WASHINGTON — Rep. Barney Frank, chairman of the House Financial Services Committee, said he won’t propose legislation that would give shareholders access to the corporate proxy statement to nominate directors — at least not yet.
“The advisory vote (on executive compensation) is a kind of a test for boards of directors,” he said March 19 at the Council of Institutional Investors’ semiannual conference. “We will see how they perform.”
However, if boards ignore shareholders’ objections to executive compensation in those advisory votes, Mr. Frank warned that corporations might face tougher legislation.
“It’s a step-by-step process,” he said. “The first thing we will see is how they (boards) do with advisory votes.”
Roel C. Campos, commissioner, Securities and Exchange Commission, said in an interview prior to Mr. Frank’s speech that he endorsed advisory votes but opposed legislation. “I think an advisory vote is a good idea,” Mr. Campos said. But it’s better for shareholders to win the right with companies, he added.
Mr. Frank expressed concern about job losses at companies acquired in private equity deals. Although he didn’t go into detail, he said, “If you start to recognize unions at the companies you acquire, you will save yourself a lot of grief with Congress.”
Unions have been concerned about job losses resulting from acquisitions by private equity firms, although Mr. Frank didn’t elaborate on his statement.
Mr. Frank didn’t see the need for “massive” hedge fund legislation, he said. His committee will continue to monitor hedge funds, as well as derivatives, he said.
Mr. Campos, who spoke to the conference March 18, said shareholder advisory votes and independent compensation committees won’t be enough to pressure corporations to reduce excess executive pay. There should be a third element — a “wise-persons committee” — to set goals and benchmarks on CEO pay, he said.
“An executive comp advisory vote and an independent committee (of board on compensation) will never bring down exec comp. We need something more also,” he said.
CII should take the lead in creating such a committee, possibly composed of institutional investors, corporate management, directors, and academics, Mr. Campos said in an interview after his speech. The panel could suggest pay levels by industry or even by company.
“I think something like that will work” (to reduce CEO pay), he said. The committee “would provide thoughtful goals,”
‘Grand bargain’
Ira Millstein, partner at the law firm of Weil Gotshal & Manges LLP, New York, spoke to the conference March 19 about his “grand bargain” concept of corporate governance regulatory reduction and added shareholder rights.
“It is clear there has to be a bargain. There can’t be one without the other. This is about both sides” regulatory reform and shareholders rights, he said. “They are not mutually exclusive. They go together.”
“You are the people who will drive reform in both directions,” he told the CII crowd.
Former Vice President Al Gore, speaking on March 20, said pension funds should provide incentives for managers and companies in which they invest to focus on long-term strategy rather than short-term focus, particularly with climate and labor issues.
“Companies …should have incentives to better position themselves during this era of rapid changes. They should not be penalized for making far-sighted adjustments,” Mr. Gore said. “Pension funds should make the call and address factors biased toward short-term objectives.
Pension funds and investment managers should incorporate sustainability factors, including climate, environmental and labor issues, in their analysis of companies, “not because it is a good-guy thing to do, but because it can affect the long-term performance of companies,” he said.
Also decrying the focus on short-term factors were two leaders of major private equity firms — William Conway Jr., founding partner and managing director of the Carlyle Group, Washington, and Stephen Schwarzman, chairman, CEO and co-founder of Blackstone Group, New York — speaking March 20 on a panel.
Corporate executives’ focus on the short term hinders them from making strategic investments that sustain long-term performance, Mr. Schwarzman said. “Bill and I don’t look at quarterly earnings,” Mr. Schwarzman said. “We measure (performance) over long periods of time.”
Such short-term focus works to the detriment of companies adding value and staying publicly traded, providing targets for private equity acquisition.
“We (private equity firms) happen to be the lucky beneficiaries of this phenomenon. The system isn’t working in a good way for public companies,” Mr. Schwarzman said.
Almost 600 people attended the March 18-20 conference in Washington, which Jack Ehnes, CII chair and chief executive officer of the $157.8 billion California State Teachers’ Retirement System, Sacramento, said might be a record for CII.
