Harvard Law School Professor John C. Coates IV testified before the Committee on House Administration yesterday regarding the Disclose Act (H.R. 5175), legislation that was created in the wake of the Citizens United v. FEC Supreme Court ruling. If enacted, the new law would require corporations and political organizations to disclose their role in political ads, as well as the donors whose contributions helped to make those corporate ads possible.
Coates stated that the Disclose Act is “an important, corrective response to the shock of Citizens United.” Although elections have historically been off-limits to corporations, Coates continued, previously existing campaign finance law did not halt the ability of corporate investors to participate in the election process.
“For closely held companies, which are the most common form of company, individual shareholders have been and continue to be able to extract profits and use them to participate directly in election activity in their individual capacity,” Coates said in his testimony.
Citizens United, however, created a situation full of new risk for investors. Previously, “owners did not need to negotiate disclosure requirements, or monitor expenditures, or install control systems, because the underlying activity was thought to be illegal,” explained Coates. “In stark terms, the risk is that corporate managers will steal shareholder money, and pervert the very First Amendment rights – the rights of corporate owners – that the slim majority in Citizens United purported to protect.”
Coates argued for the adoption of the proposed Disclose Act. “By requiring real-time, ongoing disclosure of election expenditures, the bill would allow shareholders to monitor the use of their capital in the election context, and take whatever actions they want to discipline managers for misusing their funds,” he said.
The John F. Cogan Jr. Professor of Law and Economics, John C. Coates IV joined the HLS faculty in 1997 after private practice at the New York law firm of Wachtell, Lipton, Rosen & Katz, where he was a partner specializing in mergers and acquisitions, corporate and securities law, and the regulation of financial institutions, including mutual funds. At HLS, he teaches courses on mergers & acquisitions, financial institutions regulation, contracts, corporations, and the history of capitalist institutions.
Coates is the author of numerous articles on corporate, securities and financial institution law, and for seven years co-authored the leading annual survey of developments in financial institution mergers and acquisitions. His current research at Harvard includes empirical studies of the purchasing of legal services by S&P 500 companies, the regulation and taxation of mutual funds, the causes and consequences of the completion or failure of M&A transactions, and the causes and consequences of CEO and CLO turnover.