There's no question we need to reform our financial system -- America's competitiveness depends on it. But, what type of reform is best for our nation?
From our perspective as business leaders, it's critical that policymakers keep their eye on the problem as they move forward on this issue -- focusing on reform that can modernize our nation's regulatory structure, while addressing the root causes of the financial crisis. With the right reform, it's possible to both fix what went wrong and protect business' ability to hire more workers and grow the economy. The wrong reform, however, risks repeating the mistakes of the past by encouraging the pursuit of short-term gains over long-term growth -- the same flawed mindset that lead to this crisis in the first place.
Taking the time to implement meaningful, targeted reform is key to avoiding these types of unnecessary consequences. One provision in the reform bill that isn't currently getting a lot of media play, but promises to have a big impact on nearly every public company in the United States, is proxy access. This innocuous-sounding provision would give the SEC new authority to inject itself into the election process for the directors of public companies. While the provision sounds harmless enough -- perhaps even a bit boring -- its consequences for our nation's economy are potentially far-reaching.
Currently, directors are nominated by a company's board of directors based on the recommendations of a committee of independent directors. They do this with an eye toward meeting the company's long-term needs and fulfilling their fiduciary responsibilities to shareholders. This process also allows companies to operate with a focus on growth over the long run, which typically leads to smarter policies that generate more jobs and prosperity for all Americans. New proxy access rules, however, could lead to these professional elections being hijacked by special interest groups with no concern for the company's long-term goals. In fact, under these new provisions, it's likely that director elections would turn into highly politicized, tremendously disruptive and prohibitively expensive proxy contests, causing directors to focus on short-term stock prices rather than investments for the future.
The point of reform should be to collectively shift the corporate mindset to one of future-oriented policies and business models -- not to reinforce the bad habits of the past. Amendments offered by Sens. Tom Carper (D-Del.) and Bob Corker (R-TN) would remove the proxy access provision from the financial regulatory reform bill, and that's a positive step forward. After all, it's clear that we need reform, and we need it now, but rushing through legislation without carefully considering the long-term ramifications for our economy is not the way to go. Let's pass reform -- but let's not lose sight of what we're actually trying to achieve.
You can read more on my thoughts surrounding financial regulatory reform legislation on my blog: A Seat at the Roundtable.