Congress shouldn’t silence American workers at the behest of corporate interests
© Greg Nash

Through concerted pressure on lawmakers, corporations and their lobbyists are seeking to deny important shareholder rights for tens of millions of American workers who are invested in public companies through their 401(k)s, pensions, college savings plans, and individual retirement accounts. As the true owners of these companies, American workers, and the investment firms that manage their savings plans, have a voice when it comes to corporate governance matters such as CEO pay and the makeup of boards. Sadly, powerful companies and those beholden to them are seeking to silence this voice and deny the rights of retail and institutional investors through a campaign of misinformation.  

If the distortions behind this campaign are not exposed, members of Congress will effectively be misled into allowing corporate executives near-unlimited power to drown-out the voice of shareholders. Fortunately, there is time for Congress to avoid making this mistake. 

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Recently, legislation (HR 4015, the so-called Corporate Governance Reform and Transparency Act) passed in the U.S. House of Representatives will allow corporations to inhibit the distribution to shareholders of any report or opinion with which they disagree. This would be done primarily by using as an excuse the “reform” of the proxy advisory industry, which provides data, analytics, reports, and recommendations on important issues that will be voted on by institutional investors on behalf of their shareowner clients who have financial interests in these companies. This proposed reform is now being debated in the U.S. Senate. If Washington’s powerful business lobbies’ get their way, Americans nationwide should be deeply concerned that the institutional investor firms who manage their money will lose their access to the independent analysis that now helps inform their voice in company decisions, and that the significant progress made in corporate accountability over the past 30 years will be rolled back.

Proxy advisers are not well known, but they are vital to corporate responsibility, and their role is valued by the investment companies who help American workers reach their financial goals while, concurrently, mitigating portfolio risks. Many companies seeking to build shareholder value through good governance also value the work of ISS, which, as an organization that is neither partisan nor activist nor engaged in advocacy work, overwhelmingly recommends in favor of the position of corporate management. Still, we are proud of the work we do to shine a light on the minority of corporate policies and practices most in need of transparency and perspective.  Prior to the founding of Institutional Shareholders Services (ISS) in 1985, many investors failed to vote their shares and others routinely voted in lock-step with corporate management. Angered by the era’s wave of strong-arm tactics, executive compensation excesses, and company meltdowns, institutional investors recognized ISS’ important role in providing them with the tools and unbiased information required to vote their shares in an informed and responsible fashion.

The proposed legislation in Congress would harm many hard working Americans across the country who invest their retirement dollars in public companies, by depriving the institutional investors who represent them of the unbiased information that helps them make informed decisions. For example, The Council of Institutional Investors, on behalf of its public, labor, and corporate employee benefit fund members - whose assets collectively exceed $3 trillion - has called the bill an “overreach” and “a solution in search of a problem.” The legislation is an attempt to fix a problem that does not exist.

In addition, the Securities and Exchange Commission has long taken the position that proxy advisory firms should be regulated as fiduciary investment advisers, and the U.S. Department of Labor recently confirmed that proxy advisers provide fiduciary investment advice. ISS is SEC-regulated under the Investment Advisers Act of 1940, which mandates a fiduciary responsibility for ISS on behalf of its clients. 

While the corporate special interests are on one side of this issue, supported by, amongst others, a group misleadingly called “Main Street Investors Coalition”, united in opposition are real investors like large public sector pension fund managers, the National Conference on Public Employee Retirement Systems, AFSCME, and others. Many state treasurers and comptrollers are also opposed, along with the non-partisan and widely respected Consumer Federation of America.

This proposed legislation will shatter the long-standing fiduciary bond and existing regulatory regime to which we are subject in favor of a new set of unnecessary regulations that prioritize corporate managers’ interests over those of shareholders. In short, it is a bad policy, pitched to Congress under false pretenses, and unless our lawmakers want to take away the voice and rights of shareholders and investors as true owners of the companies, it should be defeated.

Gary Retelny is president & CEO of Institutional Shareholder Services Inc.