Bipartisan Policy Center Event on Corporate Governance
Bipartisan Policy Center
“Corporate Governance’s Increasing Role in Public Policy: Opportunities and Limitations”
Thursday, February 7, 2019
Panel I Discussion
During the first panel, Tim Doyle, Vice President of Policy and General Counsel at American Council for Capital Formation (ACCF), discussed the recent roundtable the Securities and Exchange Commission (SEC) held on proxy advisors and the proxy process. Elisse Walter, former Chair of the SEC, noted that it is hard to judge the significance of the roundtable but that she got the sense that the Commission will move toward action in this space. Troy Paredes, former SEC Commissioner, agreed that there seems to be interest in some sort of action, though it is unclear what it will be or when it will happen.
Walter stated that proxy advisors have been the most controversial and difficult issue to solve, though noted that many fixes could be made that are not difficult. She continued that there will probably be action on some of the technical issues, such as confirmation of votes and reconciliation, adding that accuracy “need[s] some attention.” Paredes explained that one focus point is the integrity of shareholder votes, adding that a common takeaway from the roundtable was that it is “hard to argue that recommendations should not be based on accurate information.”
When asked if there are ways to ensure investors are aware of disputes over information, Walter stated that “technology is the way to fix a lot of these issues,” and that it will also save time and money. She continued that an internet-based solution is probably the best way to go about this. Paredes replied that technology advances daily at a rapid pace so the SEC will have to consider how to further integrate technology. Regarding cost-benefit analysis, he noted that while an out of pocket cost may not be significant, it does not mean that there is not a large amount of time, effort or attention required, adding that this should also be considered in any analysis.
Regarding the shareholder proposal process, Walter noted that there is room for improvement and that while it is a “very difficult process for everyone involved,” she expressed doubt that the SEC will ever get out of the business. Paredes added that another challenge is the intersection between securities regulation and corporate law.
Walter then spoke about the Sustainability Accounting Standards Board (SASB) and their interest in traditional disclosure, explaining that SASB researches issues and comes up with a set that seem important for particular industries. She noted that for each of the issues, if they are considered material, they should be disclosed. Paredes added that he commends industry efforts to create disclosure standards and that it is right for the private and non-government sector to figure out a sensible approach rather than having the SEC mandate something.
Featured Speaker: Barbara Novick, Vice Chairman, BlackRock
Novick discussed the public policy initiative BlackRock started after the financial crisis, complete with both public policy and stewardship websites with resources. Regarding stewardship, she discussed the widespread adoption of environmental, social and governance (ESG) factors and how they influence companies, but noted that it has a “Goldilocks problem” – some say they are doing too much while others say they are not doing enough. She added that BlackRock is not looking to impose any social values on companies, but rather just look at material issues. She stated that the Task Force on Climate-related Financial Disclosures (TCFD) has a good framework and approach to types of disclosure, while SASB has an industry-specific and material approach, adding that “if you could marry the two concepts and get broad buy-in, maybe you can get rid of the others.”
She discussed comments BlackRock sent to the SEC on proxy advisors, noting that they were based on principles to guide future rulemaking on proxy process matters, including: 1) Transparency encourages market integrity and reduces conflicts; 2) Accurate information is critical to decision making; 3) A need to balance the rights of all shareholders; 4) Cost-benefit analysis should underpin recommendations and rulemaking; and 5) Voting integrity is paramount to investor confidence. She added that these are low-tech, low-cost solutions and that she is hopeful the SEC “can do this.”
Panel II Discussion
The second panel consisted of a conversation about the state of corporate governance. Ken Bertsch, Executive Director, Council of Institutional Investors (CII) noted that there are more engaged Boards of Directors and better disclosure, and that while the current state is “largely pretty good,” there is more work to do. Tom Quaadman, Executive Vice President, U.S. Chamber Center for Capital Markets Competitiveness, echoed Bertsch’s comments, but stressed that the state of public companies “isn’t good,” explaining that the number of initial public offerings (IPOs) is not what it used to be. Darla Stuckey, President and CEO, Society for Corporate Governance, stated that the current state has “never been more relevant or rapidly evolving,” adding that Boards are committed to ensuring interests are in line with their shareholders. Brandon Rees, Deputy Director of Corporations and Capital Markets, American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), asserted that the argument that companies are not going public because “shareholders are asserting their rights is a travesty” and that the argument “doesn’t carry any water,” but that the state of corporate governance is good.
Stuckey discussed the SEC’s roundtable from the fall (as she was a participant on one panel), stating that she suspects there will be movement and vote confirmation from the SEC and that guidance and leadership is needed from the Commission to get “everyone to come together and work it out.” She voiced her support for the idea of a portal and that shareholder proposal resubmission thresholds “absolutely should be changed.” Rees argued that shareholder and ownership proposals are a “solution in search of a problem,” voicing his opposition to changing shareholder resubmission rules.
Regarding ESG disclosures, Quaadman explained that 85 percent of S&P 500 companies create a sustainability report for different audiences, and that while he supports companies completing these reports, the SEC should not mandate them. Rees noted that voluntary disclosure came from investor demand and that standards are needed to facilitate comparability, adding that investors asked the SEC for this.
The panel then discussed Board diversity; Quaadman stated that he worked with Congresswoman Carolyn Maloney (D-N.Y.) on a bill she introduced a few years ago that works on a transparency and disclosure approach rather than a quota system, as well as creating an advisory group at the SEC. He continued that yesterday Congressman Gregory Meeks (D-N.Y.) introduced H.R. 1018, the Improving Corporate Governance Through Diversity Act of 2019 focused on gender and racial diversity on Boards, nominees and senior executive officers. Stuckey stated that while “everyone wants diversity and supports it,” the problem of diversity on Boards is the same problem seen in society, but that “investor pressure has been wonderful and is what gets Boards to do what they should do.” Bertsch noted that Boards have longer tenure in the U.S. than other countries, adding to the diversity problem, and that while there has been a “ramp up” of women on Boards, there has been little progress from a racial perspective. Rees stressed the fact that pools of candidates must be adequately diverse, adding that the shareholder proposal process is “leading the way” in this space.
When asked about legislation introduced last year to regulate proxy advisors as investment managers, Quaadman replied that SEC Chairman Jay Clayton laid out a blueprint for steps forward regarding regulating proxy advisory firms, noting that transparency and process is important. Bertsch noted Staff Legal Bulletin (SLB) No. 20 from 2014 was a “good attempt” and that his company supported it, adding it was good guidance for investment managers.
As for areas of unity for corporate governance, Quaadman stated that everyone believes a lot needs to happen with Board diversity and added that Blockchain may solve proxy plumbing issues. The other panelists echoed that there is agreement around fixing proxy plumbing issues.
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