October 22, 2009
Dear Mr. Feinberg,
I understand you are preparing to announce new compensation restrictions for the seven remaining firms that have received extensive federal aid but have not yet repaid the money, and I am writing to urge you to require that those same companies significantly revamp their corporate governance across the board.
While reigning in compensation practices at these firms is certainly necessary to ensure that taxpayer money is well spent and not squandered on lavish pay, executive compensation is just the tip of the iceberg when it comes to the practices that so recently put our entire financial system at risk. When it comes to effective risk management, the buck must stop with the board of directors.
When directors fail their shareholders – to whom they owe fiduciary duties of care and loyalty – they must be held to account. Unfortunately, for all too many companies the shareholders have little or no real voice in the nomination and election of their directors. As a result boards are too cozy with management and, not surprisingly, often fail to ask the hard questions that might expose practices that put the company at risk.
These companies are the poster children for the total breakdown in corporate governance and lack of effective board oversight that contributed to the recent crisis, and I believe these reforms are critical if the government is serious about turning these companies around, returning them to private sector ownership and ensuring they participate in the markets as responsible corporate citizens.
Accordingly, I respectfully urge you to consider requiring these companies, who received but have not yet repaid massive amounts of federal assistance, to implement a strong set of corporate governance reforms. I believe that the Shareholder Bill of Rights that I introduced in May with Senator Maria Cantwell provides a comprehensive menu of such reforms. In addition to a “say-on-pay” provision, which is already required for companies who received TARP funds, the bill includes five provisions:
It requires companies to allow shareholders access to the company’s proxy form, in accordance with rules to be proposed by the Securities and Exchange Commission, if they want to nominate their own slate of directors to the board, eliminating the onerous burden currently faced by shareholders who have to wage expensive proxy contests to propose directors other than those nominated by management;
It requires board directors to receive at least 50% of the vote in uncontested elections in order remain on the board;
It requires all board directors to face re-election annually;
It requires companies to split the jobs of CEO and Chairman of the Board, and requires the Chairman to be an independent director; and
It requires that public companies create a separate risk committee comprised of independent directors.
I greatly appreciate your consideration of the proposals outlined above.
Charles E. Schumer
United States Senator
Schumer pens letter supporting exec pay cuts, more reforms
October 22, 2009