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Public Statements

Restoring American Finacial Stability Act of 2010

Floor Speech

Location: Washington, DC


Mr. GREGG. Mr. President, I rise to speak about another part of the bill. I congratulate the chairman for the work he and Senator Shelby did on reaching this resolution on too big to fail. It is an important step forward on a critical part of the legislation. I think it shows that there are a lot of places where we can reach a bipartisan consensus in this bill.

It is my sense that the great and very positive work done on resolution authority will--I would hope it will carry over to things such as the derivatives issue, which needs to be worked on, and issues such as underwriting standards and how the regulatory structure is created and how the chairs are moved around in that area. I think all of these issues are fertile ground for reaching consensus. I know the Senator from Connecticut has been constructive in his efforts to reach across the aisle.

This bill can be a very strong and positive piece of legislation. I hope it ends that way. I think this is a strong and good step in that direction, with the announcement by the chairman on the agreement of resolution authority.

I want to speak about a part of the bill that has been ignored because there have been so many big issues. That is what happens when you bring a bill this large to the floor. It is 1,400 pages, and it has a lot of language in it. It had to be a large bill because it deals with a complex issue. Included in the bill is language that was sort of baggage thrown on the train--that is the way I describe it--in the area of corporate governance. To a large degree, by its own definition, it has virtually nothing to do with financial regulatory reform. This language does a series of things: It primarily federalizes corporate law relative to the manner in which stockholders and directors and executives of corporations are treated.

It is not limited to financial institutions but to any publicly traded company. It guarantees what is known as proxy assets under Federal law. That is a right traditionally set up by States. It sets up standards for how directors are elected under Federal law for all companies. That is a right that has usually been reserved to the States. It even puts in place a requirement that corporations disclose certain information that has absolutely no relevance at all to financial reform because it deals with every company in America that is publicly held, such as the ratio of compensation between different workers within a company and the manner in which boards of directors are elected, whether it is all at once or under staggered terms.

It is a major push by the Federal Government into an arena that has always, historically, been primarily the role of States. It steps all over States rights, in my opinion--the right of shareholders to have companies they are comfortable with and are being well managed for the purpose of returning a reasonable return to the shareholders. It will undermine shareholders' rights, in my opinion, not increase them.

If we look at the proposal specifically, let's take proxy assets. This is a term of art that essentially says that any group of shareholders will be able to put on a proxy statement a proposal for how the company should be run. If someone wants to balkanize a company, there is probably no quicker way to do it than to have unilateral proxy assets for any issue that is of concern or interest to some group that buys shares. This type of language is essentially put in to promote special interest activity. We all hear about how terrible special interests are. This language is special interest language for the purpose of promoting special interest groups--starting with the trial lawyers, of course, but followed up by various people who have a social justice purpose relative to some corporation.

Let's take a group or a company such as McDonald's. Say a group believes they are selling too much food that creates the opportunity for people to eat too much and causes obesity.

You could have a special interest group that was concerned about that buy stock and force a proxy statement on what type of food McDonald's should sell. It does not stop there. Of course, there are all sorts of issues about which special interest groups want to promote and change corporate governance.

How you manage a corporation is supposed to be primarily in the hands of the boards of directors who are answerable to the stockholders. The purpose, of course, is to increase the value of the stockholders as a whole and their return on their investment. In most instances, that is the primary purpose of a corporation. But this Federal access, this proxy access is all about the opposite. It is about pushing agendas onto the management of corporations, through the boards of directors, through the proxy process that is very special-interest oriented and very narrow in its purpose and is not necessarily directed at return on the investment for the stockholders. It has just the opposite effect.

Short-term objectives become the standard of the day under this type of approach rather than a long-term view, which is what most of our boards of directors are supposed to take relative to these decisions. The cause of the day, the cause du jour, could be any number of things. If it happens to be the activist view of the day, it becomes the issue under corporate governance versus the purpose of managing the corporation well over the long term in order to get adequate return to the shareholders.

It is an inappropriate idea, especially inappropriate for the Federal Government to bury it in this bill. This language applies to every publicly traded corporation in America, not just the financial institutions. Why is it buried in this bill? It should not be in there.

The same can be said of the way this bill, this language approaches directors and what the shareholders' rights are relative to directors. These have historically been State decisions. In fact, the State of Delaware, which is obviously the leading State on the issue of corporate governance and has developed a uniform corporate governance structure which a lot of States have adopted, including my State of New Hampshire, which basically tracks Delaware to a large degree--that has been the law of the land for all intents and purposes, settled law, predictable law, the purpose of which is to have fair and adequate corporate governance, where the directors are responsible to the shareholders under a structure that everybody knows the rules and which is controlled by the States.

Yet this bill comes in and does fundamental harm to that. For what purpose? Because there is an agenda in this Congress to usurp States rights to be able to manage corporate law and to put in place of it opinions and ideas which are only supported by a very narrow group of special interests that basically have gotten the ear of people in this Congress. That is the ultimate special interest legislation.

The implications for these companies is, it is going to be darn expensive, if you are a small- or middle-sized company, to deal with this type of Federal interference with the management of the company and the proxy process. It is a very inappropriate initiative.

Furthermore, this creates an atmosphere where nobody is going to know who is governing what because you are going to now have State law and you are going to have Federal law and you are going to have the SEC whose responsibility will increase dramatically. We already know the SEC is strained to do what we have asked them to do. They have some big responsibilities. They have big responsibilities in the financial reform area. They have big responsibilities in corporate governance, generally. To push this further burden on them is going to be very difficult for them to meet. I happen to be a very strong supporter of having a robust SEC, but we should not burden them unnecessarily with a whole new set of corporate governance rules, which are already adequately and appropriately addressed by State law, primarily Delaware State law but other States which have their own corporate rules.

More important, we should not undermine the rights of stockholders across this country to be able to get a reasonable return on their investments by being reasonably assured that their management--specifically, the directors of the company--are working for the purposes of the company's financial return and strength versus for the purpose of some special interest group that comes in and wants to put special interest legislation in the middle of the corporate governance effort, which is exactly for which this language is proposed. That is why it is here.

The reason this language is put forward is because there are a lot of self-proclaimed social justice groups in this country that decided they want better access to corporate boards and have this Federal proxy access which will basically balkanize, as I said earlier, the process of governing and leading these businesses in which most Americans are invested.

The vast majority of Americans in this country either have a pension fund, IRAs, 401(k)s or are personally invested in the stock market. Why do they invest? They invest to get a reasonable return on that investment, either in the way of appreciation or in the way of dividends or maybe a combination. That is what they do. Most of the savings--a lot of the savings in this country are tied up in that.

Why would this language appear which will basically undermine those stockholders' rights and ability to presume and expect that their directors are going to be managing for the purposes of the stockholders-at-large versus for a single interest group within the stockholder group that happens to want to put a social justice agenda into the management of that corporation? It makes no sense at all, unless you happen to be a special interest group.

We rail around here all the time. I hear, ironically, from a lot of groups that are sponsoring this language, such as Public Citizen, that they are against special interests. Yet here we have the most significant piece of special interest legislation in this whole bill, an attempt to bootstrap special interest groups' social agenda and force them on corporations and stockholders who would otherwise not pursue their agendas because they are interested in getting a return on their investment. It is going to, as I mentioned earlier, make it much more difficult for us to have a vibrant stock market and a corporate structure in this country which is rational, and it certainly will undermine significantly States rights in the area of corporate governance, which historically had primary responsibility for setting up the rules by which our corporations operate.

I hope that as this bill moves down the road, this type of language, which is extraneous--totally extraneous--to the financial reform effort because it affects all public corporations and, ironically, the three financial corporations which are at the core of the problem we had in 2008 relative to visibility--AIG, Lehman, and I believe one other, maybe Citibank--had a couple of these rules in place anyway. Obviously, they had nothing to do with reducing the implications of the event. Rather, this language is simply put in because some group got somebody's ear. I hope it will be taken out before we get to the end of the day.

I yield the floor.


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