FOR IMMEDIATE RELEASE: October 22, 2009
SCHUMER TO PAY CZAR: FIX CORPORATE GOVERNANCE, NOT JUST BONUSES, AT RESCUED COMPANIES
Administration Expected To Issue Tough Restrictions On Executive Compensation At Seven Firms That Have Not Repaid Federal Assistance
Schumer, In Letter To Pay Czar Feinberg, Urges That Proposals From His 'Shareholder Bill Of Rights' Also Be Applied To Companies
Schumer's Corporate Governance Legislation Requires Proxy Access and Division of CEO and Chairman Offi
WASHINGTON, DC – U.S. Senator Charles E. Schumer (D-NY) urged the Obama administration’s “pay czar” on Thursday to impose a series of pro-shareholder proposals—including proxy access and a measure that would require separating the roles of CEO and Chairman of the Board—upon companies that have not repaid
Kenneth Feinberg, the Treasury appointee charged with monitoring executive compensation awards at rescued firms, has all but finalized his plan for curbing pay at the seven firms that received extensive federal aid but have not yet repaid the money. Feinberg’s ruling, aimed at ensuring taxpayer money is well spent and not squandered on lavish pay, is expected to be formally announced any day now. Details of what he is expected to impose were reported earlier today.
In a letter sent to Feinberg Thursday, Schumer urged that several of the provisions contained in his corporate governance legislation—dubbed the “Shareholder’s Bill of Rights”—also be implemented at the companies. Schumer’s legislation is aimed at empowering shareholders in order to curb the types of excessive risk-taking and runaway executive compensation that contributed to the nation’s economic recession.
“These companies are the poster children for the total breakdown in corporate governance and lack of effective board oversight that contributed to the recent crisis,” Schumer said. “These reforms are important to include if the government is serious about turning these companies into responsible corporate citizens.”
Schumer’s bill includes the following provisions:
1. It requires that all public companies hold an advisory shareholder vote on executive compensation. By allowing shareholders to have a “say on pay,” companies are far less likely to award compensation packages that are excessively lavish or tied to risk-taking that is not good for the long-term health of the firm.
2. It instructs the SEC to issue rules allowing shareholders to have access to the proxy form if they want to nominate directors to the board. In order to make a nomination, shareholders will have to have owned at least 1% of a public company’s shares for at least two years. Schumer said it is essential that long-term shareholders have a real voice in selecting the men and women who sit on the boards of the companies they own.
3. It requires board directors to receive at least 50% of the vote in uncontested elections in order remain on the board. It makes no sense for board members to be re-elected if a majority of shareholders cast their ballots against them.
4. It requires all board directors to face re-election annually. Schumer and Cantwell said there is no reason that directors at a well-run company should fear facing their shareholders every year. So-called “staggered boards” just serve to insulate board members from the consequences of their decisions.
5. It requires public companies to split the jobs of CEO and Chairman of the Board, and requires the Chairman to be an independent director. It is vital that the Chairman of the Board, who sets the board’s agenda, should be someone who works closely with the CEO, but also brings a different perspective to the table.
6. It requires that public companies create a board risk committee. Today, the oversight of how companies manage their risks is most often a responsibility of the audit committee, which has enough responsibilities already without also having to focus on risk. By creating separate risk committees, boards will never again be able to say they did not understand the risks that the firms they oversee were taking.
Schumer’s “Shareholders’ Bill of Rights” is supported by nearly 20 major pension funds, labor unions, and consumer groups such as the Consumer Federation of America.
A copy of Schumer’s letter to Feinberg appears below.
October 22, 2009
Dear Mr. Feinberg,
I understand you are preparing to announce new compensation restrictions for the seven remaining firms that have received extensive federal aid but have not yet repaid the money, and I am writing to urge you to require that those same companies significantly revamp their corporate governance across the board.
While reigning in compensation practices at these firms is certainly necessary to ensure that taxpayer money is well spent and not squandered on lavish pay, executive compensation is just the tip of the iceberg when it comes to the practices that so recently put our entire financial system at risk. When it comes to effective risk management, the buck must stop with the board of directors.
When directors fail their shareholders – to whom they owe fiduciary duties of care and loyalty – they must be held to account. Unfortunately, for all too many companies the shareholders have little or no real voice in the nomination and election of their directors. As a result boards are too cozy with management and, not surprisingly, often fail to ask the hard questions that might expose practices that put the company at risk.
These companies are the poster children for the total breakdown in corporate governance and lack of effective board oversight that contributed to the recent crisis, and I believe these reforms are critical if the government is serious about turning these companies around, returning them to private sector ownership and ensuring they participate in the markets as responsible corporate citizens.
Accordingly, I respectfully urge you to consider requiring these companies, who received but have not yet repaid massive amounts of federal assistance, to implement a strong set of corporate governance reforms. I believe that the Shareholder Bill of Rights that I introduced in May with Senator Maria Cantwell provides a comprehensive menu of such reforms. In addition to a “say-on-pay” provision, which is already required for companies who received TARP funds, the bill includes five provisions:
I greatly appreciate your consideration of the proposals outlined above.
Charles E. Schumer
United States Senator