By Mark S. Nelson, J.D.
The Council of Institutional Investors and 53 public pension funds, investors, and advisers sent a letter to Speaker Paul Ryan (R-Wis) urging him to hear the CII’s concerns about shareholder and executive pay provisions tucked into the GOP-led Financial CHOICE Act of 2017. CII said these provisions could erode safeguards that protect investors and help to hold public companies responsible for their actions. The letter’s signatories include the California Public Employees’ Retirement System, the California State Teachers’ Retirement System, the New York City Comptroller, and the New York State Comptroller.
CHOICE Act shareholder concerns. The CII objects to the CHOICE Act’s (H.R. 10) multiple shareholder provisions, some of which did not make the cut in the first version of the bill introduced in the last Congress. Section 844 of the revised CHOICE Act would significantly alter the shareholder proposal requirements by changing the eligibility threshold to eliminate the dollar amount option (currently $2,000 or 1 percent for one year) and by increasing the holding period from one to three years. CII noted that by retaining only the 1 percent ownership threshold, a shareholder would need to hold billions of dollars of stock to be eligible to submit a proposal at some high market capitalization companies.
The CHOICE Act also would increase the tiered resubmission thresholds for shareholder proposals, currently set at 3, 6, and 10 percent, to 6, 15, and 30 percent. Shareholder proposals also could not be submitted by proxies on behalf of a shareholder. Moreover, the revised bill would bar the Commission from requiring a single ballot. The Commission issued its proposal for a universal proxy last year (See CII’s comment letter supporting the proposal and earlier petition for rulemaking/guidance).
Proxy advisers. In addition to eased executive compensation requirements and SEC rulemaking curbs, the CII objected to inclusion of a proxy adviser registration requirement. Sections 481-483 of the CHOICE Act include the bulk of a bill introduced last Congress by Rep. Sean Duffy (R-Wis) (H.R. 5311) that, as drafted, would grant regulators new authorities over proxy advisers’ management of conflicts of interest and draft recommendations. The SEC also would be required to issue rules barring unfair or coercive practices by proxy advisers. CII worries that the provision could deprive shareholders of independent research and may even force some advisory firms to close.
Democrats’ opposition. The House Financial Services Committee reported out the CHOICE Act on a party-line vote after a three-day mark-up session. Democrats opposed to the bill held their own Minority Day hearing before the mark-up in protest of the one-day hearing held by the full House FSC. Democrats have since renewed their call for further consideration of the bill by all the House committees with jurisdiction over parts of it before the full House votes on the bill (the bill was referred to eight committees other than the FSC). Dodd-Frank Act corrections legislation will face much tougher opposition in the Senate, where Democrats have a stronger minority position.