Investor Protection Act: Dems Square Off Against Republicans On Shareholders' Rights

Democrats and Republicans faced off Wednesday in a congressional debate over whether shareholders should have an easier time nominating directors to corporate boards. Republicans sided with the people who run the companies; Democrats with the people who own them.

The debate is over "proxy access" -- in short, a proposal that would allow large shareholders to use a company's process to nominate directors to the board, rather than the current method which calls for shareholders to mount these campaigns on their own, at their own
expense. The cost, many argue, is prohibitively high.

An amendment to the Investor Protection Act of 2009 introduced by Rep. Maxine Waters (D-Calif.) and supported during the debate by House Financial Services Committee Chairman Barney Frank (D-Mass.) would affirm federal regulators' ability to adopt rules strengthening
shareholders' ability to nominate directors.

Republican Reps. Michael Castle (Del.), John Campbell (Calif.) and Spencer Bachus (Ala.) opposed the measure.

The Securities and Exchange Commission proposed changing the current rules in June to "remove impediments to the exercise of shareholders' rights." The agency received more than 500 comments. The final rule has not been released.

Advocates, which include large institutional investors like pension funds, hedge funds and unions, support the proposal because it would make it easier for them to nominate directors opposed to management, thus giving shareholders a greater say in how a public company is run. Supporters include the AFL-CIO, Sen. Carl Levin (D-Mich.), the California Public Employees' Retirement System (the country's largest state public pension system with about $190 billion under management), and a bipartisan group of eighty law and economics professors from the country's top universities.

Large corporations -- and the high-powered law firms they use -- oppose the measure, arguing that, among other things, the proposal exceeds the SEC's authority, would be too costly for companies, would impair boards' functioning, and that there's no compelling need to change the system. Critics include the U.S. Chamber of Commerce, the American Bankers Association, Intel, Microsoft, Pfizer, and Verizon.

The Waters amendment, if enacted into law, would give the SEC cover if it adopts the pro-shareholder rules and is faced with what many expect to be a flurry of lawsuits.

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Historically, the power to regulate such matters -- like shareholders' voting rights -- lay with the states. Opponents of the measure say the SEC is trampling on states' rights.

The sudden advocacy of states' rights by the same players who recently argued against the rights of states to exceed federal banking restrictions struck Frank as amusing.

After Castle voiced his "very strong opposition" to the Waters amendment, Frank said the following:

"First, I appreciate what the gentleman had to say in terms of deferring to states...Where was he when we were talking about preemption with banks and consumer protection?"

Frank suggested that Castle's thinking apparently went something like this: "When it comes to consumers, that's gotta be preempted. But when it comes to protecting companies and boards of directors, we have to defer."

A final roll call vote on the measure is expected next week.

Comments

[iwasblindtoletyougo]

REAL unemployment is DOUBLE the 'official' statistics. Government has been playing major games with all stats for a while now - both parties are to blame.

good articles to http://financeopinionss.blogspot.com

Also Barney Frank sucks.

[DosGatos2]

Today's senior managers are running corporations NOT in the best interests of shareholders who own the company, and NOT in the best interests of employees whose productivity creates the corporation's profits.

If institutional investors, unions, etc. could get directors appointed, it would be a great first step in dealing with out-of-control executive pay. Imagine what would happen if, instead of paying some CEO $25 million dollars as a bonus (more than he can spend in a lifetime even if he takes a fourth or fifth trophy wife), a corporation used that money to fund R&D, hired more workers, etc. There would be more jobs and likely more profits going to shareholders. Without controls, no one wins except senior managers.

There is no adult supervision in corporations anymore, just greedy people in the C-suite who are skimming as much profitability as they can off the books and in to their own pockets.

Repubs siding with management and not with shareholders or employees? Surprise, surprise!

[blueken]

It's a matter of trust. I have a moderate retirement portfolio. I don't know what to do with my investments. I don't know who to trust. My adviser tells me this company has been in business since the 1800's. How long was Lieman Brothers in business? Real estate backed bonds used to be good, wham down the drain. Look at how many banks have been destroyed by mis-management. What's a guy to do? It's gotten to the point where I don't really look to get a return on investment, I just don't want my investments to vanish! How long can this country go on like that? If capital investment dries up in this economy, these "captains of the universe" will have no one to blame but themselves. It seems like CEO's no longer focus on makeing a company successfull, but only how to stack the deck in their favor.

[Loveforlife]

Why is this guy still a congressman? He's not looking out for us. He know's, i know it. Hello?

[Energizer2009]

See: http://twisri.blogspot.com/2007/10/response-to-sec-shareholder-proposals.html

[GoldsteinD]

this is rich stuff coming from Bahney Fwank since he was instrumental in nullifying creditor's claims against bailed out companies

[learneddemocrat]

"Advocates, which include large institutional investors like pension funds, hedge funds and unions, support the proposal because it would make it easier for them to nominate directors opposed to management, thus giving shareholders a greater say in how a public company is run"........and of course giving the government say in how a public company is run. Which is really what this is all about, isn't it??? It is no longer about what you and me, the people who buy/own stock in these companies want. It is about what the unions want, what the 'big money' wants. What the politic financial backers want. And yep, what the government wants. And we all know that is control, control, control.

[Indon]

Actually, you're wrong.

The only corporations this would be 'giving the government say' would be those already owned by the government (like the bailed-out ones), who can and have already replaced staff with impunity and thus don't need anything like this. The government can look after its' holdings just fine.

This targets primarily groups which own stocks through proxy - those advocates - allowing such groups to keep a business afloat so the company doesn't crash and burn, and also affects any group of investors who decide to get together to try to change a company's direction.

It doesn't empower small shareholders - because, well, that's how capitalism works, if you don't own a lot you have little meaningful power - but it does better empower medium-sized shareholders and _groups_ of small shareholders.

"You and me" probably don't own any stocks, even through proxy, so this won't affect us.

[Jannsmoor]

I don't understand how you could so completely miss the point. Currently, CEO's pick their buddies for directors. The directors then vote unconscionable compensation for their CEO.

This is designed to allow the shareholders a say in who those directors will be. Where did you get the idea the government is going to be picking the directors?

[pbarba1969]

Great article!!! Its shows the lengths the Republicans will go to protect the big companies at the expense of the shareholders who own the company...

[learneddemocrat]

And don't forget to mention the great lengths the progressive democrats will go to control every aspect of every corporation. This IS trampling on the states' rights. Hasn't this admin. done enough of that?

[lizr]

we cant trample on the "rights"of corporations enough.

When corporations got the right to personhood, the rights of a natural born human being, that was the beginning of the hurricane of greed that has swallowed up our society.

[RTIII]

Oh Malarkey.

This is about helping the owners of a company control what they own. The executive class has snookered owners for a long time now and this will help shift the balance the other way.
.

[Hysterian68]

It isn't enough to fear the TOXIC ASSETS on the banks' balance sheets. Now we must fear TOXIC BANKS.

Nationalize these mastadons, seize their assets, and jail time for their senior executives.

The time has come for banks to try something new: CAPITALISM.

[mummblemouth]

Break them apart and sell them back. Institute rules that prevent them from becoming behemoths.

[nextuser]

same old same old. stock market surging. more job loss. no heath care reform. no extension of unemployment benefits. more same cr4p.

good articles; http://financeopinionss.blogspot.com

no point in voting

[Jannsmoor]

I disagree, the problem is not enough people are paying attention and voting.

[Ivar]

Jannsmoor: Read the fine print. On most proxys, your "vote" is a "recommendation", not a "vote".

[Caliwoman]

I thought the right wanted an ownership society?

[Indon]

I think this is a fascinating political conflict. For once, on an issue, you get to see political ideology shine through rather than campaign funding. And here we see the distinction between liberalism and conservatism.

Liberals want greater democracy and less centralization, even in business, and want to use the government to ensure it.

Conservatives want to sustain high centralization in business, even if it's exploitative, and want to keep the government from changing it.

So there you go. Political beliefs shorn naked for the world to see.

[niblik]

Ugh, kinda further highlights why I prefer to be Liberal.

[Alterion]

I have an idea ( for PUBLIC companies only ) - why not give the Employees a vote?

I know it sounds radical, but let the people who put their 'sweat equity' into a company get something out of it. Whats to prevent an exec from buying up shares ( or awarding themself shares as a bonus ) and dominating the majority vote anyway? Heck, that happens now.

[CalousteGulbenkian]

Not opposing you but just to note:
Employees are paid for their sweat equity. They too, could use their money and "buy up the shares" and thereby "vote" on the company. And most also enjoy an ESPP discount.

What you have just suggested is the definition of communism. Which has been tried and utterly failed.

The truth is that in America already most companies' shareholders are "employees" or ex-employees of other companies thru their pension plans and the 401K plans.

The problem is that most these shareholders are like absentee landlords. How many people even know what goes on in the companies their 401K is invested in. This is what has led to a quasi-capitalism where money managers and company managers get away with murder

[Alterion]

I don't think what I suggested is communism, I'm not suggesting the company be evenly distributed in ownership or profit. To scale back my point a little, I just think Employees should have SOME say in how a company is run, if employees could do a vote of no confidence in a CEO, I think the way a company was run would vastly improve.

Also forget the term 'sweat equity'. I just think a lot of investors buy a stock because all they care about is making money in the short term. People who have worked at a company for years have a better idea how that company should be run, rather than an investor who just throws lots of money into a business and says, 'make me a profit NOW.'. Frankly, employees also more emotionally invested in seeing the company do well, and career invested ( if they work at a company for years, they want it to be there when someone calls for a reference. )

I've been an investor too, and I admit I've felt this way. A companys stock dragging for a long time had me occasionally thinking, "I dont care WHAT they do, just make me some dang money!".

But hey, its never been tried. What we got doesn't work, might be time for some radical ideas.

[RTIII]

You are quite misguided. First off "most" companies don't even have an ESPP program. Secondly, you need a refresher course in civics as your understanding of what communism is is horribly flawed. Thirdly, communism has never actually been tried - the best you can say is that for a few minutes, China thought about it seriously. Fourthly, only a small fraction of employees own 401Ks and you have a lot to learn about how investment funds work - this type of ownership was discussed in the article and you somehow completely missed it.
.

[Siebenstein]

Vote Third Party in 2012

[RTIII]

Vote out ALL "blue dogs" and "Republican Lites" in the PRIMARIES in 2010.
.

[BlueDog1]

This decision should be approved is nothing more than Mr. Carl Ichan has recommended for over 20 years.

You have in breeding with blue bloods running the corp and they need to be held resposible for there decisions and your money. (new concept)

Ichan has been asking for this for over 20 years and has busted and bought boards so as to have vote. It ain't the unions....­..........­..........­.....

[Alterion]

This is better than what we have now, but it gives too much power to those with money. An ultra rich person can just buy up 51% of the shares and replace the board with his cronies.

Maybe an upper limit on voting shares would correct this.