All eyes are on Washington this fall, as the country watches hope and change take hold through new laws and regulations. When NIRI President and CEO Jeff Morgan briefed a group of investor relations people and corporate lawyers in Kansas City on changes coming our way from DC, “scary” was a word that kept recurring.
“There are a lot of scary things happening in Washington, and some potentially good things happening in Washington,” Morgan said Tuesday evening at the NIRI Kansas City chapter meeting.
Motivated by the financial crisis, Morgan noted, politicians have turned from talk to action on regulatory issues that have been around for years. Rightly or wrongly, he added, politicians see only two causes for the financial crisis: corporate greed and lack of adequate regulation. So they are bent on fixing those problems.
Morgan said significant changes in the way corporations are governed are in the works in Congress and at the Securities and Exchange Commission (SEC):
- “Say on pay” proxy votes and input from a federal “pay czar,” initially targeting financial companies that got bailouts, could be expanded by Congress to all public companies.
- If say on pay spreads, institutional investors – many of whom lack the staff to examine every executive pay proposal – would outsource the research and perhaps the voting to RiskMetrics Group. RiskMetrics sells governance advice to companies, and chastises those who don’t measure up to its standards.
- An SEC proxy access proposal to expand shareholders’ ability to nominate board members seems likely to take effect, and Congress could weigh in to expand the mandates. That would empower activist investors such as union pension funds to target companies for changes in governance.
- An SEC change in Rule 452 to eliminate broker discretionary voting, starting January 2010, seems likely to disrupt voting of retail stockholders’ share.
- Various proposals are kicking around Congress on board compensation committees, separating the CEO and chairman roles, requiring certification and training for directors, eliminating staggered boards and other issues.
What can companies do? Get senior management to reach out to Congress with the public-company viewpoint on proposals for federal intervention. Take pre-emptive action by implementing compensation and proxy access programs designed to enhance, rather than put a strangle hold on, good governance for companies.
We’d better be watching Washington. Says Morgan: “Corporations are the lifeblood of America, and we’re doing things that are dangerous to those corporations.”