November 8, 2013

Against Disclosure

David M. Primo

Senior Affiliated Scholar
Summary

In the policy world, corporate disclosure is widely seen as an unalloyed good. Publicly traded corporations are under growing pressure to reveal more information about C.E.O. compensation, political spending and even the dangers that climate change poses for the company. Shareholders need such information, advocates say, in order to hold managers accountable and reduce risks to the company and its reputation. Democracy itself, the argument continues, benefits when voters know more about how corporations operate.

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In the policy world, corporate disclosure is widely seen as an unalloyed good. Publicly traded corporations are under growing pressure to reveal more information about C.E.O. compensation, political spending and even the dangers that climate change poses for the company.

Shareholders need such information, advocates say, in order to hold managers accountable and reduce risks to the company and its reputation. Democracy itself, the argument continues, benefits when voters know more about how corporations operate.

But a number of recent studies, including some of my own, suggest that this view is shortsighted. Disclosure, though frequently valuable, often leads to adverse unintended consequences that can outweigh its benefits.

Groups like the Center for Political Accountability that favor greater disclosure often cite the experience of Target. In 2010, Target, to comply with a disclosure law, made public its contribution to a pro-business group called MN Forward. Gay rights activists then led boycotts and store protests of Target because MN Forward supported the pro-business Minnesota candidate for governor Tom Emmer, who also opposed gay marriage.

While disclosure advocates embrace this episode as the comeuppance of a company that had something to hide, I think a different lesson might be drawn. Target’s political spending was almost certainly, on balance, in line with the interests of the corporation. You can’t pick and choose the positions of your candidate, and Target was contributing to MN Forward, not the candidate directly. But by using information obtained as a result of a disclosure law, activists were able to manufacture a problem for Target that disrupted its operations.

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