Reformers are licking their chops over next week's Democratic National Convention, with high expectations to put new corporate governance rules such as “say on pay,” higher taxes on hedge funds and private equity shops, and wider pension coverage squarely on the blue party's platform.
“In many ways this is a unique moment in the corporate governance world,” said Daniel Pedrotty, director of the Office of Investment, AFL-CIO, Washington. “There is an upbeat, hopeful mood in the investor community.”
While experts don't expect the platform to clearly lay out a path to reform on each issue, they are confident Sen. Barack Obama, D-Ill., is on board with their causes.
“He's proven himself an advocate time and time again” on corporate governance issues, Mr. Pedrotty said, referring to Mr. Obama, who's widely expected to be the party's nominee.
In addition to formally nominating Mr. Obama, delegates to the convention in Denver will adopt the party's official platform on issues ranging from health care to immigration to foreign policy.
AFL-CIO officials are particularly keen to advance say-on-pay issues, which would give shareholders an annual non-binding vote on executive compensation, and to provide shareholders access to the corporate proxy to nominate directors. They also want to limit the influence of Wall Street brokers over corporate director elections, preventing them from casting votes of shares they hold but do not own.
Critics say unions are backing these issues to advance labor's agenda, rather than having the best interests of shareholders in mind.
Although most corporate executives think say on pay is “stupid,” they “expect it to become a reality,” said Geoff Loftus, vice president, Society of Corporate Secretaries and Governance Professionals Inc., New York.
However, he doesn't see an Obama victory as crucial to bringing about corporate governance changes. If the Democrats win a veto-proof majority in Congress, they would be able to push through changes even if Sen. John McCain, R-Ariz., the presumptive Republican nominee, were elected, he said.
“Right now this is about Congress and how much of a majority the Democrats will roll up,” he said. “If they get over the override threshold, they'll use (Mr. McCain) for batting practice.”
Thomas J. Lehrer, director of public policy at the Washington-based Business Roundtable, disagreed. “Governance issues are not partisan issues,” he said. Changing policies “for the sake of change” undermines the efficiency of the business model, he said.
AFL-CIO officials also want to tax carried interest as regular earnings. This issue, advanced last year by Sens. Max Baucus, D-Mont., and Charles Grassley, R-Iowa, and Rep. Charles Rangel, D-N.Y., would change taxation on carried interest to an income tax levy, now at 35%, instead of the 15% capital gains rate. The move would affect all kinds of investment partnerships, including hedge funds, real estate and venture capital firms.
Mark G. Heesen, president of the National Venture Capital Association, Arlington, Va., said that boosting taxes on carried interest would be especially harmful to venture capital firms.
“Hitting venture capital with this is not what most people see as a good remedy,” Mr. Heesen said. “We believe (taxing carried interest) is not where this country should be going.”
However, he believes that Mr. Obama's economic advisers understand the difference between investing in established companies and investing in startups. Mr. Heesen said venture capital could get a pass, even if carried interest taxes are upped.
“The devil is going to be in the details, and we're not going to see the details until and if Mr. Obama becomes the president,” he added.