The US Council of Institutional Investors (CII) has voiced its opposition to aspects of the Republicans’ Financial CHOICE Act which was formally introduced by the House of Representatives’ Financial Services Committee Chairman Jeb Hensarling this week.
Hensarling believes the Act is a replacement for what he terms the “failed” Dodd-Frank Act which was enacted in the wake of the 2008 financial crisis. However the CII believes his Act erodes gains achieved by shareholders under the Dodd-Frank legislation.
He said: “Our plan lifts bureaucratic red tape intended for big banks on Wall Street off of community banks and credit unions on Main Street. It expands access to capital for small businesses and innovative companies so that they can grow and create jobs. This will foster economic growth for all Americans, not just those at the top.
“The Financial CHOICE Act also brings greater accountability to both Wall Street and Washington. It imposes the toughest penalties in history for those who commit financial fraud, deception and insider trading, and it provides much-needed oversight and accountability to Washington bureaucrats’ regulatory overreach that imposes immense costs to job creation and the economy.”
However, in a letter to financial services committee the CII outlined a number of areas in which it opposed aspects of the Act and questioned how they would actually support long-term investment and the US. This was particularly the case, the CII believes, in provisions that restrict the role and rule-making powers of the Securities and Exchange Commission and those restricting the powers of shareholders.
Among the proposals that the CII said it opposed was Section 844 of the Act because it would restrict the rights of shareholders to put forward resolutions at company meetings. The CII stated that the federal rules allowing shareholder resolutions to be proposed, have led to improved corporate governance in the US in a number of areas. These include the requirement for a company board to be composed of a majority of independent directors, companies adopting by-laws allowing shareholders to nominate directors and the adoption of majority – rather than plurality – voting for directors.
The proposed Act would introduce a $2,000 ownership requirement for shareholders and would require any shareholder wishing to put a proposal on a public company ballot to own at least 1% of the company’s stock for a minimum of three years. The CII said this would be difficult to achieve even for its largest public pension fund members. The Act also increases the thresholds by which shareholders can file resolutions again at subsequent company meetings.
The CII is also against Section 843 of the Act because it would reduce the required frequency of shareholder advisory votes on executive compensation, commonly called say-on-pay votes. The CII’s membership-approved corporate governance policies state that all companies should provide annual say on pay votes and this is supported by the D0dd-Frank rules.
Another provision opposed by the CII is Section 482 of the Act because it said it would establish an additional federal regulatory structure for proxy advisory firms that institutional investors, the primary customer of those firm’s research services, do not want or need. The Act would give companies the right to see adviser reports and recommendations before investors see them.
This would mean, the CII suggested, that companies which might be criticised would delay their annual company reporting making informed voting difficult. As the CII said time is already tight in the spring peak reporting season. The added burdens, the CII said, would drive up costs for proxy services which would hit institutional investors and restrict competition in what is already a highly concentrated proxy adviser market.
Despite this opposition the House Finance Committee believes that with the Republicans dominating Congress and President Trump in the White House it has a chance to getting many of its proposals passed into law.
Last Updated: 3 May 2017