Representatives Debate State of Activism at Corporate Governance Roundtable while House Passes Fannie/Freddie Executive Pay Cap

November 20, 2015

Rep. Scott Garrett (R-NJ), Chair of the House Financial Services Subcommittee on Capital Markets, hosted a roundtable discussion this week on the current state of corporate governance and shareholder activism as well as a subsequent discussion on the disclosure regime governing the U.S. proxy system.  The two-part debate brought to the forefront concerns over shareholder activism, short-term thinking, and a general decline of the number of public companies, and signifies that the House Financial Services Committee considers governance to be of the utmost importance to the economy.

  • The Current State of Corporate Governance and Investor Activism in the United States:  The discussion featured former Republican SEC Commissioners Troy Paredes and Dan Gallagher as well as representatives from Blackrock, CalSTRS, NASDAQ, and Trian and focused on the impact of investor activism and whether there are any problems with the current system.  Among the takeaways was an overall desire to see an increase in the number of U.S. listed public companies and concerns that with growing federal mandates, company boards are becoming overly focused on compliance rather than on company strategy and growth.  With regard to activism, the participants generally agreed that some activism was beneficial because it gave certain management groups at companies a needed shake-up.  However, the group also shared concerns that some activism led to short-term thinking to the detriment of the company and its shareholders.

  • Examining the U.S. Proxy Plumbing System:  Is It Working for Everyone?:  The second portion of the roundtable featured Gary Retelny, President of ISS, Amy Borrus of CII, and Jim Copland of the Manhattan Institute among others and focused on how the proxy system worked and whether the proxy advisory firm guidance of June 2014 has been effective.  There was significant concern that proxy advisory firms continued to control critical percentages of shareholder votes without providing sufficient transparency.  Additionally, there was considerable discussion about the recently released DOL guidance on ESG investing which arguably makes environment, social, and governance investments a higher priority than maximizing shareholder returns.
Meanwhile, the House adopted by voice vote a bill which will cap the executive compensation of the CEOs of Fannie Mae and Freddie Mac at $600K in light of a push by the Federal Housing Finance Administration to increase pay to $4 million and align it with private sector arrangements.  The same measure was previously adopted unanimously by the Senate, sending the measure to the President's desk where it will be signed into law.