To remind those of us who did not spend their formative years practicing securities law US Federal law imposes strict constraints on what how and when the executives of a public company may disclose information. The Securities Exchange Act of 1934 and the rules promulgated by the SEC thereunder set forth the basic (but hardly the exclusive) disclosure and anti-fraud provisions of US law. Under these rules it is illegal "to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made in the light of the circumstances under which they were made not misleading."
Having lived by this standard for my 10+ years as the CEO of a public company I fully support the objective of creating and maintaining fair and transparent public capital markets and punishing those who seek to lie to their shareholders or trade on inside information. In addition the corporate scandals of the past 20 years such as Enron and WorldCom have led to the piling on of additional rules including Sarbanes-Oxley and Reg. FD which among many other things govern the timing when disclosures may be made and require the CEO and CFO of public companies to make quarterly certifications as to the integrity of the financial statements and the quality of corporate controls. Again I have no issue with these provisions.
What I do find perplexing is that similar anti-fraud rules do not apply to the public statements written and oral of candidates for political office. When Governor Romney said in the second presidential debate that President Obama has doubled the deficit he was clearly making "an untrue statement of a material fact" a point which has been brought repeatedly to the attention of the Romney campaign. However President Obama was also guilty of a least an omission of a material fact when he claimed that he had cut taxes by $3600 since he failed to mention that this amount was cumulative over four years and not likely to be realized in full unless the Bush tax cuts and the payroll tax reduction were extended in their entirety.
I could cite numerous other examples as the candidates have themselves about the other but I would not presume to judge the "he said; she said" debate. Rather I merely point out that it seems strange to me that we choose to elect the most powerful man on earth through a process in which an unlimited amount of money can be spent to distort obfuscate and downright lie. Either we as a nation are saying that public capital markets deserve to be protected from untruths and half truths because they are important to us but the US Presidency does not merit such protections or we naively believe that a billion dollars of free speech by each candidate can permit the truth and the best candidate to prevail in a protracted and dizzying war of tit for tat.
More likely we know the electoral system is badly broken but we lack the political will for the Constitutional reforms necessary to reform it. So what might those reforms look like? Would we want candidates and their campaign managers to be liable for up to 25 years imprisonment and $5 million in fines as they would be under the US securities laws? I think not. The solution and any penalties should fit the crime.
US Presidential campaigns are too long too costly and too free of fact. First I would limit all political campaigns to a duration not to exceed 25% of the term of office being sought – thus Presidential campaigns could last up to one year and contests for the House of Representatives could run for only six months. This might help candidates actually work on the significant policy challenges they were elected to tackle and not merely begin running for the next election on the first day of their current term.
Second I would require the federal funding of all elections for national office and cap the amount at (say) 25% of that spent in 2012. To be effective campaign spending by third parties would also need to be limited. So for example no individual company labor union or other entity should be permitted to contribute or otherwise spend money directly or indirectly individually or as part of any group in excess of $100 during the shortened election campaign.
Finally I would require candidates to produce and file a written policy paper setting forth their position on all major issues much as corporate executives must file annual and quarterly reports proxy statements and prospectuses. Candidates would be free to conduct the same rallies debates and town hall meetings as today; however if they materially departed from previously filed positions they would be obligated to amend or supplement their disclosure documents. This is very much the way in which public company disclosure works today with press releases and webcasts to update more formal disclosure documents.
The recommendations outlined above raise obvious Constitutional issues starting with the freedom of speech. However even the rights under the First Amendment much loved in American jurisprudence are not without limit. Citizens can be stopped from disclosing sensitive national security information such as troop movements or restrained from yelling “fire” in the proverbial theatre. Moreover no corporate executive expects to be able to exaggerate company revenues or make knowingly false promises without fear of punishment. A non-partisan body would need to be created with SEC-like powers to enforce these rules – – perhaps a Federal Election Commission with real teeth.
All of these proposals would require a fundamental overhaul of the current US election system including a range of Constitutional amendments to make them possible. Others can undoubtedly improve on the mechanics of my suggestions – — I intend them as a provocative straw man rather than a complete legislative agenda. However I have yet to meet the voter or even the candidate who believes we are well served by the current system. We deserve better.
