spending and disclose it. The retail giant contributed $150,000 to Minnesota Forward, a pro-business group that supported the campaign of a gubernatorial candidate who opposed gay marriage. After gay-rights groups launched a boycott, Target apologized for the contribution and promised to make amends by focusing on diversity and inclusion in the workplace. The boycott then fizzled out.

“The anti-business community wanted to use this as an opportunity to send a message broadly as to what can happen to you if you participate in politics,” said Cartwright. “Target emerged unscathed. Undoubtedly they had an episode they had to manage that they would rather not have managed. And these incidents have been few and far between. So on a probability basis, your likelihood of having to face something like this isn’t too great. Nonetheless, you’re on notice. It’s kind of, ‘Nice business you have there — it would be shame if anything should happen to it.’”

The corporate pros nervously laughed.

Cartwright concluded his opening remarks:

“So if you want to, capital T, target companies in order to dissuade them from entering the political process at all, it poses at least a modest obstacle. So they would very much like to overcome that. I think it was Lenin who said a capitalist is the guy who will sell you the rope to hang him. Here they are suggesting, not that they buy the rope, but that you give it to them. Because they want the disclosure that will enable them to at least threaten to, capital T, target you.

“The ultimate goal here … is to remove the voice of business from the playing field. That strikes me as almost obviously not in the best interest of companies and therefore indirectly their investors and stockholders, at least those who are not conflicted with another agenda.

“So why would anybody do it? I don’t think anybody really would. But the pitch … is that ‘resistance is futile.’ That’s supposedly because of two things. First, all your peers are doing it. And then arguing in the alternative, second, ‘If they are not doing it now, they will be soon. This wave is unstoppable. So you don’t want to be an outlier, do you? That will expose you even more. So why don’t you get on board with the program?’ That is very much the pitch. I’m here to say that all your peers aren’t doing it, this wave is not unstoppable and it is not in the best interest of stockholders.”

Doing it

The largest part of the debate concerned whether everybody is in fact “doing it.” Freed said shareholder support for political disclosure policy proposals has risen from 9 percent in the 2004 proxy season to more than 30 percent now. Boeing jumped from 22 percent support in 2011-12 to 29 percent this year.

“The experience is that there has been a significant increase,” said Freed.

Freed’s numbers are based on counting just the “for” and “against” votes on disclosure resolutions. Cartwright countered that with a slide using statistics that also include abstentions on those resolutions. It shows that there is very little support (18 percent) for limiting corporate political speech, the same as what it was in 2006.

“These [anti-corporate] proposals get clobbered every single year,” Cartwright said. “The overwhelming rejection by shareholders of these proposals is manifestly evident.”

The debate ended with Cartwright stating something that both he and Freed could agree on.

“It does make sense for the board to have some monitoring supervision of this,” said Cartwright. “It does makes sense to have internal policies that guide the activity in this area as in many others.”

To listen to the debate, click here, or on the YouTube below.

Next story: Leftists seek SEC regulation of corporate speech.