March 01, 2019
This week, the Senate Banking Committee held a wide-ranging hearing in which Senators on both sides of the aisle sounded off on a plethora of corporate governance topics, including stock buybacks, proxy advisory firms, 10b5-1 stock trading plans, and human capital metrics.
Bipartisanship forestalled: Although the hearing began with Chairman Mike Crapo (R-ID) highlighting the bipartisan support for many of the issues of the day, Ranking Member and potential presidential candidate Sherrod Brown (D-OH) set a different tone, decrying deregulatory measures and pledging changes which would ensure the “dignity of work” and make sure all workers, including contractors, are “treated like real employees.”
Buybacks targeted: “Instead of investing in the workers that make them successful…[companies are] [s]pending money on buying back their own stock to line executives’ pockets,” stated Sen. Brown, continuing the accusations that share buyback programs represent a choice by companies to not invest in their workforces. Sen. Pat Toomey (R-PA) countered, citing the recent acceleration of wage growth—particularly at the low end of the spectrum—as well as a major increase in capital expenditures that occurred in the last year despite the buyback programs decried by Democrats.
Sen. Bob Menendez (D-NJ) gets support for diversity bill: Fresh off his introduction of legislation that would mandate companies to report director gender, racial, and ethnic backgrounds in SEC filings, Sen. Menendez garnered support for the effort to improve corporate diversity from the hearing’s panelists, including the AFL-CIO and U.S. Chamber of Commerce.
Information on human capital: Sen. Mark Warner (D-VA) expressed support for greater company reporting about the value of their workforces, a longstanding issue for him, but pointed out that “nothing in our tax code or our public reporting system…reflects the value of human capital.” Sen. Warner discussed his legislation that would create a “Human Growth Tax Credit”—which mirrors the R&D tax credit—and is intended to incentivize companies to invest in their workforces.
10b5-1 plans cast as insider trading tool by Democrats: Sen. Chris Van Hollen (D-MD) voiced concerns about the ability of executives to manipulate 10b5-1 stock trading plans to conduct illegal insider trading—a sentiment echoed by several Senate Democrats. Sen. Van Hollen sought support for a bill which would ask the SEC to study 10b5-1 plans and consider changes. The House adopted the bill earlier this year in a nearly unanimous vote.
Proxy advisors, shareholder proposals discussed: Chairman Crapo began the hearing by urging needed fixes to the proxy process, including an update of the resubmission thresholds. Later in the hearing, Sen. Tom Tillis (R-NC) inquired about the rationale behind the two SEC proxy advisory firm no-action letters that were withdrawn by the SEC in September and also asked the U.S. Chamber for feedback on potential changes to the Senate's 2018 proxy advisory firm reform bill.