CEOs from far and wide band against financial bill provision
Friday, May 14, 2010
Businesses far from Wall Street have intensified their efforts to kill a largely overshadowed provision of the Senate's financial regulation bill giving shareholders more ammunition to shake up corporate boards.
A rush of chief executives from a wide swath of industries has been coming through Washington over the past three weeks, talking to lawmakers about a long-debated issue called "proxy access," which would make it easier for shareholders at all publicly traded companies -- not just banks -- to nominate board directors. Opponents say the rule has nothing to do with overhauling Wall Street and doesn't belong in the legislation.
"This is our highest priority," said John Castellani, president of the Business Roundtable, which represents 170 chief executives. "Literally all of our members have called about this."
Last week alone, Castellani said, 40 chief executives were in town visiting Capitol Hill about proxy access. Concern cuts across industry lines. Steve Odland of Office Depot, Ivan Seidenberg of Verizon and Jim McNerney of Boeing have all been in Washington arguing against the provision.
So has Ursula Burns of Xerox, who is the vice chairman of President Obama's Export Council and a longtime supporter of his. Obama supports proxy access in the overhaul of financial regulation.
Advocates for shareholders' rights, including unions and institutional investors, say the crisis on Wall Street had everything to do with corporate boards failing to do their jobs.
"This hinges on senators recognizing the fact that boards in too many companies like Citigroup or AIG really failed in their responsibilities here," said Daniel Pedrotty, director of the AFL-CIO Office of Investment.
With proxy access, shareholders would be able to send a strong message to management if they weren't happy with a company's strategy, for instance, in managing risk or charting growth. On the other side, public companies fear that proxy access will mainly invite activist investors and hedge funds to infiltrate boards and topple existing management -- whether out of displeasure with how a company is run or to pave the way for a hostile takeover.
The end result, corporate executives warn, is that board directors will feel constant pressure to juice up their company's stock price and put short-term considerations ahead of the firm's long-term health.
"This is absolutely a critical issue for the business community," said Alexander Cutler, chief executive of Eaton, a $15 billion power management company based in Cleveland. "You can term it the holy grail of corporate governance."
The debate over proxy access stretches back nearly a decade. Under current law, if shareholders want to nominate their own board directors, they must pay for publicizing candidates and mailing ballots, which can cost millions of dollars. Critics say this discourages shareholders from making the effort. Proxy access would force companies to foot the bill for outside nominees.
The Securities and Exchange Commission is already considering a proxy access rule, but it's unclear whether the agency has the legal authority to implement it. The bill's provision, whose chief proponent has been Sen. Charles E. Schumer (D-N.Y.), would bolster and clarify the SEC's power.