February 28, 2019
Today, the Senate Banking, Housing and Urban Affairs Committee held a hearing on legislative proposals related to capital formation and corporate governance, indicating that the committee will continue its bipartisan push towards corporate governance reform.. Up for discussion during the hearing were three bills reintroduced from the previous Congress, one of which was the Corporate Governance Fairness Act, the piece of legislation introduced by Senator Reed (D-RI) addressing the proxy process.
In his opening statement, Committee Chairman Mike Crapo (R-ID) commended the Securities Exchange Commission (SEC) for their proxy advisory roundtable last year and expressed optimism that the SEC would take further action: “it is my hope we can build off this previous momentum,” he said. In addition, Crapo addressed the need for bipartisan cooperation when it comes to corporate governance and capital formation.
“Last year, the committee held three hearings on legislative proposals relating to capital formation, corporate governance and the proxy process. We’re considering all of those bills again today, but in the context of identifying areas where we can find bipartisan consensus in the new Congress.”
Luckily for Chairman Crapo and Main Street investors everywhere, it looks like this bipartisan consensus is growing as more and more stakeholders realize the deep flaws existing in the current proxy advisory system.
Panelist and Executive Vice President at the U.S. Chamber Center of Capital Markets Competitiveness, Thomas Quaadman pointed out the lack of competition in the industry. When asked by Sen. Kennedy (R-LA) about two proxy advisory firms dominating the business, Quaadman expressed his disapproval and stated that it isn’t for a lack of other advisory firms trying:
“…I think there are others who have tried, such as PGI and ProxyMosaic, and there have been barriers of entry and therefore, as we’ve done in other areas, such as credit reporting agencies, if there aren’t going to be more that are going to be entering there—that field, then there should be a level of oversight to make sure there is a level playing field and proper rules for the road.”
Quaadman also stated listed some specific changes that could be made to the proxy advisory system to benefit shareholders, including: language that specifically regulates conflicts of interest, linking fiduciary duty to investors, and a process that gives companies and retail investors visibility into how proxy advisor recommendations are made. With SEC Chairman Jay Clayton having specified proxy advisor regulation as a top priority for 2019, the Main Street Investors Coalition thinks it likely that we will see major reform along these lines.