Congress is currently considering whether to incorporate into financial reform legislation a variety of corporate governance changes.  One such change under consideration involves directing the Securities and Exchange Commission to formulate rules allowing broader access to issuer proxies with the intention of permitting dissident shareholders to nominate alternative candidates for corporate boards.  ABC has already filed a comment letter to the SEC on this matter.  We also address the issue –and our skepticism about Congress enacting corporate governance “reforms” — in this letter to Senator Michael Crapo of the Senate Banking Committee.

Earlier this week,  at Brookings, House Majority Leader Steny Hoyer gave a notable speech on our looming national debt and the need to take bipartisan action on spending and taxes to address this growing problem.  The talk was notable for its lack of partisan rancor — always welcome — and, in particular, for Leader Hoyer’s willingness to tackle some politically charged issues such as middle class entitlements.  Along with the important work Republican Congressman Paul Ryan is doing on budget reform, Mr. Hoyer’s efforts are welcome and ought to be of particular interest to the business community — a community that has been notably silent in recent years on fiscal issues.  His Brookings talk can be found here.

The American Business Conference (ABC)  continues to press the need for policies to encourage individual shareholders to take a more active role in the governance of the corporations whose stock they own.  One way for that to happen is through the implementation of client directed voting (CDV).  This article, published in the Harvard Law School’s Forum on Corporate Governance and Financial Regulation and written by Frank Zarb, Jr., a Washington securities attorney, and ABC’s president, John Endean, makes the case for CDV yet again.

What should a company contemplating opening an office in Washington consider as part of its decision-making process?  It is a hot issue given the rapid expansion of the federal government into every aspect of business affairs.

Recently, ABC’s president, John Endean, gave a talk at Wharton about effective business representation in Washington.  A summary of his remarks were published in Directors and Boards and can be found here. 

Does Canadian labor policy have anything to teach the United States as Congress moves toward consideration of card check legislation?  In an article in Forbes.com, ABC president John Endean looks at the use of card check in Canada.  The Forbes.com piece can be accessed here.

An expanded version of this essay has been published by the Manhattan Institute.  That longer version is available here.

This useful editorial from USA Today summarizes the case for gerrymandering reform. 

The cliche is true:  politicians increasingly choose their voters rather than the other way around, via clever redistricting made possible by sophisticated demographic software.  This is why, if you look at an outline map of various Congressional districts, you will see so many that are oddly shaped because they have been drawn to capture voters from one party at the expense of voters in the other.  It is why, also, so few seats in the House of Representatives are truly competitive, a disgraceful situation that flies directly in the face of the intentions of the Founding Fathers.

Democrats and Republicans collude in gerrymandering, with both parties making sure they have their share of safe districts.  

Of course this is an old story:  after all, Elbridge Gerry, for whom the practice of dodgy districting was named, was a signer of the Constitution and James Madison’s vice president.  But that it is an old story does not make it any less egregious.

It may be too much to hope that real reform will attend the national redistricting that will follow the 2010 census.  But the matter deserves greater attention and public discussion, perhaps with an eye to enacting reform legislation with the goal of changing the redistricting process in 2020.  It would be worth the wait.

U.S. District Court Judge Jed Rakoff has rejected in the strongest possible terms  a proposed settlement between the Securities and Exchange Commission (SEC) and the Bank of America over BofA’s alleged failure to disclose $3.6 billion of bonuses paid to Merrill Lynch employees shortly before BofA acquired Merrill.  The settlement amounted to a $33 million fine to be paid by BofA.

Judge Rakoff’s decision to throw out the settlement agreement was based on an elementary sense of fairness.  In his view, shareholders, having been obliged to pay the Merrill bonuses, were now being asked to pay the fine as well.  Judge Rakoff quite properly interpreted the settlement as a evidence of a “cynical” relationship between the Commission and BofA management, whereby the Commission would claim a much-needed enforcement trophy, BofA would avoid further investigation, and the check would be picked up by the shareholders.

Judge Rakoff’s opinion points up the problem that few others in this age of good corporate governance tackle:  namely that the cost of many feel-good reforms is inevitably borne by the shareholders for whom so many corporate governance experts and regulators cry crocodile tears.

Perhaps we can begin now to think about corporate governance reform as something other than a free good and evaluate proposals in that light.  After that,  maybe we can advance to another related matter:  that people, not corporations, pay taxes and that efforts to stick it to corporations inevitably result in the costs being borne by individuals.

The Securities and Exchange Commission has proposed to change the federal proxy rules so as to require a public company under certain circumstances to include in its proxy materials a shareholder’s or group of shareholders’ nominees for director.  This “proxy access” rule has been a kind of holy grail for large institutional investors, particularly union pension funds, as well as, more quietly, for certain hedge funds.  It is virtually certain that the Commission will adopt some version of its proposal.

ABC opposes the SEC’s proxy access  proposal and our comment letter explaining our pespective can be found here.

The Golden State has been sending IOUs to vendors, contractors and others until politicians figure out a way to close its $26.3 billion budget gap.  So far, according to press reports, about $230 million of these warrants have been issued. 

Now comes State Assemblyman Joel Anderson – a Republican – who is sponsoring a bill to allow recipients of the warrants to use those warrants to pay their California income taxes.  Yesterday, the bill was unanimously approved by the Business and Professions Committee and now is heading for the appropriations committee. 

If this bill passes it will put California in the business of printing its own money.  Already, according to a U.S. House budget committee staffer I know, the warrants are trading at a discount on E-bay and Craig’s List (they carry a 3.75% coupon). 

If someone tells you that America isn’t going the way of Argentina, you might want to tell them about Joel Anderson’s excellent idea, one that, if it passes, might well be adopted by other cash-strapped states.

On July 1, the Commissioners of the Securities and Exchange Commission voted 3 – 2 to deny the use of the broker vote in uncontested director elections.  Readers interested in the American Business Conference’s views on this matter can access our comment letter here.

The change to the broker vote was proposed by the NY Stock Exchange (which has some explaining to do to its listed companies) and long supported by union pension funds and the Council for Institutional Investors, which, from a policy standpoint, is strongly influenced by those same pension funds.  Getting rid of the broker vote, an action that will suppress the vote of individual shareholders, who tend as a group to be pro-management, amounts to giving institutions, such as labor pension funds, more power.  Giving labor unions more power, despite their inability to gain members in the private sector themselves, seems to be a theme of public policy lately.

Narrowing the use of the broker vote is just step one.  The next step for the unions is the adoption of a rule permitting access to the proxy.  The American Business Conference will oppose this “reform,” but given that a majority of the Commissioners are already on record in support, it seems like a done deal. 

In summary:  if you run a private company, be glad that you do.