Council of Institutional Investors

Institutional Investors Oppose Key Provisions
of the Financial CHOICE Act

CII Letter Outlines How the Bill Weakens Shareholder Rights

Washington, D.C., April 24, 2017 — Institutional investors are deeply troubled by draft legislation unveiled April 19 that would loosen safeguards put in place after the 2001 Enron scandal and the 2008 financial crisis to protect investors, American savers and the capital markets.

The Council of Institutional Investors (CII) believes that in its current form, the Financial CHOICE Act would weaken critical shareholder rights that investors need to hold management and boards of public companies accountable, and that foster trust in the integrity of the U.S. capital markets.

“Americans suffered enormously from Enron and other corporate scandals of 15 years ago, and even more from the failures of oversight that contributed to the financial crisis,” said Ken Bertsch, executive director of CII, a nonprofit organization of investors that collectively hold some $3 trillion in assets. “Many Americans lost jobs, homes and retirement savings.

“The Financial CHOICE Act would threaten prudent safeguards for oversight of companies and markets, including sensible reforms made in the wake of Enron and the financial crisis to close critical gaps in regulation. The new legislation is akin to removing seatbelts from cars—it’s just too risky. CII and our members are ready to work with Congress to ensure that U.S. markets are safe, vibrant and fair for all investors and Americans.”

In a letter delivered today to House Financial Services Committee Chairman Jeb Hensarling and Ranking Member Maxine Waters, CII outlines troubling ways that the Financial CHOICE Act threatens fundamental shareholder protections. In particular, CII is alarmed by provisions that:
 
  • Set prohibitively costly hurdles on shareholder proposals. The bill would require a shareholder wishing to put a proposal on a company’s annual meeting ballot to own at least 1%of the stock for three years (the current requirement is $2,000 worth of stock for one year). That would raise the ownership threshold to file a shareholder proposal to $7.5 billion at Apple, $3.4 billion at Exxon Mobil and $2.6 billion at Wells Fargo, for example. Learn more…
     
  • Roll back curbs on abusive pay practices. Shareholders would get an advisory vote on executive compensation only when there is an ill-defined “material” change in CEO pay; most U.S. public companies offer investors say-on-pay votes annually. Clawbacks of unearned executive compensation would be limited. Learn more…
     
  • Restrict the right of shareholders to vote for directors in contested elections for board seats.  The bill would bar the use of “universal proxy” cards that give investors freedom of choice to vote for the specific combination of director nominees they believe best serves their interests. Learn more… 
     
  • Create an intrusive new regulatory scheme for proxy advisors that provide shareholders with independent research they need to vote responsibly. The bill would drive up costs for investors and could even drive some proxy advisors out of business. Learn more… 
     
  • Shackle the Securities and Exchange Commission (SEC) with excessive cost-benefit analysis requirements. That would severely undercut the SEC’s ability to fulfill its mission to protect investors, police markets and foster capital formation. Learn more…
CII’s letter also details our deep concern on other elements of the CHOICE Act, including: the rollback of internal control requirements in the Sarbanes-Oxley Act; repeal of requirements that companies disclose whether their employees and directors can hedge their equity compensation; repeal of disclosure about the company’s  board leadership structure; repeal of requirements to improve compensation at financial institutions; and exemption of advisors to private equity funds from registration and reporting.

CII member funds include major long-term shareowners with a duty to protect the retirement savings of millions of workers, retirees and their families. CII’s associate (nonvoting) members include asset management firms that manage in excess of $20 trillion. CII advocates for policies that we believe enhance public trust in the capital markets, protect investors and promote long-term shareowner value.
 
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Click for PDF version. For media inquiries, please contact CII Deputy Director Amy Borrus.