[F]or [SEC Chairman Jay] Clayton to truly fight for savers and uphold the principles from his speech, he should build upon last year’s Department of Labor fiduciary rule, rather than undermine it and start from scratch….Building from DOL’s rule should be music to Clayton’s ears under his sixth and seventh principles: “effective rulemaking does not end with rule adoption” — it requires rigorous analyses and detailed input — and “the costs of a rule now often include the cost of demonstrating compliance.”
Acting alone ignores the DOL’s extensive analysis and consultation, the significant compliance costs already borne by firms, and even the cost-benefit analyses conducted under Trump’s DOL that found the loss to investors by delaying the rule greatly exceeded reduced compliance costs for the interim.
If Clayton truly wishes to implement the principles he has laid out for the SEC to protect investors, he should start by endorsing the DOL rule as a solid, carefully crafted approach that has been thoroughly vetted and is well on its way to implementation.
We strongly recommend James McRitchie’s point-by-point rebuttal to the Chamber of Commerce’s “fake news” plea to “protect” corporate executives from non-binding shareholder proposals. It is well worth reading in its entirety, but we particularly note his response to the Chamber’s claim that “social” proposals are not relevant and have no merit. That is a matter for shareholders to decide. The strong support from the broad range of the shareholder community for these proposals proves that they are relevant and the response by companies to that support shows that they can be effective. Indeed, that is the reason the Chamber wants to get rid of them. McRitchie says:
Rule 14-8 is not broken, many of the Chamber’s attestations are alternative facts and its recommendations are more likely to hurt our economy than help it.
Getting rid of the new pay ratio disclosure requirement scheduled to take effect next proxy season may be harder than the Trump administration thought. I was particularly heartened by this article’s reporting on the number of comments in favor of the proposal (and how that avalanche of comments makes it harder to rescind the rule). And I was particularly amused by the Chamber of Commerce’s desperation ploy when it’s usual “burdensome” argument failed. It’s next attempt was claiming that people might actually use those disclosures to make policy. Uh, that’s the point of information and data, right?
Overpaid CEOs enjoyed a sweet victory in June when the House of Representatives took action to protect them from having to disclose how much more money they make than their workers.But the celebration didn’t last long. The odds of the Senate taking similar action any time soon were always long. Now, given the health care quagmire, these odds are even longer.
Sigh. Another whine about those pesky shareholders from those who insist they are the ultimate capitalists. James R. Copland of the Manhattan Institute, which is funded by right-wing foundations (whose names should be disclosed in published material like this column), writes in the Wall Street Journal that poor McDonald’s should not have to bear the terrible burden of shareholder proposals. He argues that the oxymoronically named CHOICE Act would not go far enough in merely requiring investors to hold one percent of the stock to submit a shareholder proposal; he wants to eliminate all “social” shareholder proposals entirely. Since “ordinary business” proposals are already prohibited, that reminds me of the baseball manager who said that his team couldn’t win home games and couldn’t win away games “so all we have to do is find another place to play.”
According to an SEC survey, it costs more than $100,000 merely to respond to a shareholder proposal and include it on the ballot. The far greater cost comes from the distractions such proposals create for directors and senior executives, as well as the risk that companies will change their policies under pressure.
We are find this self-reported, self-serving number highly suspect. If, as Copland says, the proposals are re-submitted, how expensive can it be to cut and paste the previous year’s rebuttal? How much time can it take for executives and board members to vote to oppose it again?
He also complains that some companies have made changes to respond to shareholder proposals, even if they did not get a majority vote. That’s called a market-based response. Since even a 100 percent vote is advisory only, we have no concerns that the executives and board members who have all of the decision-making power will be unduly persuaded unless the case is effectively made. This is literally why we pay them the big bucks.
I do share some of Copland’s frustration with the shareholder proposal process, however. I wonder if he would be willing to support my suggestion for improvement: no more shareholder proposals, but a strict majority vote standard so that instead of raising issues like the transparency of political contributions and the sustainability of the supply chain through non-binding proposals, a majority of shareholders can simply remove directors who are not satisfactory.
The Wall Street Journal’s CFO Network gathering is always engaging and informative. This year VEA Vice Chair Nell Minow attended to appear at breakout sessions on board effectiveness and shareholder activism, and reported back on what she learned:
The speakers included Senators John McCain on national security (he said his biggest fears are North Korea and Russia) and Elizabeth Warren (she noted pointedly that there is widespread support, even among Trump voters for maintaining or expanding the Consumer Financial Protection Bureau and cited the President’s often-claimed enthusiasm for breaking up the TBTF financial institutions), Chairman of the House Ways and Means Committee Kevin Brady (he insists that major tax reform, including filing on a postcard for most individuals, is going to happen), and Ranking Member Adam Schiff of the House Permanent Select Committee (he supports an independent investigation into Russian interference with the democratic process).
A presentation on the prospects for financial regulation/deregulation included former SEC Chairman Harvey Pitt and former Commissioner Paul Atkins. Atkins referred to Dodd-Frank as “mostly rubbish…littered with all sorts of gimmies to unions, trial lawyers, and activists,” mentioning the conflict mineral and pay ratio disclosures as examples. He and Pitt emphasized the importance of making sure the investors get material information and are not overwhelmed with data. They insisted that the new administration will bring tough cases. Since fines are paid by the shareholders, they suggested that they do not impose a meaningful penalty. Pitt recommended outsourcing audits of investment managers and broker-dealers, using the Commission’s authority to exempt issuers from regulatory burdens, and experimenting with pilot programs to test regulatory ideas. Another possibly experiment: summary disclosures with hyperlinks providing more information, to assess the way users access the data. Atkins said, “You read through this stuff and most of it is kind of baloney.”
Litigation could stymie efforts by the Securities and Exchange Commission to comply with sweeping executive orders intended to roll back financial regulations.
President Donald Trump on Friday took the first step in expunging the 2010 Dodd-Frank financial overhaul act, which he said hinders business and economic growth.Mr. Trump signed an executive action requiring the U.S. Treasury Department to develop an outline for scaling back financial regulations.The SEC doesn’t have the authority to revoke Dodd-Frank, which is an act of Congress. Nearly 80% of rules under the law are already implemented. Instead, the commission can offer relief by amending its rules, or granting exemptions—a process that is open to judicial review.
Any legal objections could slow the SEC’s already lengthy amendment process, hindering the agency’s ability to execute the president’s executive order, legal experts and former SEC staff said.
“This is not going to be simple, fast or cheap,” said Joseph Grundfest, a Stanford professor of law and business who served as a Democrat SEC commissioner during the Reagan administration.
The Business Roundtable, once again proving that they only like capitalism when the providers of capital are silent and powerless, has released a proposal to “improve” the shareholder proposal process. They say this is necessary because
the current shareholder proposal process is dominated by a limited number of individuals who file common proposals across a wide range of companies but own only a nominal amount of shares in the companies they target. These investors are pursuing special interests — many of which have no rational relationship to the creation of shareholder value and conflict with what an investor may view as material to making an investment decision. As a result, the current process is often used to promote the self-interest of a minority of shareholders, frequently at a significant cost to the company.
The BRT’s claims that these “improvements” are necessary are unpersuasive, including the alleged “costs” of proposals and a completely inapposite analogy to “proxy access” eligibility. A non-binding proposal is in an entirely different category than nominating a director who may be elected to the board.
If the BRT would pay less attention to the proponents and more attention to the level of support the proposals get from a wide range of investors, they would understand that this is what is referred to as a market test. It is an outrage that they want to limit even further the shareholder proposal process, when even a unanimous vote in favor is advisory only. The best way for corporate executives to reduce the number of proposals and votes in favor is to adopt corporate governance best practices and develop better lines of communication with investors.
Fund manager Roger Lowenstein demonstrates a breathtaking ignorance of government checks and balances in an op-ed for the New York Times, suggesting that Senator Elizabeth Warren does not have the right to ask President Obama to remove Mary Jo White as Chair of the SEC.
Last time I checked, the S.E.C. was a regulatory agency of the executive branch, in which Ms. Warren is not, in fact, employed.
Senator Warren is, on the other hand, a member of the United States Senate, which approves (or not, as Judge Merrick Garland can attest) Presidential appointees like Chair White. The terms “advise” and “consent” make clear the duty of the Senate to oversee Presidential appointees. The Senate is also responsible for the enabling legislation and budget for the Commission, and therefore it is entirely within its jurisdiction and indeed its obligation to review and comment on its activities. And a note: she did not call for Chair White to be “fired,” as Lowenstein claims. Commissioners cannot be fired. But the Chair designation is within the authority of the President to reassign and it is entirely within the authority of a Senator (or anyone else, for that matter) to suggest that he do so. (Does anyone remember Lowenstein objecting to the House considering impeachment of the Commissioner of the IRS? For some reason, that did not offend his sense of propriety.)
In fact, it is a provision imposed by Congress in the Commission’s budget that prevents it from issuing rules that would require companies to disclose their direct and indirect campaign contributions and lobbying expenditures.
Actually, dredging up the details of political spending has nothing to do with protecting investors, though it might fall into the category of “things corporations do that some people do not like.”
Actually, it falls into the category of “things the Supreme Court explicitly predicated the Citizens United decision on.”
In the majority decision, Justice Kennedy Anthony M. Kennedy said that corporate political spending depends on the ability of shareholders to ensure that the speech reflects their views rather than diverting corporate assets for the benefit of executives. He suggested that any abuse could be corrected by shareholders “through the procedures of corporate democracy.” He said this would happen because all political spending will be thoroughly disclosed online: “With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters.”
Justice Kennedy correctly notes that the expenditure of corporate assets for political purposes can only be legitimated by transparency and a robust market response.
Senator Warren’s comments on Chair White were accurate, appropriate, and civil. Lowenstein’s criticism of Senator Warren was not.
The controversial “pay ratio” rule has finally been approved, requiring companies to disclose the ratio between the pay for the top executives and the median employee. Company executives have argued that this number is hard to calculate and misleading. Investor groups have responded that if the company knows how many employees it has and how much it is paying them, it is not a difficult calculation, and that investors are sophisticated enough to understand the significance of the disclosures.
The Securities and Exchange Commission issued its first guidelines for calculating pay ratios that compare executive compensation to that of the company’s median employee. Companies are required to report this information in their proxy, registration and information statements, as well as annual reports for the first fiscal year beginning January 1, 2017. The rule is mandated by the Dodd-Frank law and was adopted in August 2015.
Wells Fargo didn’t disclose anything publicly about its “cross-selling” abuses or looming settlement with regulators before the pact was announced Sept. 8—including in its second-quarter Securities and Exchange Commission filing weeks earlier, on Aug. 3. Three Democratic senators who grilled the bank’s chief executive last week now have asked the SEC to investigate whether Wells Fargo misled investors by failing to disclose the issue sooner.
While the bank’s management had known since 2013 that some employees had created deposit and credit-card accounts for customers without their knowledge, the accounts were a tiny portion of Wells Fargo’s business. The settlement, which included a $185 million fine, was less than 1% of last year’s earnings. The matter was “not a material event,” Chief Executive John Stumpf told a Senate panel last week.
That is true in terms of the bank’s income statement. Not so its reputation or share price. The bank and Mr. Stumpf have faced a political and public furor and the stock has lost nearly 10% since the settlement, or about $23 billion.