Remember all the fulmination we have heard from this White House on the subject of executive compensation? Especially when there were major flaps last year over AIG and assorted TARP-resuscitated banks being hell-bent on paying outrageously large bonuses?
It may surprise you no end to learn that apparently the White House was speaking with forked tongue.
The Wall Street reform bill is now in the process of conference committee negotiations. The whole point of conference committee negotiations, of course, is to take differences between the House and Senate versions of the bill, and resolve them in a way that the final product will be passed in both chambers. So it doesn’t happen very often that a “measure that had been generally agreed to by both the House and Senate” gets revised in conference committee. Especially when it’s a measure that the White House has also supported.
This measure essentially “affirmed the SEC’s authority to allow investors to have proxy access to the corporate decision-making process”. The Business Roundtable, “a lobby of corporate CEOs”, opposed the measure. Advocates of the measure say “that the corporations fought the issue primarily over executive compensation concerns. Given proxy access, investors could rein in executive salaries.”
The measure has been supported by the Obama administration, pretty unambiguously.
At the Council of Institutional Investors annual conference in April, Deputy Secretary of the Treasury Neal Wolin said: “The Senate bill will make clear that the SEC has unambiguous authority to issue rules permitting shareholder access to the proxy. We support that proposal.”
At the same conference, Valerie Jarrett, “a senior White House adviser and Obama confidante (and) administration liaison to the Business Roundtable, echoed the statement:
“The Senate bill will make it clear that the SEC has unambiguous authority to issue rules permitting shareholders access to the proxy — essential, as I know you guys know,” she said. “We agree that corporate governance means more transparency, more responsibility, more accountability, and once again — I can’t say it too often — we stand firmly with you on that point.”
That’s why investors “were blindsided by the reversal this week”. The measure, which the Senate and House had agreed on, and which the White House had supported, was mysteriously tinkered with to remove any and all teeth:
The White House is intervening at the last minute to come to the defense of multinational corporations in the unfolding conference committee negotiations over Wall Street reform.
A measure that had been generally agreed to by both the House and Senate, which would have affirmed the SEC’s authority to allow investors to have proxy access to the corporate decision-making process, was stripped by the Senate in conference committee votes on Wednesday and Thursday. Five sources with knowledge of the situation said the White House pushed for the measure to be stripped at the behest of the Business Roundtable. The sources — congressional aides as well as outside advocates — requested anonymity for fear of White House reprisal.
The investor-protection language was stripped and replaced by an amendment from Sen. Chris Dodd (D-Conn.), who leads the upper chamber’s negotiations in the conference committee. Dodd is retiring at the end of this Congress.
Dodd’s amendment to the Senate language inserts a requirement that only an individual with a five percent stake in a corporation can nominate candidates to the board or otherwise participate in corporate governance. Even the largest pension funds don’t come anywhere close to owning five percent of a major corporation. The biggest pension funds are more likely to hit the half-percent threshold in rare cases.
“I guess this is the way it works, but the sucker was like a bolt from the heavens. It came out of nowhere,” said one advocate working on the issue.
Backers of the underlying House and Senate language said that, as of last week, there was no indication that the provision would be stripped.
The SEC is planning to issue rules related to proxy access. Those rules would be made meaningless by the language currently being pushed.
“We’re just horrified that the Senate would try to weaken language that was similar in both bills. To set such a high threshold makes the reform totally unworkable,” said Ann Yerger of the Council of Institutional Investors.
“It is very, very costly for investors to mount a proxy contest and to solicit votes against directors. Proxy access changes that by giving investors — the owners of the business — the same access to the proxy as management has for purposes of nominating a director,” said Lynn E. Turner, the Securities and Exchange Commission’s chief accountant from 1998 to 2001. “It is extremely important [that] to avoid systemic risk investors be able to hold boards accountable. Otherwise, board members see no upside, only downside, to ever opposing management or putting the tough questions to them.”
This may not quite be the end of the matter. On Thursday, four senators opposed Chris Dodd’s 5% amendment: Chuck Schumer, Pat Leahy, Tom Harkin and Jack Reed. In addition, Barney Frank, chair of the House Financial Services Committee, says he has Nancy Pelosi‘s support to oppose the change:
The White House move pits the administration against House Speaker Nancy Pelosi (D-Calif.), who told Barney Frank (D-Mass.) to stand strong against the effort.
“I met with the Speaker today and she said, ‘Don’t back down. I’ll back you up,’” Frank, the lead House conferee, told HuffPost. “Maxine Waters is very upset, as are CalPERS and others.”
The White House, by the way, is claiming that they haven’t flip-flopped on the subject of proxy access:
An administration spokesperson said that the White House isn’t flip-flopping because it has never made proxy access an explicit position it supports. “It was not part of our original financial reform proposals, and we have not taken a position explicitly.”
It’s that whole forked thing tongue again. Neal Wolin and Valerie Jarrett sure seem to take a position explicitly at the the Council of Institutional Investors annual conference, don’t they?
Unless the White House plans to put Robert Gibbs out there to parse the meaning of “We support that proposal.” and “I can’t say it too often — we stand firmly with you on that point.”
(Incidentally, the Huffington Post article I have quoted from suffered some defanging of its own. There is a boiler-plate acknowledgment at the end: “This story has been updated to include the White House response.” But, to my mind, that’s a real funny way of describing changes such as:
• Changing the title from “White House Guts Reform To Protect CEO Pay” to “White House Flip Flops On Reining In CEO Pay“.
• Deleting “[UPDATE: A White House aide tells HuffPost that Jarrett has not contacted anyone on the Hill regarding the proxy issue.]”
• Deleting “Three sources said that Jarrett was behind the effort to strip the provision; the other two were unsure.”
A more accurate acknowledgment might have been “This story has been updated to include the White House response, and to pull some punches for reasons that we are not prepared to discuss.”)