[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
PROXY POWER AND PROPOSAL ABUSE:
REFORMING RULE 14A-8
TO PROTECT SHAREHOLDER VALUE
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HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
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SEPTEMBER 10, 2025
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Serial No. 119-39
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
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U.S. GOVERNMENT PUBLISHING OFFICE
63-034 PDF WASHINGTON : 2026
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HOUSE COMMITTEE ON FINANCIAL SERVICES
FRENCH HILL, Arkansas, Chairman
BILL HUIZENGA, Michigan, Vice MAXINE WATERS, California, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma SYLVIA R. GARCIA, Texas, Vice
PETE SESSIONS, Texas Ranking Member
ANN WAGNER, Missouri NYDIA M. VELAZQUEZ, New York
ANDY BARR, Kentucky BRAD SHERMAN, California
ROGER WILLIAMS, Texas GREGORY W. MEEKS, New York
TOM EMMER, Minnesota DAVID SCOTT, Georgia
BARRY LOUDERMILK, Georgia STEPHEN F. LYNCH, Massachusetts
WARREN DAVIDSON, Ohio AL GREEN, Texas
JOHN W. ROSE, Tennessee EMANUEL CLEAVER, Missouri
BRYAN STEIL, Wisconsin JAMES A. HIMES, Connecticut
WILLIAM R. TIMMONS, IV, South BILL FOSTER, Illinois
Carolina JOYCE BEATTY, Ohio
MARLIN STUTZMAN, Indiana JUAN VARGAS, California
RALPH NORMAN, South Carolina JOSH GOTTHEIMER, New Jersey
DANIEL MEUSER, Pennsylvania VICENTE GONZALEZ, Texas
YOUNG KIM, California SEAN CASTEN, Illinois
BYRON DONALDS, Florida AYANNA PRESSLEY, Massachusetts
ANDREW R. GARBARINO, New York RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin RITCHIE TORRES, New York
MIKE FLOOD, Nebraska NIKEMA WILLIAMS, Georgia
MICHAEL LAWLER, New York BRITTANY PETTERSEN, Colorado
MONICA DE LA CRUZ, Texas CLEO FIELDS, Louisiana
ANDREW OGLES, Tennessee JANELLE BYNUM, Oregon
ZACHARY NUNN, Iowa SAM LICCARDO, California
LISA McCLAIN, Michigan
MARIA SALAZAR, Florida
TROY DOWNING, Montana
MIKE HARIDOPOLOS, Florida
TIM MOORE, North Carolina
Ben Johnson, Staff Director
C O N T E N T S
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Wednesday, September 10, 2025
Page
OPENING STATEMENTS
Hon. French Hill, Chairman of the Committee on Financial
Services, a U.S. Representative from Arkansas.................. 1
Hon. Maxine Waters, Ranking Member of the Committee on Financial
Services, a U.S. Representative from California................ 2
STATEMENTS
Hon. Brad Sherman, Ranking Member of the Subcommittee on Captial
Markets, a U.S. Representative from California................. 4
WITNESSES
Mr. James Copland, Senior Fellow & Director of Legal Policy,
Manhattan Institute............................................ 4
Prepared Statement........................................... 6
Mr. Ferrell Keel, Partner, Jones Day............................. 37
Prepared Statement........................................... 39
Mr. Ron Mueller, Partner, Gibson Dunn & Crutcher LLP............. 48
Prepared Statement........................................... 50
Mr. Brad Lander, Comptroller, City of New York................... 73
Prepared Statement........................................... 75
APPENDIX
MATERIALS SUBMITTED FOR THE RECORD
Hon. Ayanna Pressley:
Gibson Dunn: Diversity & Inclusion........................... 142
Jones Day: Inclusion......................................... 144
New York City Comptroller Brad Lander, Public Advocate
Williams, Rev. All Sharpton, Pension Fund and Investment
Leaders Celebrate ``Emerging Managers Week'' and Commit to
Staying the Course on Diversity, Equity, and Inclusion
Despite Federal Attacks and Misinformation................. 147
Hon. Rashida Tlaib:
Fact Sheet: Manhattan Institute.............................. 151
Hon. Zachary Nunn:
The American Securities Association (ASA).................... 152
Hon. Scott Fitzgerald:
National Association of Manufactors.......................... 155
Hon. Maxine Waters:
AFL-CIO...................................................... 165
Friends Fiduciary Corporation (FFC).......................... 167
Interfaith Center on Corporate Responsibility................ 170
Americans for Financial Reform............................... 175
Shareholder Proposals: An Essential Investor Right........... 183
Shareholder Rights Group..................................... 211
United Church Funds.......................................... 223
RESPONSES TO QUESTIONS FOR THE RECORD
Written responses to questiosn for the record from Mr. James
Copland
Representative Marlin Stutzman............................... 227
Representative Monica De La Cruz............................. 230
Representative Maxine Waters................................. 233
Written responses to questiosn for the record from Mr. Ron
Mueller
Representative Marlin Stutzman............................... 234
Representative Monica De La Cruz............................. 235
Representative Maxine Waters................................. 236
Representative Bryan Steil................................... 238
Representative John W. Rose.................................. 241
Representative Janelle Bynum................................. 243
Written responses to questiosn for the record from Mr. Brad
Lander
Representative Monica De La Cruz............................. 246
Representative Maxine Waters................................. 246
LEGISLTAION
H.R. 4098, the Stopping Proxy Advisor Racketeering Act........... 248
H.R. 3402, a bill to amend the Securities Exchange Act of 1934 to
require certain disclosures by institutional investment
managers in connection with proxy advisory firms, and for other
purposes....................................................... 253
H.R. --------, a bill to amend the Securities Exchange Act of
1934 to provide for the registration of proxy advisory firms,
and for other purposes......................................... 258
H.R. --------, the Mandatory Materiality Requirement Act of 2025. 282
H.R. --------, the Empowering Shareholders Act of 2025........... 287
H.R. --------, the Public Company Advisory Committee Act of 2025. 294
H.R. --------, the Performance over Politics Act................. 301
H.R. --------, the Businesses Over Activists Act................. 303
H.R. --------, Protecting American's Savings Act................. 305
H.R. --------, a bill to clarify that an issuer may exclude a
shareholder proposal pursuant to section 240.14a-8(i) of title
17, Code of Federal Regulations, without regard to whether such
proposal relates to a significant social policy issue.......... 308
H.R. --------, a bill to authorize the exclusion of shareholder
proposals from proxy or consent solicitation material if the
subject matter of the shareholder proposal is environmental,
social, or political........................................... 310
H.R. --------, the Corporate Governance Examination Act.......... 312
H.R. --------, a bill to amend the Securities Exchange Act of
1934 to require the Securities and Exchange Commission to
disclose and report on non-material disclosure mandates, and
for other purposes............................................. 318
H.R. ------, a bill to amend the Securities Exchange Act of 1934
with respect to prohibitions relating to the solicitation and
influence of proxies........................................... 320
H.R. ------, a bill to amend the Securities Exchange Act of 1934
to provide for liability for certain failures to disclose
material information in connection with proxy voting advice,
and for other purposes......................................... 323
PROXY POWER AND PROPOSAL ABUSE:
REFORMING RULE 14A-8
TO PROTECT SHAREHOLDER VALUE
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Wednesday, September 10, 2025
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:04 a.m., in
room 2128, Rayburn House Office Building, Hon. French Hill
[chairman of the committee] presiding.
Present: Representatives Hill, Lucas, Sessions, Huizenga,
Wagner, Barr, Williams of Texas, Loudermilk, Davidson, Rose,
Steil, Timmons, Stutzman, Norman, Meuser, Kim, Donalds,
Garbarino, Fitzgerald, Flood, Lawler, De La Cruz, Ogles, Nunn,
McClain, Downing, Haridopolos, Moore, Waters, Velazquez,
Sherman, Meeks, Scott, Green, Foster, Beatty, Vargas,
Gottheimer, Casten, Pressley, Tlaib, Torres, Garcia, Williams
of Georgia, Pettersen, Bynum, and Liccardo.
Chairman Hill. The Committee on Financial Services will
come to order.
Without objection, the chair is authorized to declare a
recess of the committee at any time.
Today's hearing is titled, ``Proxy Power and Proposal
Abuse: Reforming Rule 14a-8 to Protect Shareholder Value.''
Without objection, all members will have 5 legislative days
within which to submit extraneous materials to the chair for
inclusion in the record.
I now recognize myself for 5 minutes for an opening
statement.
OPENING STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
ARKANSAS
Good morning. Welcome to our committee today. As our
securities laws were being considered during the Great
Depression and the years after, corporate governance
policymakers sought to ensure that stockholders had an active
voice over any entrenched management, inattentive directors, or
a controlling group. The intent was that all shareholders could
assert their ownership rights around key components of running
the business and capital allocation. Thus, while our proxy
access process was originally designed to empower shareholders
and provide them with a voice in company oversight, in recent
years, it has increasingly become co-opted by activist
investors, whose primary focus often lies not in maximizing
shareholder value, but in pushing narrow political, social, or
personal agendas. We have seen the shareholder proposal process
diverted away from that critical business strategy focus and
instead become a tool for advancing proposals to distract from
companies' missions, leading to an erosion of shareholder
value, and additionally, costly burdens on companies that are
working to navigate today's complex business conditions and
global competition.
As we examine the shareholder proposal process, we also
must consider the role of proxy advisory firms on capital
markets as a whole. While these firms can offer valuable
perspective, over the past 2 decades, their influence on
corporate governance and voting on particular shareholder
proposals has grown significantly. We must ask ourselves if
these firms are still fulfilling the intended purpose of
serving in the best interests of shareholders or if they are
distracting from the primary goal of enhancing long-term
shareholder value.
As we evaluate the current landscape surrounding Rule 14a-8
at the Securities and Exchange Commission (SEC), it is
essential that we assess the impact of recent regulatory
interpretations and guidance and how these have led us to where
we are today. Particularly, we want to look at SEC's Staff
Legal Bulletins 14L and 14M, which have had a significant
impact on influencing how companies and shareholders engage
with the proposal process. Staff Legal Bulletin 14L, issued in
November 2021 under then SEC Chairman Gensler, shifted the
focus from shareholder proposal review, from the proposal's
relevance to a specific company, to whether the proposed issue
had broad societal impact. Expanding what counts as a relevant
proposal makes it harder for companies to block items unrelated
to their particular business, letting activists push measures
that are disconnected and immaterial from the company's
performance. As a result, we have seen an uptick in proposals
that prioritize social or political issues over shareholder
returns, which can divert attention from the fundamental goal
of maximizing value for all investors. As we look at these
recent developments, it is crucial to consider how we can
reform the regulatory framework to restore balance and ensure
that the proposal process serves its original intent and I
would argue that I hear from directors of public companies on
all sides of the political perspective who share the view--who
share the view--that this process has gotten away from that
core tenet of the 1930s and 1940s of preserving long-term
shareholder value.
With that, I yield back, and I recognize my friend, the
ranking member from California of the full committee, Ms.
Waters, for a 4-minute opening statement.
OPENING STATEMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
ARKANSAS
Ms. Waters. Good morning. Thank you very much, Mr.
Chairman. For years, this committee has proudly championed the
values of capitalism and the free market, but Donald Trump's
actions with companies like NVIDIA, Intel, and U.S. Steel is
not capitalism by any definition of the word. To be clear, I do
think it is appropriate for the taxpayers and the citizens of
this country to have upside when taxpayer investments generate
profits for corporations and their shareholders. If we
appropriately tax corporations, especially those that receive
substantial government subsidies, we, the taxpayers, would
benefit, but we do not. Yet, what Trump is doing is not growing
the economy or protecting workers.
His chaotic interference in private markets and the misuse
of government tools is only to give Trump more ways to bully
the American people. He has used the government to attack
cities like Los Angeles and Washington; universities like
Harvard, Columbia, and Brown; nonprofits like the National
Endowment for the Arts; news organizations like NPR and PBS;
former government officials and law firms. Now he is attacking
corporations and by the way, Trump promised that tariffs would
bring American manufacturing back, but the latest job numbers
show that the U.S. lost 42,000 manufacturing jobs since April,
and businesses continue to pass off the cost of tariffs to
consumers. This is the kind of sweeping authoritarian-style
communist takeover that China's leadership would applaud. Just
like in China, Trump is not doing this to help working-class
families. It is simply about control, consolidating power,
punishing his enemies, rewarding political loyalty, and
retaliating against those who refuse to bend to his will.
As Trump tramples on American capitalism and our democracy,
I am absolutely appalled as I look at Republicans who claim to
be strong capitalists and tout the businesses they own. For
example, Mr. Huizenga, are you ready to hand over 10 percent of
your gravel business to Trump? Of course not. Instead of
speaking out in defense of capitalism and democracy,
Republicans are working with Trump's SEC to advance legislation
that will further his anti-capitalist agenda by silencing the
voice of shareholders. They want companies to ignore legitimate
concerns from shareholders about climate change and other risks
simply because those concerns do not align with Trump's
political agenda.
If you want a case study in why shareholder rights matter,
look at Tesla. After Delaware's Chancery Court voided Mr.
Musk's $56 billion award for a flawed process, the company
reincorporated in Texas and is now proposing to award Mr. Musk
with the obscene and outrageous pay package that will exceed $1
trillion. If Republicans get their way by silencing investors
and remaking their boards to no longer be independent, public
companies may experience a fate similar to that of Enron or
WorldCom, and we all know what happened to them.
As Trump operates as a communist and uses his government to
control the economy, Democrats will fight to ensure that
workers, not just the corporate elite, see and feel the
benefits. We will also fight to ensure Congress, and not the
President, determines how the government spends taxpayer
resources on things that truly benefit taxpayers, like building
housing, supporting healthcare, and caring for those in need.
Anything less is unacceptable. I yield back.
Chairman Hill. The gentlewoman yields back. I now recognize
the ranking member of the Subcommittee on Capital Markets, Mr.
Sherman, for a 1-minute opening statement.
STATMENT OF HON. BRAD SHERMAN, RANKING MEMBER OF THE
SUBCOMMITTEE ON CAPTIAL MARKETS, A U.S. REPRESENTATIVE FROM
CALIFORNIA
Mr. Sherman. Under capitalism, if by the sweat of your brow
and the frugality of your spending, you accumulate capital, if
you have the courage to invest, you become a shareholder, and
shareholders should be in control, not managers. Once again,
the Democratic Party rises to the defense of capitalism against
its greatest enemies: crony capitalism and their handmaidens in
Washington. The chair points out that corporate managers have
said, ``These damn shareholders have gotten out of hand, and we
have got to stop them,'' and that is what the bills in front of
us are designed to do. This is not just theoretical. We know
which side of capitalism the Chinese Communist Party is on.
They are going to want to buy the technology behind artificial
intelligence. They are going to want to control it. They are
going to offer corporations huge amounts of money, and when
those transactions close, the board gets huge bonuses and they
do not want shareholders to have a vote, and we will be told,
``Shareholders, get out of the way. It is a big pay day.'' That
is shareholder value. No, that is selling out America to the
communists. I yield back.
Chairman Hill. The gentleman yields back. Today, we welcome
the testimony of Mr. James Copland, senior fellow and director
of legal policy at the Manhattan Institute; Mrs. Ferrell Keel,
partner at Jones Day; Mr. Ron Mueller, partner at Gibson Dunn &
Crutcher, LLP; and Brad Lander, the comptroller of the city of
New York. We welcome all of you, and we thank you for being
with us, taking your time to share your views with the
committee.
Without objection, each of you will be recognized for 5
minutes to give an oral presentation, and your written
statement will be made part of the record.
Mr. Copland, we are going to start with you. You are
recognized for 5 minutes.
STATEMENT OF JAMES COPLAND, SENIOR FELLOW & DIRECTOR OF LEGAL
POLICY, MANHATTAN INSTITUTE
Mr. Copland. Thank you, Mr. Chairman. Is this on? Chairman
Hill, Ranking Member Waters, members of the committee, thank
you for the opportunity to testify. My name is James R.
Copland. Since 2003, I have been affiliated with the Manhattan
Institute for Policy Research, a nonprofit public policy think
tank in New York City, where I have served as senior fellow and
directed the institute's legal policy research. Although my
comments draw on work conducted for my employer, my statement
today is solely my own.
I am pleased that the committee is examining how the
Securities and Exchange Commission oversees the submission and
voting of shareholder proposals under Rule 14a-8. I have
studied this process for more than 15 years alongside related
issues in securities regulation, including the role of proxy
advisory firms and the voting practices of large index fund
families. I address those topics at length in my written
testimony. In this opening statement, I will focus on three
brief points.
First, U.S. capital markets continue to lead the world. Our
markets efficiently allocate capital and have enabled firms
founded within the last few decades to become global leaders.
That dynamism helps explain why U.S. per capita growth has
outpaced most other developed nations over the last 30 years.
Second, public listings, however, have fallen by more than half
since the mid-1990s. Many factors contribute, but a significant
one is the increased cost and complexity of being a public
company in the United States. That reality discourages listings
and impedes capital formation. Third, part of the rising cost
of public ownership has been spurred by congressional actions,
including well-intentioned, but in some cases, overreaching
legislative responses to the collapse of the dot-com bubble and
the 2008 financial crisis. Other costs of public ownership,
however, have flowed from regulatory decisions by the SEC and
other agencies without clear congressional mandate. Chief among
these is the SEC's use of Rule 14a-8 to compel inclusion of
shareholder proposals on corporate proxy ballots in ways that,
in practice, override State corporate law.
My conclusion, which I stated before this committee 2 years
ago, remains. The SEC's shareholder proposal regime exceeds
Congress's statutory mandate, displaces State corporate law
without authorization, and impedes the efficiency and capital
formation Congress has instructed the agency to prioritize.
Congress should clarify that shareholder board interactions are
matters of State law and remind the SEC that its role lies in
facilitating disclosure, not dictating the substance of
corporate governance.
Two developments have magnified the costs of the SEC's
longstanding error. First, proxy advisory firms. Two firms
control virtually the entire proxy advice market. Each is
foreign owned, and these two firms have often favored
environmental and social campaigns in shareholder engagement.
Federal policy choices helped fuel the rise of this industry,
and the shareholder proposal process has increased its leverage
over U.S. companies. Second, passive index fund concentration
and voting. Passive investing has been a boon to ordinary
investors, including myself, but the three fund families that
dominate this market now control a large and growing share of
all shareholder voting. For various reasons, the big three
index fund families, like the proxy advisors, have often
supported shareholder proposals advancing social and
environmental objectives not aligned with the interests of the
average shareholder. In sum, two dominant foreign owned proxy
advisory firms and the big three passive index fund families
hold extraordinary sway over the governance of all publicly
traded corporations in the United States, and the committee is
well advised to consider the SEC-dictated process over proxies
in light of this reality.
The 15 bills noticed for this hearing move in the right
direction, though several warrant refinements, as I discuss in
my written submission. I applaud the committee for tackling an
issue vital to the American economy and to workers' retirement
savings. I welcome your questions and look forward to working
with members and staff on this important subject. Thank you,
Mr. Chairman.
[The prepared statement of Mr. Copland follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill. Thank you, sir. Mrs. Keel, you are
recognized for 5 minutes. If we need to, let Mr. Mueller share
his mic, if your mic is not working. You guys get cozy there.
The box will move, Mr. Mueller. It is not glued to the desk, or
you can move it a little back. There you go.
Mrs. Keel. Great. Thank you.
Chairman Hill. Thank you, ma'am. You are recognized for 5
minutes.
STATEMENT OF FERRELL KEEL, PARTNER, JONES DAY
Mrs. Keel. Chairman Hill, Ranking Member Waters, and
members of the committee, thank you for the invitation to
testify today. My hope is to shed light on why Rule 14a-8 no
longer effectively serves the interests of shareholders at
large. My observations draw upon my experience counseling
public companies, big and small, on securities, corporate
governance, and environmental, social, and governance (ESG)
activism, but I am here today in my individual capacity and not
on behalf of any client. I will start by outlining a few of the
challenges with Rule 14a-8 and then humbly offer a few ideas as
to alternatives.
Challenge number one, shareholder democracy needs rational
bounds. No right is limitless. For example, if I buy a seat on
an airplane, do I have the right to use it as a soapbox and
hold my fellow passengers captive for the duration of the
flight? In the shareholder proposal world, any individual can
buy a megaphone and a billboard on a company's proxy statement
for $2,000. To put it in context, that represents .000002
percent of the market cap of the average S&P 500 company.
Proponents are getting prime proxy real estate at bargain
basement prices. It does not have to be this way. We see
healthy shareholder engagement around the world despite much
higher participation thresholds.
Challenge number two, Rule 14a-8 is too complex, making it
subjective, inefficient, and easy to manipulate. The SEC has
issued interpretive guidance on Rule 14a-8 through 18 staff
legal bulletins over the last 2 decades. These bulletins change
the goal posts with each new administration, and the guidance
contains exceptions to exclusions and highly subjective
frameworks that force companies and proponents alike to apply
fuzzy standards, like does a proposal transcend ordinary
business, or does it fall short? Is it significant or
insignificant to social policy? Will it have a broad societal
impact or just a limited one? Does it probe too deeply or just
the right amount? The answers can only be known to the eye of
the beholder.
Complexity has a cost, and that cost is that Rule 14a-8 is
unusable to the ordinary shareholder. How valuable is a right
to speak if the average shareholder cannot even figure out how
to submit a proposal? The only people who have a shot are
professional activists, individuals and organizations who are
oftentimes not even shareholders. These professionals
effectively borrow a shareholder stake to get their foot in the
door and then control the process from start to finish. It is
not uncommon for the named shareholder to not engage with a
company a single time. This means that the term, ``shareholder
proposal,'' is a misnomer. In reality, most proposals are
activist proposals.
Challenge number three, a proxy ballot is not an efficient
place to hold a political referendum. Rule 14a-8 has turned
companies' annual meetings into political hotbeds. For example,
this proxy season, multiple companies had one shareholder ask
them to promote Diversity, Equity, and Inclusion (DEI) while
another shareholder asked them to abolish it. More generally,
proposals increasingly ask companies to opine on polarizing
issues as if companies can solve the toughest legislative and
regulatory questions of our day. For example, proposals have
asked a store that sells hammers and nails to make a statement
on reproductive rights, a theme park to state its position on
geopolitical issues in China, a credit card company to
unilaterally formulate and execute gun sale regulation. I want
to be clear, these are critically important issues, but what we
are really talking about can be summarized in three questions.
Is the company's annual meeting the right forum to address
these issues? Are companies best situated to serve as de facto
regulators, or are you? Do shareholders at large garner from
the political proposals that have a tenuous connection to a
company?
Issue number four, shareholder proposals are not costless.
Companies pour an immense amount of energy into addressing
proposals, and it can take a company hundreds of employee hours
to coordinate engagement, strategy, and response. A company
must consider whether it would cause them to jeopardize legal
privilege, breach nondisclosure provisions, disclose
proprietary or sensitive employee information, or reveal
competitive strategies. Reducing the expense of a proposal to
dollars and cents simply does not capture the intangible costs.
What is the alternative? So with a system that is three
quarters of a century old, it is time to rethink the process.
I think there are three essential options. Option one, keep
Rule 14a-8, but significantly revamp it. At a minimum, the
ownership requirement would need to be raised, but it could
also include other modifications, like the SEC getting out of
the business of adjudicating no action letters. The SEC and
shareholders could rely on the independent boards to exercise
their fiduciary duties and apply Rule 14a-8 in good faith.
Truthfully, companies would struggle with this version of the
shareholder process, given it is much easier to blame an
umpire, here, the SEC. Option number two, eliminate 14a-8 and
let States decide what is a proper subject matter, which is
actually how 14a-8 was originally intended to operate and then
option three would be something more akin to what we would
describe as private ordering. So, you would keep 14a-8 but let
companies and their shareholders decide how 14a-8 should be
applied. I am not sure I know which answer is best, but I do
believe that living with the current system does not serve the
interests of investors in the long run, and it will ultimately
hurt both companies and shareholders.
Thank you again for the opportunity.
[The prepared statement of Mrs. Keel follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill. The gentlewoman yields back. Mr. Mueller,
you are recognized for 5 minutes.
STATEMENT OF RON MUELLER, PARTNER, GIBSON DUNN & CRUTCHER LLP
Mr. Mueller. Chairman Hill, Ranking Member Waters, and
members of the committee, thank you for the opportunity to
share my observations on why Exchange Act Rule 14a-8, the SEC's
shareholder proposal rule, should be revised and to address
proxy advisory firms. My observations, which are my own and not
on behalf of anyone else, are based on over 35 years as a
securities and corporate governance lawyer, working with a wide
range of U.S. public companies and addressing literally
thousands of shareholder proposals.
Rule 14a-8 is highly consequential, impacting many U.S.
companies and all of those companies' shareholders, as well as
the U.S. economy. Under the rule, a shareholder can require a
company to include the shareholder's proposal and supporting
statement in the company's proxy statement, thereby allowing
all shareholders to vote for or against the proposal. As
Chairman Hill acknowledged, when this rule was first adopted,
the rule was designed to provide access to a company's proxy
for a proposal that is otherwise proper under State law.
However, the rule has taken on a life of its own, with detailed
eligibility and procedural provisions and 13 substantive bases
for excluding a proposal from the company's proxy statement. If
a company believes that a shareholder proposal does not satisfy
the rule and wishes to exclude the proposal from the proxy
statement, the burden is on the company to submit a no action
request to the SEC or to handle the matter in court.
While I believe that shareholder proposals have and can be
useful, the shareholder proposal landscape has changed
dramatically over the past 10 or 15 years. First, the volume
and the subject matter of shareholder proposals have changed
significantly. During the 2017 proxy season, the number of
social policy and environmental shareholder proposals exceeded
the number of corporate governance proposals for the first
time, and by the 2022 proxy season, the number of social policy
proposals alone exceeded the number of corporate governance
proposals.
Second, the shareholder proposal process has changed. Rule
14a-8 has become subject to dramatic swings in how the rule is
interpreted, resulting in uncertainty and increased costs to
both companies and to shareholder proponents. In addition,
proposals increasingly are crafted by special interest groups
focused on narrow policy issues or specific outcomes. For
example, a group that calls itself The Shareholder Rights Group
includes some actual shareholders but also includes investment
advisors and consultants who handle most or all of the
shareholder proposal process for their clients. They are, in
essence, ESG guns for hire. The 16 members of this group
account for more than 40 percent of all shareholder proposals.
The role of the proxy advisory firms in these developments
cannot be overstated. Shareholder proponents typically cater
and structure their proposals to comply with proxy advisory
firms' voting policies, meaning that the proposal is often a
facade for the true objective of the proponent. As discussed in
hearings before the Subcommittee on Capital Markets, the proxy
advisory firm's objectivity is easily questioned. More
proposals mean more work for them and of course, the proxy
advisory firms have no economic stake, and the consequences of
their voting decisions are not subject to any regulatory
oversight and do not have fiduciary duties to a company's
shareholders.
The shareholder proposal process imposes significant costs
on companies, as Mrs. Keel said, particularly diverting key
employees, executives, and directors from their normal work. As
discussed in my written testimony, receipt of a shareholder
proposal triggers numerous concurrent workstreams that occur
during an already busy time of the corporate year. Given all of
these consequences and costs, one has to question why a single
shareholder owning shares with a value of $2,000 can initiate a
process and pose significant costs that are borne by all of the
company's shareholders. In light of these dynamics, the case
for reform of Rule 14a-8 and for regulatory oversight of the
proxy advisory firms is compelling. Legislation limiting the
abuse of 14a-8 can serve the interest of all shareholders and
will help to maintain the business and focus and promote the
continued success of U.S. companies.
Thank you very much, and I look forward to your questions.
[The prepared statement of Mr. Meuller follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill. Thank you, sir. Comptroller Lander, you are
now recognized for 5 minutes for your oral presentation.
STATEMENT OF BRAD LANDER, COMPTROLLER, CITY OF NEW YORK
Mr. Lander. Good morning, Chair Hill, Ranking Member
Waters, New York members Velasquez, Meeks, and Torres, and
other members of the committee. Thank you for the opportunity
to testify today on the importance of shareholder proposals and
engagement. These tools help protect the retirement security of
New York City's teachers, cops, firefighters, and nurses. They
are also an important foundation of the freedom to invest that
has bolstered U.S. capital markets for decades. Yet, the
sponsors of today's proposals are seeking to gut these modest
tools for accountability, allowing corporate CEOs to run
roughshod over shareholders.
As comptroller of the city of New York, I serve as the
investment advisor, custodian, and a trustee of our city's five
pension funds, managing $300 billion on behalf of over 700,000
current and retired civil servants. My fiduciary duty is clear:
to safeguard their retirement security for many decades to
come. So, we are not day traders. We are long-term stewards,
invested broadly across 10,000 public companies and markets
worldwide. Strong corporate governance and risk oversight are
foundational to healthy companies, healthy pension funds,
healthy capital markets. As investors, we know that economic,
governance, legal, operational, environmental, workforce, and
reputational risks all affect company performance and
shareholder value. Of course, they do. It is our duty to weigh
those risks. Shareholder proposals and engagement are among our
most effective tools to do so.
Over time, shareholder proposals have led to widely
accepted practices that define modern corporate governance,
strengthening our pension funds and broader capital markets.
So, consider executive compensation clawbacks. After the
financial crisis, our systems filed shareholder proposals
urging stronger policies. At Wells Fargo, our 2013 proposal led
to a tougher clawback policy used to take back $60 million from
executives after the fake account scandal or consider insider
trading. In 2021, we brought shareholder proposals that
highlighted concerns we had about 10b5-1 plans at Abbott Labs
and McKesson. Those votes helped inform the SEC's 2022
amendments, protecting all shareholders from insider trading.
Other reforms, such as stock option expensing and advisory
votes on executive pay, began as shareholder proposals and were
later codified.
Another example is shareholder access to nominate
independent directors, an effort we led through our Boardroom
Accountability Project. Independent research has found that
proxy access has led to improved performance at the companies
where it was adopted, and now broadly across the market. Most
of our proposals, though, are resolved through engagement. In
recent years, for example, we brought proposals at several U.S.
banks for disclosing the ratio of their fossil fuel financing
to clean energy financing, a simple disclosure useful for all
investors. JPMorgan Chase agreed and called it ``an excellent
example of what ongoing engagements and pragmatic and
reasonable requests can accomplish.'' At Starbucks, prompted by
reports of management's interference with employees' rights to
organize a union, we filed a shareholder proposal requesting a
third-party assessment of Starbucks' adherence to its own
commitments to workers' rights. The proposal received 52
percent of the votes of all shareholders, and Starbucks
commissioned and disclosed the assessment. Other shareholder
proposals have addressed investor risks, including excessive
drug pricing and addictive opioids, railroad safety, and online
child safety at tech companies.
The proposed legislative changes could block every one of
those. They would erode the freedom to invest that has made
American capital markets the envy of the world. They would lead
to a world with more insider trading, fewer protections for
investors, workers, consumers, and the environment, and more
relatives of the CEO on corporate boards. Indeed, it is no
coincidence these proposals come at the very same time that
some corporations are seeking to evade accountability by
reincorporating in States that have eroded shareholder rights.
Tesla's proposed $1 trillion CEO pay package, enabled by
cronyism on their board, is the most visible example. In other
words, these proposals would harm our teachers, our cops, our
firefighters, and our nurses on behalf of billionaire corporate
CEOs, and, more broadly, they would weaken the United States'
economy.
As fiduciaries, our duty is clear: to protect the financial
security of our beneficiaries with the health of our markets is
essential. Shareholder proposals and engagement strengthen
accountability and ensure that U.S. markets remain the most
trusted and resilient in the world. Let us not screw that up.
Thank you for the opportunity to share my perspective. I look
forward to your questions.
[The prepared statement of Mr. Lander follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill. The gentleman yields back. We will now turn
to member questions, and I recognize myself for 5 minutes for
questioning.
Sarbanes-Oxley and Dodd-Frank have significantly impacted
public corporations' annual proxy statements by increasing
their regulatory requirements for disclosure, words and a
discussion about executive compensation and shareholder access.
Together, these two laws have driven up costs, increased the
length and complexity of proxy statements, and expanded the
disclosure and oversight process, and fundamentally changed
much of the shareholder access to the proxy system. Likewise,
the now rescinded but 2003 safe harbor for investment managers
using a proxy advisor to be off the hook for the responsibility
of voting by delegating that authority to an advisor, that has
been withdrawn but it on top of these other changes, added to
exactly this costly process.
To the comptroller's points, this is not about reining in
executive compensation, capital allocation, dividend policy,
10b5, funds. That is all, I think, absolutely in the realm of
what should be available for proxy access. It is where it goes
beyond that to non-material business operations issues.
[Chart]
Chairman Hill. I put up my static display here in
compliance with House rules to just show the change in the
proxy process since I have been involved in corporate finance
for now 40 years. I picked four public companies that have been
consistently part of the S&P 500 since 1980, my first full year
in the financial business, IBM, Proctor & Gamble, 3M, and Merck
and the proxy in 1980 for IBM was 26 pages, Procter & Gamble,
12. In 2020, IBM's proxy was 83 pages, and Procter & Gamble's
was 85 pages.
Mr. Mueller, let me start with you. As you see these
changes and outlines all the reasons why, both statutory and
regulatory, what would you say is the primary driver for that
length in the proxy statements over the past 45 years? What is
the top contributor you think?
Mr. Mueller. Sure, Chairman Hill. Certainly, three things.
Certainly, the regulations that you mentioned, but I think
there are two other factors going on. One is good and one is
bad. I mean, the good news here is that companies now treat
their proxy statement as a communication document, not just a
compliance document. Shareholder democracy is alive and well in
America, and the proxy statement helps fulfill that purpose,
but the second cause is not so good, and again, it is the
subject of this hearing, which are shareholder proposals and
proxy advisory firms. Proxy advisory firms have certain
criteria as they look for when they are making their voting
recommendations, and they will only look at an SEC-filed
document and so preparing a proxy has now become an ISS and a
Glass Lewis check-the-box compliance process, adding to the
length.
There is also the shareholder proposal process itself.
Whether or not a company receives a shareholder proposal,
companies are acutely aware of what other proposals are being
submitted to other companies. So, many companies try to avoid
that target by proactively saying look at what we are doing on
this issue, look at what we are doing on that issue.
Chairman Hill. Thank you. I have always been concerned that
sometimes more information is too much information, and it is
confusing. I do not know that it is in plain English. I really
admire the issue of trying to expose clarity in management
compensation, for example. I think we want comp committees that
are, as Warren Buffett says, filled with sabretooth tigers, not
pussy cats. On the other hand, I am not sure the average
investor could remotely figure out the pages and pages and
pages of comp comparisons in a proxy, and my advice to the
Commission will be to make that a lot simpler.
Mrs. Keel, thank you for representing Vanderbilt University
today ably. Glad your mic is working. Talk to me about the
economic relevance issue around Legal Bulletin 14M. Do you
think that change will be better to allow companies to exclude
proposals that really do not have an economic relevance to the
corporation's business operations?
Mrs. Keel. Sure. Thank you. I think it is definitely a step
in the right direction, but I do not think we can kind of
overstate that it is going to be the kind of savior to the
process. So before 14L, I counted just about 20 examples of
when the economic relevance exclusion was actually relied upon,
and I think it goes back to my written remarks about the kind
of complexity of actually applying these standards. So, if we
look at this year's success rate with this economic relevance
standard, which, for background, it allows you to exclude a
proposal if it relates to 5 percent or less of a company's
operations.
Chairman Hill. Thank you, ma'am. I appreciate your
testimony. I thought it was quite well done. I yield back, and
I recognize the ranking member of the full committee from
California, Ms. Waters, for 5 minutes.
Ms. Waters. Thank you very much, Mr. Chairman. Mr. Lander,
you are a fiduciary, which means you legally have to act in the
best interests of the city of New York, responsible for the
retirement security of over 750,000 public servants who work or
have worked for the city. I want to get your take on a
developing matter related to shareholder value and shareholder
rights.
As you may have read, President Trump has secured an over
10-percent equity stake in Intel, the great American chip
maker. As part of this deal, President Trump has promised that
the U.S. Government's holdings in Intel will be passive. He has
promised that the U.S. Government will vote with Intel's board
and according to Intel's management on all matters. As a
fiduciary for 750,000 beneficiaries, if you were to own 10
percent of any large company, especially one that apparently
has management and governance issues that have caused it to
lose out to its competitors, would you forgo your opportunity
to exercise voting rights?
Mr. Lander. Thank you, Ranking Member Waters. Of course, we
would not forgo our responsibility, not just our rights, to
exercise our voting power if we were 10 percent of
shareholders, and I think what you said at the beginning about
the hypocrisy being exposed here. I mean, what could be more a
form of crony capitalism than the President deciding without
any clear rules, without any role for Congress, without any
guidelines when the U.S. Government is going to take a position
in companies and then say, as you have just said, that
management can do whatever they want? Ninety percent of the
other shareholders in Intel are people, like our funds, are
small investors, who now have been told the U.S. Government is
going to take a very large position and just let the management
do whatever they want. It will erode independent shareholder
governance and accountability that are foundation of our
capital markets, make it hard for funds like ours to invest
with trust and competence, and it really risks both the
retirement security of small investors and beneficiaries like
ours and the broader independence of our capital markets and
their accountability to shareholders.
Ms. Waters. Continuing on, President Trump is supposed to
be acting in the best interests of the American people. Is it
prudent and financially responsible to blindly go along with
Intel's management on, for example, executive compensation or
providing corporate perks like apartments, private jets, or
year-end bonuses? As you know, these are the kinds of decisions
that Intel's board and management are responsible for. What
will stop them from rewarding their failures if Intel's largest
shareholder is voiceless and voteless?
Mr. Lander. The whole concept of shareholder governance is
that, on the board, there will be some independent members who
represent independent shareholders in relationship to
management. Some interests, of course, are aligned, but not all
interests are aligned, so what is appropriate for CEO
compensation, how the board itself should be structured, how
compensation will be deferred. There are a whole set of areas
where you have got to have independent members of the board
exercising that responsibility to provide oversight and if what
happens increasingly in American companies, is that the
President decides to take a large position and then give carte
blanche authority to its managers, again, that is what we mean
by crony capitalism. On some of these boards, you have the
relatives or buddies or former business partners of the CEOs.
What you need is independent members who are looking out for
the interests of the much broader or smaller and more diverse
set of shareholders, and the steps the President has taken at
Intel jeopardize that independence.
Ms. Waters. Thank you very much. What I do not get is this:
why is it management, with a so-called independence board,
would think shareholders are not interested in having the best
results responsible for the fiduciary concerns of the board?
Why do they believe that somehow they are not in the best
interest of earning profits for everybody? You get it?
Mr. Lander. Yes. Look, this is an important debate. There
is a room for conversation between management and board
members, but shareholders want good returns. At in the
companies that we invest in, all the proposals that we bring
are designed to achieve that.
Mr. Barr [presiding]. The gentlelady's time has expired.
Ms. Waters. Thank you very much.
Mr. Barr. The gentleman from Michigan, Mr. Huizenga, who is
also the vice chair of the full committee and former chairman
of the ESG Task Force, is now recognized.
Mr. Huizenga. Hey, thank you, I was going to say Chairman
Hill, but Chairman Barr. I know Chairman Hill has got a markup.
Mr. Chairman, I do have to at least address one thing. My
family business, third generation sand and gravel operation,
was brought up. I guess I would just note that I am glad I am
not a publicly traded company and not subject to a bunch of ESG
woke activists from California coming in and trying to tell me
how to dig dirt, but not every company has that same fortunate
position.
I do want to thank the committee and Chairman Hill for
continuing to highlight the abuses that happened under the
leadership of former SEC chair, Gary Gensler, who allowed and,
frankly, encouraged activist investors to hijack the
shareholder process and push a social agenda that ultimately
harmed publicly traded companies and their investors. By some
estimates, under the Biden-run SEC, these environmental,
social, and political proposals grew by almost 60 percent. I am
proud of the work of the ESG Working Group, as you had just
noted, and what we did, and many of the exact issues that we
have talked about already today were explored by that
committee.
Last, I think it is crucial that the committee continue to
explore and hold the proxy advisor firms accountable. The
outsized influence of Glass Lewis and ISS have harmed the
shareholder process. These proxy advisory firms bear none of
the consequences their recommendations have and have even
fought against exact proposals when it applied to them that
they encouraged to be applied to other publicly traded
companies. They operate without sufficient transparency and
have become the de facto standard settlers for corporate
governance policies in the U.S. As chairman, I was happy to see
them testify before our Oversight Committee last Congress, and
I think we should continue to hold them accountable, encourage
them to be more transparent, especially as they navigate
conflicts of interest in the firms that they supposedly serve.
Mr. Copland, I want to start with you. A lot has happened
since the first time you came in front of our committee in
2016. The issue of proxy voting and shareholder proposals has
become somewhat of a political football, to say the least, as
shifts in policy have flipped back and forth. How has the
volume and nature of the shareholder proposals changed over the
past decade, and are you seeing more proposals focused on
specific social or political issues and through our work here
in Congress, have we been able to maybe curb some of that and
influence the impact of those?
Mr. Copland. Well, the short answer is the volume has
increased significantly up until this year, and we have seen a
decrease this year. I do think that the----
Mr. Huizenga. Regime change, I think, happened at the SEC.
Mr. Copland. I think the regime change and from the SEC
going from 14L to 14M has made a difference but in terms of how
these have been received, I mean, certainly, as Mr. Mueller
sort of talked about in his opening statement, we have seen, up
until recently, a substantial uptick in the number of social
and environmental proposals. When I started tracking this 15
years ago there were still a fair number of them, but they were
a much smaller percentage. The other thing----
Mr. Huizenga. It has really exploded.
Mr. Copland. Yes, and when I first testified--it was not
the first time I testified in front of this committee, but on
this subject matter--specifically, in 2016, I could say no
shareholder proposal has ever gotten majority shareholder votes
over board opposition at the Fortune 250. That switched shortly
after that in 2017, and you started seeing more of these, and
that reflects the change in voting advice from the proxy
advisory firms and voting pattern from the Big Three. So that
is----
Mr. Huizenga. Well, passive index investors have been
brought up or at least alluded to, and they seem to have scaled
back some of the support for ESG proposals. However, the proxy
advisory firms can swing approximately a third sometimes of
those types of votes. As a committee, we have discussed bills
such as the Investor Democracy is Expected (INDEX) Act and my
Empowering Shareholders Act as a solution, which would, I
think, deemphasize their influence. Should large brokerage
firms continue to move toward empowering individual investors?
Mr. Copland. Yes, I think that is a good idea. I do not
think the uptick is going to be huge from it. So, I do like
something like the mirror voting that the INDEX Act, that
Senator Sullivan originally introduced, does on that. I explain
it more in my written testimony and in the paper I wrote last
year that I----
Mr. Huizenga. We will follow up, and, Mrs. Keel, last
moment. I am going to have to follow up in writing. I wanted to
know resource-wise the impact that these proxy advisory firms
have on the SEC, and we will submit a question. I want to talk
about Toyota in particular.
Mr. Barr. The gentleman's time has expired.
Mr. Huizenga. With that, I yield back.
Mr. Barr. The gentleman's time has expired. The gentlewoman
from New York, Ms. Velazquez, is now recognized.
Ms. Velazquez. Thank you, Mr. Chairman, and, Comptroller
Lander, it is always great to see you, especially here in
Washington.
While the other side continues to rail that corporate
disclosures and shareholder input on subjects like corporate
diversity, executive pay, climate, and political donations are
woke ideas that have no connection to a company's bottom line,
they fail to recognize these subjects are about investment and
market risks. As head of the New York City pension fund, one of
the largest in the country, do you not want all relevant data
and information about an investment?
Mr. Lander. Absolutely. There is simply no simple line for
an investor in thinking about what the risks are at a
particular company. You worry about reputational issues. You
worry about leadership and will it change. You worry about is
the broader regulatory structure in the industry going to
shift. There is no neat line. That is what it means to be an
investor. All investors are trying to get all the information
we can, assessing that range of risks. Yes, of course, some of
them are shifts in the economy or the economic sector, but they
are legal, they are operational, they are environmental, they
are workforce. What these proposals do is bring more
information and transparency so we can evaluate those risks
effectively.
Ms. Velazquez. In fact, is it not your duty as a fiduciary
to our city's pensioners to consider all material data, risks,
and opportunities relevant to a portfolio?
Mr. Lander. Absolutely, and I am lucky to have a great team
of people to help assess those risks, who say here is what we
need to know from a company, and sometimes they will tell us
directly and we can do it through engagement. Often, we file a
proposal, and then the company works with us, as I mentioned,
for JPMorgan Chase. Sometimes we bring a resolution, and that
helps provide that transparency.
Ms. Velazquez. As a fiduciary, is it not true that your
main responsibility is to secure the strongest risk-adjusted
return for your beneficiaries?
Mr. Lander. My fiduciary duty is to secure the strongest
risk-adjusted returns for my beneficiaries, who, again, are
teachers, nurses and school crossing guards. Risk adjusted is
what is key there. What an investor is doing all the time is
assessing risks. How can you do that without the full panoply
of information?
Ms. Velazquez. Thank you for that answer. Comptroller
Lander, you lead our city's pension fund. The New York City
pension fund has filed resolutions for decades on issues
associated with climate change, diversity, human rights, and
political spending. As head of our city's pension fund, what is
your philosophy that leads you and the pension fund to use the
resolution approach and do you believe it is consistent with
your fiduciary duty as chief financial officer?
Mr. Lander. So, we always start from fiduciary duty to
achieve maximum risk-adjusted returns for our beneficiaries,
and again, when you wake up every day responsible for the
retirement of the hardworking people who make our city run, it
is easy to keep that in mind. I gave some examples in my
testimony. If we think a company's got insider trading risks,
that is the thing we are going to look at. With corporate board
diversity, it has been proven through independent research that
Bloomberg and others have done, that having a more diverse
board helps you see the broad issues facing your economic
sector better and improves financial returns. The same is true
for proxy access to nominate directors. That is what we
evaluate. All of the efforts to bring shareholder proposals to
evaluate risks are made to improve that risk-adjusted return.
Ms. Velazquez. Have you found companies to be responsive to
these engagements?
Mr. Lander. Most of our proposals are resolved through
engagement. I gave the example of JPMorgan Chase no small
company, who last year agreed after we filed a resolution with
them asking, seeking disclosure of the ratio of their fossil
fuel financing to clean energy financing, they engaged with us
and they agreed to start providing that disclosure. We then
withdrew the proposal. It did not have to go to the ballot. All
investors have that information.
Ms. Velazquez. So, based on your experience so far, why do
you think my colleagues on the other side of the aisle and
their allies in the Make America Great Again (MAGA) movement
are focused on limiting shareholder input?
Mr. Lander. I really do not understand it. Once upon a
time, Republicans were defenders of free markets, and this is
an effort to erode them and give more power to corporate CEOs
at the cost of small shareholders.
Ms. Velazquez. Thank you. I yield back.
Mr. Barr. The gentlewoman's time has expired. The gentleman
from Oklahoma, Mr. Lucas, also chair of the Monetary Policy
Task Force, is now recognized.
Mr. Lucas. Thank you, Mr. Chairman. Beginning with you,
Mrs. Keel, there is broad consensus here that reforms need to
take place in regard to the shareholder proposal process. How
can we make the necessary changes while protecting the
legitimate rights of shareholders to engage in good governance?
Mrs. Keel. Sorry. Can you say the last part?
Mr. Lucas. How can we make the necessary changes while
protecting legitimate rights of shareholders to engage in good
governance?
Mrs. Keel. Sure. So, I think what we are really here to
talk about is not limiting any sort of shareholder right. We
are trying to add boundaries to make it an orderly process, to
make it focused on things that are important to companies, not
things that are just political referendums to decide whether or
not a social policy is good or bad or has merit. What we really
need to do is to focus on a proposal that is worthy of the
investors' attention and that is something that is going to
bring value to the shareholders.
Mr. Lucas. Let us focus on the relevance exclusion in Rule
14a-8(i)(5). I have heard from industry stakeholders that the
rule's broad language has rendered the exclusion almost
meaningless. Mr. Copland, would a materiality standard be more
workable? Would it be helpful in limiting shareholder proposals
to those that are truly relevant to a company's business?
Mr. Copland. Yes, and I have argued in my testimony and
previously that it would be very helpful to codify materiality
as a requirement for the SEC. I think Representative Huizenga
has got a bill here on that point. It is very important because
we had a SEC commissioner in the last administration, Allison
Herren Lee, who was arguing our disclosure rules did not have
to be material at all, and that is where we got the climate
disclosure rulemaking.
Mr. Lucas. I have been very focused in my time on this
committee on strengthening capital formation through our public
markets, and the previous administration's SEC promulgated
rules that discourage companies from going and remaining public
due to high compliance costs. Mr. Mueller, how can we increase
the attractiveness of our public markets through corporate
governance regulatory framework?
Mr. Mueller. Well, thank you. It is important to reexamine
the rules and make sure they are still working. The good news
here, I think, is that SEC chair, Paul Atkins, is one of the
first chairs in a long time that is looking at old rules and
saying do they justify the cost and benefits. It would also be
incredibly helpful to have a public company advisory committee
at the SEC, and there is legislation supporting that.
Mr. Lucas. Let me simply say in closing, I would note that
my bill, the Public Company Advisory Committee Act, would give
public companies a formal avenue from which to advise the SEC
on the practical effects of their rules, regulations, and
policies. This idea has bipartisan support and would help
prevent the regulatory whiplash that we have seen through the
SEC between administrations. With that, I yield back, Mr.
Chairman.
Mr. Barr. The gentleman yields. The gentleman from
California, Mr. Sherman, who is also the ranking member of the
Capital Markets Subcommittee, is now recognized.
Mr. Sherman. Thank God we have had shareholder proposals.
They have helped us create the norm of having independent
directors, of having annual elections for directors. The
average Russell 3000 company gets a shareholder proposal about
once every 8 years, so we are not overwhelmed by all this. Mr.
Copland and Ms. Mueller say that we should leave these issues
to a matter of State corporate law. What an outrageous attack
on shareholder power because you have got 50 States, and so if
Delaware says no to a trillion-dollar compensation package, you
just go to Texas but wait a minute, Texas might limit you to a
trillion. Go to Wyoming, they will do $2 trillion, and you know
where you can go if you need 3 trillion? You just incorporate
the Cayman Islands.
Look, Wyoming is desperate for money for their State
operations. It is not the job of their legislators to police
the national capital markets, and if they see $10 million or
$20 million or $30 million of revenue for their State, why
should they not accept that in order to make sure that Elon
Musk gets $2 trillion instead of the $1 trillion the cheap
people in Texas might limit him to? We are told that there are
only two firms that are providing this advice, so we should
have more, and we do. Vivek Ramaswamy is creating one. Egan-
Jones is creating one.
I like Mr. Copland for pointing out that these are not
frivolous proposals that just get voted down. The reason we are
here is because these things pass, and the crony capitalists do
not want to be disturbed in their power. This is not about
companies that will not publish a 93-page document that used to
be a 28-page document. Ms. Mueller and others have said, well,
the company should not decide, or the shareholders should not
decide DEI policy. They should not decide ESG policy. Who in
the hell should decide that? The crony capitalists? Mr. Lander,
thank you for pointing out that shareholder proposals have
focused on opioids. If only there had been a shareholder
proposal that passed at Purdue Pharma, that would have been
shareholder value and would have saved thousands, tens of
thousands of lives.
Under communism, the party decides who controls the means
of production, and we are told now by the chair of the SEC that
it is simply illegitimate for the shareholders to have a role
in ESG. We are told by others that you have to be an Ebenezer
Scrooge investor. You cannot be a John Denver investor. In
which country are the capitalists told you have to emphasize
profit over the survival of the planet? Should not the
shareholders decide that? Materiality is what the shareholders
want, not just what is earnings per share.
Mr. Lander, if there was a proposal at a company
considering selling the most valuable AI technology, the keys
to the 22nd century, the keys to dominance in the world, and
the company was going to make a lot of money and big bonuses
for management, do you think that would be good shareholder
value that you would vote for?
Mr. Lander. This is such a good example. We are going to
need good AI policy in the coming years, and, of course,
Congress will have a role in developing and setting it, but the
corporations that are operating that technology are clearly
going to have a role as well. Of course, shareholders need an
ability to weigh in on those issues and not just leave them to
managers who indeed have much more short-term and personal
interests. So, that is a great example of something that needs
to be figured out in this.
Mr. Sherman. Now, when the corporation can hire whatever
law firm it wants without criticism, they can devise policy
without sharing it in advance with the other side, if there is
a battle between management and shareholders, should it be a
fair fight, or should we have rules as to who you can hire if
you are a shareholder, but no rules for who you can hire as in
a consultant, if you can?
Mr. Lander. One thing I think that is important to point
out is the SEC already rules for management 68 percent of the
time when shareholders bring proposals and managers object to
them. So, it is not a we/no we----
Mr. Sherman. We should be changing the rules to allow more
shareholder democracy. I think Ms. Mueller pointed out how
complicated these rules are. We should make them simple and
allow shareholder power. I yield back.
Mr. Barr. The gentleman yields. The gentleman from Texas,
Mr. Sessions, is now recognized.
Mr. Sessions. Mr. Chairman, thank you very much. I want to
welcome the panel that we have today. I think each of you have
come to Washington, you knew what existed before you came up
here, and that is the difference of the sides, not only
politically, but also our viewpoint of the marketplace. So, I
learned a long time ago that politically driven policy
certainly has objectives and it also has outcomes. The outcomes
that I think that I follow, as my dear friend, Frank Lucas
said, is shareholder value when we are dealing with these
companies.
So, Mr. Copland, during the Biden years, over 80
environmental and social shareholder proposals were approved.
Yet in the past year, for these proposals, many of these
proposals collapsed with no environmental proposals passing and
only four social proposals succeeding. Generally speaking, I
have heard you and the panel say that they think that the big
three passive assets managers had a direction to this outcome.
Could you discuss that again for me, please?
Mr. Copland. Yes. All three of the passive index fund
families--BlackRock, Vanguard, State Street--reduced their
support for the environmental and social proposals relative to
recent norms. I mean, they previously were not as much behind
them, and then there was sort of this bubble up, and then this
year they have pulled back. The proxy advisory firms also have
been less likely to recommend for some of these proposals. I do
think, obviously, the change in leadership in Washington has
had a lot to do with that, as well as public----
Mr. Sessions. So, is it policy that is political, not so
much economic?
Mr. Copland. Well, there are economic imperatives, right? I
mean, when BlackRock is facing investigation from State
attorneys general, when they are seeing advertising campaigns
about it, it could hurt their market share, et cetera. I think
they have realized some of this, but I do think a lot of it is
there is a different sort of an enforcement environment. There
is a different rulemaking environment, and so there----
Mr. Sessions. Sometimes it is a result of actually how the
performance in the marketplace worked. I do not want to just
say Tesla. There could be a lot of other things but some of
these, the selling of these proposals based on politics, did
the outcome not exactly work the way we thought it would, did
it?
Mr. Copland. No. I mean, it is a strange example to fixate,
as some of the members have, on executive pay at a company that
has, in the last 25 years, become one of the 10 biggest
companies in the world. It is a strange fiduciary obligation
that the comptroller is asserting here, and that is part of the
problem, right? I mean, we need shareholder oversight, but we
need shareholder oversight for people who have skin in the
game, that are long-term thinkers, and that are taking
significant stakes in companies. Like, real activist investors,
saying we are long-term buy and hold in the entire market. The
passive index funds are the same way. Why are they well
positioned to be dictating this stuff? You know, he is an
elected politician.
Mr. Sessions. Yes. Mrs. Keel, if you could address for a
second the impact. We receive feedback as Members of Congress
from companies, many times CEOs, many times board members.
Could you tell me what you think they have a feeling about
having these, in essence, three big companies, three big asset
manager groups to drive the people and their agenda?
Mrs. Keel. Sure. I mean, every company is going to have to
take into account the different constituents, and so there is a
lot of engagement. I think there is kind of a misunderstanding
sometimes that companies are not engaging with their
shareholders. They are, and they are doing it during the
season, off season. They are always talking and receiving that
feedback. So, I think that companies welcome shareholder
feedback. I think that just needs to be clear.
Mr. Sessions. Yes, ma'am, but I am talking about
specifically that is driven by these asset managers that are
attempting to drive what might be political ideas as opposed to
necessarily economic as it relates to that company.
Mrs. Keel. No. So, I can focus mostly on the proxy
advisors. I think companies probably feel the sting from the
proxy advisors a bit more directly and acutely than the big
three, but you are certainly right that each of the big three
has their own policies, and they apply those. As a company is
evaluating what it is going to do or position it is going to
take, it has to look at all of its big stakeholders, each one
of their policies, each policy of the proxy advisor, and it is
going to have to kind of take into consideration each of those,
in addition to the SEC requirements and other regulatory
environments that they are subject to.
Mr. Sessions. Thank you. Mr. Chairman, I think that this
panel, as we have gone across both sides, is answering a lot of
important questions, and I thank them, and I thank the
chairman. I yield back.
Mr. Barr. The gentleman yields. Thank you. The gentleman
from New York, Mr. Meeks, is now recognized.
Mr. Meeks. Thank you, Mr. Chairman, and welcome,
Comptroller Lander, to Washington, DC. You know, I am sitting
here and listening to the questions, and I have been thinking,
why are we here today? I think we are here today because
Republicans think it is bad that shareholders of companies get
to decide how their companies that they own operate. They are
upset because that some shareholders of some companies choose
to emphasize things like the environment, like diversity, and
LGBTQ rights. You know, different studies have been done on the
companies that undertake environmental, social, and governance
initiatives, and I have had the opportunity to talk to some of
the CEOs and others, and you know what they have told me? I
said, ``Why do you do these things?'' Often, what they say to
me is because it is good for business. It is good for their
bottom line. That is why they do it.
Here we are, and we continue to focus on everything else
rather than confronting the President of the United States'
gross mishandling of the economy. I got to tell you, I never
expected to see the day where a Republican President is taking
10-percent stake in an American manufacturer on dubious legal
authority but you know what surprises me more is that my
Republican colleagues in Congress, who say that they are for
free market, is entirely silent on this issue, if not
supportive, and that is not to mention Donald Trump's trade war
against the world. The economy is slowing, prices are
increasing, and the unemployment rate is rising. Countries
around the world are no longer sending us packages, and postal
shipments are now down 80 percent. My Republican colleagues
could do something about this if they demanded a vote on
repealing the tariffs, or you know what they could do? They
could sign my discharge petition to get a vote on these tariffs
that raises the taxes on American families, and that is the
context for today's hearing. The President wants to bring
parochialism to the Potomac, and Republicans in Congress want
to look the other way while arguing owners of a company should
say less in how their company is ran.
Comptroller Lander, my colleagues on the other side of the
aisle, I believe this is what they are trying to do. They are
trying to turn ESG into a boogeyman, but I want to ask you to
clarify for the American people how this actually works. If a
shareholder proposal gets a vote, does it only need 10-percent
support to govern the company? Yes or no.
Mr. Lander. No, Congressman, it needs a majority.
Mr. Meeks. Oh, more than 25 percent?
Mr. Lander. Well, I am sorry, more than 10 percent, more
than 25.
Mr. Meeks. More than 40 percent?
Mr. Lander. More than 40 percent.
Mr. Meeks. Oh, I am shocked. So, it needs at least, what? A
majority is what you say?
Mr. Lander. Fifty percent plus one.
Mr. Meeks. Okay. So, a majority is needed to approve a
proposal. What are the demographics of the shareholder base?
You know, are there young, left-wing activists the main holder
of capital in this country?
Mr. Lander. They are not.
Mr. Meeks. They are not. Okay. Now, so the shareholders are
disproportionately the founders and senior managers of a
company, risk-adverse institutional investors, and working
Americans interested in saving for retirement rather than
cultural wars. Would you say that it better describes who these
individuals are?
Mr. Lander. Yes, it does.
Mr. Meeks. All right. Now, in the little time I have--I
chair--ranking member of the House Foreign Affairs Committee,
and I am concerned that Republicans are making moves now that
would restrict investor shareholder rights and backfire on us
because Europe is actively making itself more attractive to
global investors, integrating its financial markets, and
rolling out new reforms to deepen market access. For example,
the European Commission even rebranded its Capital Markets
Union as a new Savings and Investment Union to channel more
private investment into EU markets. So, my question is, if we
hamstring investors here in the United States by undermining
their rights, will not pension funds like New York City now
just look other places and go overseas to put their money?
Mr. Lander. If we allow this to be adjudicated in 50
different State courts, we will see much less investment in
U.S. capital markets.
Mr. Barr. The gentleman's time has expired. I now recognize
myself for 5 minutes, and it is good to hear my friend from New
York extol the virtues of business and capitalism. Maybe he
could impart that wisdom on his friend, Mr. Mamdani. Maybe he
can learn from you, Mr. Meeks.
Let us be clear. Allowing a small group of left-wing
activists to hijack the proxy proposal process to push social,
environmental, DEI, or political objectives totally unrelated
to the core business of a company does not advance the cause of
capitalism. It undermines capitalism. It corrupts capitalism
because it results in the misallocation of resources of the
company. It undermines the profitability of the company. It
hurts the shareholders. It does not advance the value of the
shares of the stock. It hurts the value of the shares of the
stock. That is what we are talking about here today and let us
go to Mrs. Keel because you have seen this in your practice.
What is the cost in terms of time, resources, legal fees, of
responding/engaging with these petty political shareholder
proposals?
Mrs. Keel. Sure. So, I am happy to kind of tick through
what the, especially the intangible costs are, which is
deciding whether something has first been substantially
implemented. So, a lot of times, these proposals will have been
already considered by a board and implemented. That is a cost
to determine that in and of itself. You will have to decide
whether it is a compliance with law type proposal. So, for
example, this season, we saw a lot of illegal deforestation and
avocado supply chain proposals. Next, you are going to have to
ask, is this something----
Mr. Barr. Avocado supply chain. I mean, this stuff is so
absurd. Does any of this advance the profitability of the
enterprise?
Mrs. Keel. I have not seen the financial analysis.
Mr. Barr. So, it is not about what is good for business. It
is actually trying to hijack and undermine the business. It is
an attempt to politicize the business, totally unrelated to the
mission and core mission of the business. Mr. Mueller, how has
the SEC's interpretation of significant policy issues evolved
over time, and has this evolution contributed to the use of
shareholder proposal process for non-pecuniary ends?
Mr. Mueller. It certainly has during the Gensler
Administration. The SLB 14L that we talked about just totally
divorced relevance to the company from the shareholder proposal
process. It is important to focus on that many of these
proposals that are being cited as good examples were all
corporate governance proposals, but if ESG matters are good for
the companies, then the executives are pursuing that. They do
not need the cost and expense of a shareholder proposal to tell
them how to run the company best.
Mr. Barr. Explain how the determination of what is a
significant social policy issue has changed over the years and
why the shifting SEC interpretations are harmful.
Mr. Mueller. The shifting interpretations are harmful
because they really introduce cost to both sides, makes it hard
for shareholders to know what is a proper proposal to submit,
and it makes it hard for companies to say do we have to fight
this at the SEC or should we put it in the proxy statement.
Mr. Barr. Mrs. Keel, why is not the SEC Rule 14a-8(i)(5),
which is supposed to exclude irrelevant proposals, and all
these proposals are totally irrelevant to the management of the
company. Why is that not more frequently used as a basis for
excluding shareholder proposals?
Mrs. Keel. Sure. So, first you have to do a calculation of
the 5-percent test. That is fairly straightforward, although it
is also unclear how to apply that, but then there is an
exception that says unless it is significantly relevant or
important to a company. If you give some examples from this
season, we saw four that were successful. They related to human
rights in India, sugar supply chain, puberty blockers, and the
sale of the abortion pill. Those are examples of what was
successful in getting them excluded and then the ones that were
unsuccessful were reports on religious discrimination,
indigenous people's rights, and human rights in Russia and
Ukraine. So, you see that it is kind of hard to draw a line----
Mr. Barr. The example that you give about a business that
is in the business of selling hammers and nails, and they have
a proposal on reproductive rights. I mean, this stuff is out of
control, and we need to get rid of the politicization of
business. This is not about capitalism. Let us be clear. This
is about hijacking capitalism. It is about politicizing
businesses. We got to get rid of this rotten stuff, and we got
to get back to actual capitalism so that shareholders can
actually get a return on their investment and get politics out
of this so that shareholders do not lose the returns that they
deserve.
With that, I will yield and recognize the gentleman from
Georgia, Mr. Scott.
Mr. Scott. Thank you very much, Chairman. You know, the
stock market is the heart and soul of our financial system. I
went to elementary school in Scarsdale, New York, at Fox Meadow
Elementary School. Our class project in the sixth grade was to
go out, earn our own money, do our own research and purchase
stock, and then take the Scarsdale bus down to the New York
Stock Exchange and buy stock, and I have been buying it ever
since. I can tell you this: proxy advisors provide critical
independent research and recommendations that allow
shareholders to hold boards of directors accountable and to
assess responses to corporate government, and make the investor
have some sense of protection. That is all we are talking about
here.
So, Mr. Lander, without proxy advisors, what challenges do
shareholders face in analyzing thousands of proposals and
director slates during the proxy season?
Mr. Lander. Small shareholders simply would not be able to
have information to assess the risks they are facing and vote
their interests without the kind of information that the proxy
advisors give. Let us remember, these rules come from the SEC's
creation out of the Great Depression and the stock market crash
specifically to give small investors the ability to competently
invest their money in the stock market and getting the
information that they need is critical for small investors like
you----
Mr. Scott. Yes.
Mr. Lander [continuing]. and many others to be able to
engage in investment competently.
Mr. Scott. Well, I am glad you make that point that proxy
advisors are not dictating outcomes, but they are empowering
investors, large and small, with information they would
otherwise lack and need, and that is all it is. So, critics
argue that ISS and Glass Lewis yield outside influence, address
this, but is it not the case that their recommendations are
just that, recommendations, and that these investors still make
their own voting decisions? Is that----
Mr. Lander. That is correct. So, we vote all our proxies at
U.S. companies. We subscribe to both ISS and Glass Lewis to get
information.
Mr. Scott. Yes.
Mr. Lander. My team review that information as we make our
independent decisions, so their advice is just advisory. Most
of the time, they side with management----
Mr. Scott. Mm-hmm.
Mr. Lander [continuing]. when there is a difference between
management and proposal bringers and it is worth remembering
that the shareholder proposals themselves are advisory. They do
not dictate policy to companies. They let management know the
opinions of their shareholders, and the vast majority of the
time their advisory is adopted.
Mr. Scott. Now, Mr. Lander, what barriers to entry exist
for new proxy advisory firms, and what can Congress and
regulators do to foster more competition without undermining
the independence of the advice provided?
Mr. Lander. This is a great question, and I think it would
be a great topic for the committee to explore how to encourage
more information to be provided. As was mentioned, some new
firms are coming on to the marketplace. I do not know that we
will subscribe to Mr. Ramaswamy's service but of course, he
should be able to provide it and give more information to
investors, but the answer cannot be less information for
shareholders and investors. It has got to be more.
Mr. Scott. Thank you very much. Appreciate it.
Mr. Williams of Texas [presiding]. The gentleman yields
back. I now give myself 5 minutes.
Witnesses, for many small and medium private companies
considering an Initial Public Offering (IPO), the decision
often comes down to whether the benefits of assessing public
markets outweigh the risk of compliance but as we have seen in
recent years, the shareholder proposal process can be dominated
by a small group of activist investors advancing niche
political agendas that have little to do with long-term value
creation. At the same time, proxy advisory firms wield outsized
influence over voting outcomes and operating with limited
transparency and potential conflicts of interest. So, together,
these dynamics can create an uncertainty and additional costs
that make public markets less attractive.
So, Mr. Copland, can you explain why the existence of both
radical shareholder activists and proxy advisory firms can be a
deterrent for small and medium cap companies that are looking
to go public?
Mr. Copland. Certainly. I mean, at the end of the day, you
have got these activist forces empowered by a SEC rule that are
trying to tell you how to run your business. It is important
for shareholders to have oversight, but why do we have
shareholder voting rights? It is not to create mini democracies
with companies. You do not have to be an expert. I say this in
my testimony. You do not have to be an expert in public choice
theory to understand that it is hard for the political process
to work efficiently. It is good that we have representation
here, but this is not a body that is known for its efficiency.
Businesses need to be efficient. So, if you are trying to run a
business, I mean, certainly we want them to come to public
markets. It is a good way to allow original founders of the
companies to get liquidity. It is a good way to allow everyday
people on the street to get a piece of those returns and when
we are making it harder and harder for these public companies
to do that, it hurts the average investor out there as well as
the company's returns themselves.
Mr. Williams of Texas. Sorry. As we have seen in recent
years, the proposal process has been overtaken by activists who
filed dozens of proposals, many of them pushing political or
social agendas that are far removed from adding shareholder
value. Boards are spending hundreds of hours each proxy season
dealing with these kinds of proposals, and while companies are
dragged into debates over climate policy, DEI, or other issues
that have no place in the boardroom, this politicization
undermines the very purpose of shareholder oversight. So, Mr.
Mueller, how do you distinguish between a proposal as a
legitimate tool for corporate oversight and one that is an
illegitimate tool to make a political statement?
Mr. Mueller. Sure. Well, certainly, corporate governance is
the relationship between boards and shareholders, and we have
talked about some of the good corporate governance shareholder
proposals but when proposals start interfering with how a
company is running a business, and not just asking for
information about that, but really seeking to dictate what
actions they take, whether the company is pursuing a certain
climate change strategy or not, and really remove that from
relevance to the company business, those proposals are clearly
an activist proposal.
Mr. Williams of Texas. Okay. In recent weeks, the U.S.
District Court for the Western District of Texas, my State,
entered a preliminary injunction against the Texas law, SB
2337, which would bring transparency to the proxy duopoly by
requiring these firms to file disclosures when their services
are based on non-financial factors, such as ESG or DEI
considerations, recommend a vote contrary to company
management's recommendation, or provide conflicting advice
across clients. So, Mr. Copland, again, to you, what benefits
do you see as a result of this legislation, if implemented, and
how can transparency bring balance to proxy advising?
Mr. Copland. Yes, I think it is valuable to have
transparency in this market too, right? I mean, at the end of
the day, we have these voting rights because of agency costs.
The people running the businesses are not necessarily going to
act in the best interest of the shareholders. It is why we want
these voting rights, but these proxy advisors have more agency
costs. Ultimately, I think a Federal solution here would be
better, but it makes sense that in the absence of Federal
action or with legal contestation and withdrawals of various
Federal action in this, that a State is going to stand up for
it. Again, corporate governance should be a State-level
question, disclosure. This is what my Yale law professor,
Roberta Romano, called the genius of American corporate law.
Disclosure at the Federal level, substantive rights at the
State level, this has worked. This is why we dominate world
capital markets, and all of these trends are undercutting the
secrets of that success.
Mr. Williams of Texas. Thank you very much. I yield my time
back. The gentleman from Illinois, Dr. Foster, is now
recognized for 5 minutes.
Mr. Foster. Thank you, Mr. Chair, and to our witnesses. I
would like to start by just pointing out that lengthy proxy
statements, as was pointed out by Chairman Hill, are not
necessarily an intrinsically bad thing by themselves. You know,
I looked at the four companies you talked about where the
length of the proxy statements has gone up by several hundred
percent. Well, the market cap of the companies involved have
gone up by well over a 1,000 percent over the same time period.
So, it is not necessarily a trend that is out of scale with the
increased complexity and size of their operations.
Also, in the future, all of the shareholders are going to
do what we are already doing already, which is to ask your
personal AI agent to summarize these complex proposals, and
they will look at them in whatever level of detail they are
comfortable with and want and so, it will be possible for the
average shareholder to make a decision on the basis of the
amount of information that they can actually absorb. So, I
think that same point applies to very complex regulations where
we are going to be able to use AI to tolerate very complex
regulations because of the ability to chew through the
complexity.
I would also have to say that I am in favor of making some
tweaks to this in particular, when I looked over the list of
the requirements to bring forth a proposal. The point that you
have to be a long-term holder, I think, is fundamental. I am
very concerned about sort of the rise of meme stocks with
completely disconnected share price from any plausible future
revenue stream from the companies, and I was going to choose
what hearing to have, that would be it because that is
generating huge misallocation of capital in our country. So I
would put not only GameStop, but Tesla in that bin. This is not
investment advice. I just want to make that clear.
Another point is that political ideas have financial impact
on companies, and you cannot really hide from it. You know, we
see that in the company I started 50 years ago that now
manufactures most of the theater lighting equipment. When our
country behaves badly: we saw this when President Bush got us
into the war in Iraq by telling a bunch of our allies things
that turned out not to be true, that we found foreigners simply
did not want to buy American products and if you ask yourself
why is it that we are now in our sixth month of a manufacturing
contraction since the start of Liberation Day, and this is not
new. It is a repeat of what happened in the first term of the
Trump Administration where his policies put us into a
manufacturing recession one full year before the Coronavirus
Disease (COVID) hit, okay? So, reputational risks are real, and
a company's stance on the issues of the day matter certainly to
their customers of these companies, and that hits the bottom
line, so I think it is a mistake to imagine that companies can
hide from these things.
Let us see. I was interested, Mr. Lander, you referenced in
your remarks that, actually, if you look at companies that have
had some of these DEI proposals go through, that it has not
been bad, which is sort of the narrative I am hearing from the
other side of the aisle. Can you say a little bit about the
actual research and the numbers here?
Mr. Lander. Yes, thank you, Congressman Foster. So, an
independent study, I mentioned something specifically looking
at shareholder access to the company proxy to nominate
directors that came through the work of the New York City
pension fund before I got there. An independent analysis found
that it added 0.5 percent to shareholder value at the companies
who adopted it, potentially adding up to billions across the
market and separate from that, a group of business professors
at the NYU Stern School of Business evaluated 1,000 studies and
found that 58 percent showed a positive relationship between
environmental, social, and governance efforts and corporate
financial performance, 13 percent had neutral outcomes, and
only 8 percent had negative effects.
Mr. Foster. So, then, however, I think that there should be
maybe some adjustment of the threshold by how significant an
issue this is for a reasonable number of the shareholders, and
are there simple tweaks? Yes, Mrs. Keel, are there some simple
tweaks to simply increase the threshold so you have to make
sure this is a major issue for more of the shareholders?
Mrs. Keel. Sure. I mean, I think that would be the kind of
easiest and most straightforward, right, to make sure that
somebody who is submitting a proposal has the, as Mr. Copland
said, an economic skin in the game to make sure there is an
alignment of interest, so that would be, I think, the simplest.
I think there are other ideas, too, just about the resubmission
thresholds, thinking about whether or not significant social
policy should be something that the SEC is deciding or is that
something that a company should be thinking about because the
reality is that they are actually already thinking about all of
these political issues, the tariffs, et cetera. They are
thinking about those issues deeply in the boardroom before
these proposals even come about.
Mr. Foster. Yes, I think that also strengthening the
whole----
Mr. Williams of Texas. The gentleman's time is up.
Mr. Foster. Thank you. I yield back.
Mr. Williams of Texas. The gentleman from the great State
of Georgia, Mr. Loudermilk, is now recognized for 5 minutes.
Mr. Loudermilk. Well, thank you, Mr. Chairman. My bill,
H.R. 3402, would amend the Exchange Act to require that
institutional investment managers file an annual report showing
how they voted and their alignment in consideration of proxy
advisor recommendations. It would also require that
institutional investment managers with over $100 billion in
assets under management be required to clarify that
shareholders are not obliged to vote on every item and to
conduct an economic analysis that a vote is in the investor's
best economic interest.
Mr. Copland, can you please explain the relationship
between institutional investment managers and proxy advisory
firms? In other words, why do institutional investment managers
hire proxy advisory firms to start with?
Mr. Copland. Well, because it is an extremely complicated
thing to vote on all these proxy ballots. I mean, Comptroller
Lander talked about they have 10,000 or some odd investments.
That is true for a lot of these institutional investors, and
they do not really get a competitive advantage. It does not
help their investment return to being a better voter. So, a
really large family of companies--you know, the Vanguards, the
BlackRocks of the world--they have teams on this. Smaller
institutional investors do not as a general rule, or at least a
lot of them do not, and so they need help to execute this, so
there is an economic rationale there. They have also been
prodded that way, as was discussed earlier, by both Department
of Labor (DOL) rulemaking in the Employee Retirement Income
Security Act (ERISA) context, as well as by the SEC in 2003,
which sort of created this demand by, for a while there at
least, giving a safe harbor to rely on this investment advice.
Mr. Loudermilk. Okay. Can you explain what is robo-voting,
and why is it used by institutional managers?
Mr. Copland. Robo-voting is basically just a catchphrase to
discuss we are going to basically effectively outsource our
voting to the proxy advisor. We commissioned a study by
Professor Paul Rose in 2021 that looked at this, and we found a
significant percentage of the market that was doing this, which
is why when we studied ISS in 2012, we saw that for these
precatory shareholder proposals, about 15 percent of the voting
total was de facto controlled by ISS.
Mr. Loudermilk. Okay. So, instead of just taking advice
from the proxy advisory firm, they are just handing their vote
over to them?
Mr. Copland. Right. They are not making an independent
assessment.
Mr. Loudermilk. Okay. Could robo-voting harm the clients of
institutional investment managers? Could it harm their overall
returns?
Mr. Copland. It could. You know, the complication with this
question is that for the individual firm, it is just probably
not because of a small percentage of the vote, you are not
likely to have an outcome-determinative vote on any of these
questions. In the aggregate, I think it harms it, and part of
what it is doing there is we are basically creating this
Rockville, Maryland-based business owned by the German stock
market----
Mr. Loudermilk. Right.
Mr. Copland [continuing]. is effectively driving 15 percent
of the vote for all the publicly traded companies. I mean, that
is huge.
Mr. Loudermilk. That is huge. Why would a disclosure
requirement for large institutional investment managers
concerning whether they have engaged in robo-voting be useful?
Mr. Copland. I think it is useful because it enables
individuals and institutions that put their money with those
firms to know that is happening, right, and it could create
some pushbacks. It is a softer-form approach than totally
banning this sort of thing.
Mr. Loudermilk. Right.
Mr. Copland. There are some bills out there that are
floated on that as well. I think disclosure is a good
disinfectant, in general, and I think it is a relatively soft-
touch approach but one I think would be quite useful.
Mr. Loudermilk. So, you talked about 15 percent being from
a German-owned organization, right? Is that theoretically then
bringing European ideas and interests and standards into the
American marketplace instead of these investment managers
making their own votes and decisions?
Mr. Copland. Well, it certainly could be. That is the risk,
and there are conflicts of interest in all directions for the
way ISS and, to some degree, Glass Lewis, the other big player,
operates as well. I mean, there was an article in the Free
Press just recently that stated NVIDIA has a larger market
capitalization than the entire German stock market.
Mr. Loudermilk. Wow.
Mr. Copland. Yet, the German stock market owns the proxy
advisor that controls 15 percent of the vote here.
Mr. Loudermilk. Wow. That is amazing. Last question. Do you
have any other ideas for regulatory reforms that would reduce
the influence of proxy advisory firms without imposing
excessive costs on the institutional investment managers or
stockholders?
Mr. Copland. We have a lot. You know, the time is limited
to go through them all, but I reference in my written testimony
a paper I co-authored with David Larcker and Brian Tayan at
Stanford in 2018 that went through this as the SEC was looking
at this. They did a rulemaking in 2020, and then it was
partially rescinded with the administration change, and they
have been in court, and three different circuits have been
opining on it. So, it is kind of a mess, which is why it would
be good for this body to act.
Mr. Loudermilk. Yes. Okay. Well, thank you. I yield back.
Mr. Copland. Thanks.
Mr. Williams of Texas. The gentleman yields back. I now
recognize the gentlewoman from the great State of Ohio, Mrs.
Beatty.
Mrs. Beatty. Thank you, Mr. Chairman and Ranking Member,
and thank you to all of the witnesses for being here today. I
just have a couple of questions that I want to try to get
through.
Mr. Lander, as you know, many of the attacks on shareholder
advocacy, and even ESG investing, argue that these are
extraneous, immaterial issues with no relationship to a
company's bottom line, and I believe you strongly disagree with
these allegations that you are hurting companies financially.
Can you explain your perspective on this?
Mr. Lander. Well, first, I find it especially funny when
people attack ESG as not relevant to corporate governance when
the ``G'' stands for governance. So, outlawing ESG proposals,
but saying, no, we are fine with a proposal about executive
compensation or the role of the board. I mean, just read the
words. Like, that is what governance is. Attacks on ESG are
attacks on corporate governance. That is what they are and then
I thought, actually, that Representative Foster made this very
clear: this idea that if you say ``pecuniary,'' somehow you are
excluding everything I do not like and only including profit
makes no sense at all. You are evaluating risks, like will
there be new regulation by Congress on some areas that might be
affected by the business we are investing in? You know, we had
concerns at Tesla when Elon Musk left as CEO, and there was no
CEO, but we also had concerns that if he was pursuing action
that was going to make it harder to sell electric vehicles
(EVs) through action he was taking here, that was going to be
bad for EV sales. Well, that is pecuniary if you are a Tesla
investor.
So, there is simply no way to draw a neat line, and that is
the job of investors, to evaluate this broad set of regulatory
and operational and legal and governance and, sure,
environmental and workplace risks. Why stop investors from
getting all the information that they need to make their own
decisions? If other investors do not want that information,
that is fine. I am not telling them how to invest, but I do not
understand why Members of Congress are trying to tell me how to
achieve my fiduciary duty to my beneficiaries.
Mrs. Beatty. Thank you, and thank you, Mr. Foster, because
I think that was a good segue and allowed you to respond. Let
me move on. I am going to stay with you on this next question.
While numerous red State treasurers and financial officers have
written companies calling them to abandon working together on
climate change or to end their diversity, equity, and inclusion
programs, I understand that financial officers in blue States
have also written to companies they own to invest and
investment managers that they use, urging them to stand firm in
their support for sustainability programs, citing that it also
promotes long-term shareholder values. I would be interested in
hearing your thoughts on why these financial officers are
taking public stands in support of maintaining these programs.
Mr. Lander. Thank you. Let us just use BlackRock for an
example for a moment. So, in a letter to investors several
years ago, Chairman Fink wrote climate risk is financial risk.
Now, everyone knows climate risk is financial risk. You can
choose to evaluate it as you see fit, you can have a different
political point of view on it, but of course climate risk is
financial risk. You might be a utility company, and if there
are more wildfires in your area, you might be accused of
causing them or you might have to move your infrastructure to
address them. So, that does not seem like a complicated or
political statement, and yet, red State treasurers declared war
on BlackRock and threatened to divest or hold them accountable
legally if they did not back off of the simple idea that
climate risk is financial risk. I am sad to say that what that
has led to is a walk-back of voting for proposals simply to
provide disclosure. The proposal I mentioned that JPMorgan
Chase ultimately agreed to, BlackRock did not vote for at other
companies, denying its customers and other investors simple
disclosure.
Mrs. Beatty. Okay. Thank you, and, Mr. Chair, I yield back.
Mr. Loudermilk [presiding]. The gentlelady yields. The
gentleman from Ohio, Mr. Davidson, who is also the chair of the
Subcommittee on National Security, Illicit Finance, and
International Financial Institutions, is now recognized for 5
minutes.
Mr. Davidson. Thank you, Chairman. As chairman of the
National Security Subcommittee, The Committee on Foreign
Investment in the United States (CFIUS) and its screening
authorities grabbed my attention. Foreign investments that
could threaten our national security are supposed to get
scrutiny. In the case of ISS and Glass Lewis, both foreign-
owned companies with an extremely outsized impact on proxy
voting in our capital markets, they have not been subjected to
CFIUS review. ISS, founded in the United States back in 1985,
is now majority owned by Germany's Deutsche Borse Group, the
powerhouse behind Frankfurt's stock exchange. That is a
foreign-owned entity calling shots in how America's
institutional investors vote trillions of dollars with U.S.
shares. On May 10, 2024, my colleagues, Congressman Andy Barr
and Congressman Bryan Steil, urged Treasury Secretary Janet
Yellen to have CFIUS review this acquisition, and here we are
over a year later picking up the pieces from the previous
administration. Then there is Glass Lewis, started in San
Francisco in 2003, but snapped up in 2021 by Peloton Capital
Management, a Toronto-based private equity firm.
ISS and Glass Lewis are not small outfits. Together, they
dominate 97 percent of the proxy advisory space, influencing
votes on everything from board elections to ESG mandates that
shape corporate policies and significantly influence America's
capital markets. In a world where we are laser-focused on
foreign influence in critical sectors like tech and
infrastructure, why are we not properly screening foreign
companies that control corporate governance in our country?
Could these ties inject biases, say European-style green
mandates or Canadian anti-growth policies, into U.S.
boardrooms, undermining American competitiveness? We need
transparency and safeguards to ensure these firms are not
advancing agendas that put foreign interests ahead of American
shareholders.
Look, the shareholder proposal process under Rule 14a-8 was
meant to give real shareholders a say in how companies they own
or run, holding boards accountable and driving long-term value
for America's retail investors who are saving for retirement
but under the Biden Administration and SEC chairman, Gary
Gensler, it has been turned into a playground for activists and
special interest outfits shoving their ideology and political
crusades down the throats of companies that just want to focus
on growing their business and raising capital. Why go public in
America when you can dodge this regulatory circus? Congress has
to get in the game with real reforms to Rule 14a-8, jack up
ownership thresholds, so you have got actual skin in the game
and a holding period, beef up exclusions for this irrelevant
ordinary business meddling, and slam the door on resubmissions
for proposals that keep bombing us at the ballot box, all
propped up by two proxy advisory kingpins.
Speaking of those kingpins, ISS and Glass Lewis, with their
97-percent stranglehold on the market, they are the real
enablers here, steering institutional votes like puppets
without a shred of accountability or transparency. Their
recommendations are really activism masquerading as advice,
turbocharging robo-voting, and it is time to break this duopoly
and let free markets actually work.
Mr. Mueller, you have seen thousands of proposals up close.
Why has the number of social and environmental ones exploded,
and why do they mostly fail, but keep coming back?
Mr. Mueller. The factors here are really the
professionalization of the shareholder proposal process. There
are advisors out there deemed, representatives that are out
marketing themselves and saying we will handle the shareholder
proposal process. You can sit back, and we will submit this
proposal, and they are not just asking for information. They
are trying to influence outcomes and saying this is what we
have done.
Mr. Davidson. With their effort to influence those
outcomes, do you worry about threats to American interests or
even national security?
Mr. Mueller. Certainly, I do because they are focusing on
one aspect of a company's operations. The management, who also
have fiduciary duties to all the shareholders, to all
shareholders, know the company best. They, as Mrs. Keel has
said, have often already considered these issues. They are
often addressing the issues the way they view best for all
shareholders.
Mr. Davidson. Thank you so much. Mrs. Keel, I would love to
talk to you about your work at Exxon, and in their case
BlackRock voted shares that seemed to conflict with Exxon's
interests but certainly advanced BlackRock's. So, we have a
large range of questions that I will address for the record,
and I have some for you too, Mr. Copland. My time has expired,
and I yield.
Mr. Loudermilk. The gentleman yields back. The gentleman
from Illinois, Mr. Casten, is now recognized for 5 minutes.
Mr. Casten. Thank you, Mr. Chairman. Thanks to our
witnesses, and I want to just preface this by acknowledging
that I am going to be a little bit pedantic, but this
conversation is--I am trying to find a polite way to say this--
it is really dumb. Let us just acknowledge some things that
should not be debated, but I cannot believe we are suggesting
they are not true.
Shareholders are actually the people who own companies. The
executives of a company serve at their pleasure. They are
tasked to carry out the will of those shareholders. They are
custodians of shareholders' investment, but they are not
actually the people in charge, and shareholders are not
monolithic in terms of their interests, in terms of how they
define value. Hearing my colleagues say the only thing that
matters is shareholder value, what the hell does that mean?
Maybe I am a shareholder who thinks that a company's free cash-
flow should go to paying dividends. Maybe I am a shareholder
who thinks that value would be maximized if we reinvested that
cash-flow. Maybe I am a shareholder in Kodak who thinks we
should be pivoting to digital photography because you are
committed to a technology that is not going to survive. Maybe I
am a shareholder in a car company who thinks we should be
pivoting to EVs. It does not matter whether you are right. You
have different opinions about value, and the way that companies
adjudicate those disputes is to have a high-functioning board,
executives who are competent, people who surface their
opinions. We try to resolve them in some collaborative fashion,
and if you cannot resolve them in some collaborative fashion,
ultimately you go to a majority vote. This is not freaking
complicated, right?
Now, the idea that some voters are more worthy of having
their opinions heard than others, some voters, only the ones we
agree with, understand what value is, I guess, that is on brand
for the party of January 6, but that is not actually the way
that you make good decisions, right? So, I say this not as a
Member of Congress. I say this as someone who spent 16 years as
a CEO, who ran a company where I was a minority investor
because I did not have the couple hundred million dollars that
we needed, so we had a bunch of other money that came in, and
sometimes I disagreed with our investors. Sometimes I persuaded
them of my opinion. Sometimes they won; Sometimes I won. I
maintain I was probably right more often than I won, but it did
not matter, right? I did not have the votes, and our board
understood and I understood that sometimes my economic
interests were at odds with the shareholders, right? Now, I
could have come to Washington and said that as an activist for
the interests of minorities, I will come here and represent our
Nation's poor, underappreciated CEOs, but I do not think that
is actually the way economy works.
So, Mr. Mueller, I guess, do you agree that there are
conflicts of interest and that, I do not know, like when Enron
collapsed, was a part of that because of board oversight
failures and conflicts of interest with management? Just yes or
no?
Mr. Mueller. Yes.
Mr. Casten. Okay. Do you agree that it is important for
boards to have independent directors who are distinct from
management?
Mr. Mueller. Yes.
Mr. Casten. Okay, good, so does the New York Stock
Exchange. So, does the National Association of Securities
Dealers Automated Quotations (NASDAQ). That all makes a lot of
sense. Mrs. Keel, would you agree that transparency and
executive compensation is a good thing to have in corporate
structures?
Mrs. Keel. Yes.
Mr. Casten. Would you agree that shareholders should have a
say on board of directors' compensation?
Mrs. Keel. Yes.
Mr. Casten. Under the Dodd-Frank Act, are companies legally
required to act in response to a shareholder vote on executive
compensation?
Mrs. Keel. No.
Mr. Casten. No, they are not. They are non-binding advisory
opinions. In general, are companies legally required to take
action on shareholder proxies?
Mrs. Keel. Technically, no, but effectively, yes.
Mr. Casten. Well, your firm said, ``Shareholder proposals
are typically advisory in nature and not binding on a
corporation.''
Mrs. Keel. That is technically true.
Mr. Casten. That is all my experience. That is the law. We
are talking about the law. We are not talking about
technically. We are talking about whether we should change the
law, and we are in agreement that the law does not actually say
these proposals are binding. The law says they are advisory.
They get factored in, and then we have a high-functioning
board. You know, Mr. Copland, you had said earlier, I think, on
public choice theory and that Congress proves that you should
not just decide things by majority vote. That is not how boards
work. As we just established, the law says that these are
advisory opinions. So, we are sitting here having this whole
conversation about a boogeyman who does not exist. This
conversation is about do shareholders have rights, do
shareholders own companies, and do they have any rights to
express their opinions of value in corporate boardrooms? Mr.
Lander, do you want to add anything here? Am I missing anything
as a fiduciary?
Mr. Lander. That was very well said.
Mr. Casten. I hope our next hearing is not dumb. I yield
back.
Mr. Loudermilk. The gentleman yields. The gentleman from
Tennessee, Mr. Rose, is now recognized for 5 minutes.
Mr. Rose. I want to thank Chairman Hill and Ranking Member
Waters for holding this hearing and thank you to our witnesses
for taking time out of your schedules to be with us today. Mrs.
Keel, I wonder if you might like to expand on the response
there to Mr. Casten about the nature of the issue.
Mrs. Keel. Sure. So, it is correct that most of the
shareholder proposals and the say on pay are technically non-
binding, but the reality of how companies are dealing with
these is that if they were to pass, there would be immense
pressure, and most of that comes from the proxy advisors,
actually. So, if a company were to pass or if the shareholders
were to vote in favor of one of these shareholder proposals,
which is admittedly pretty rare, companies, even if they
thought it was a bad idea for the company, would feel this
inherent pressure and tension and grapple with the impact,
which would be votes against their directors from the proxy
advisors' recommendations.
Mr. Rose. Thank you. I appreciate that. Mr. Mueller, how
transparent is the SEC's no-action process, and are there
consistent principles, or do outcomes shift from year to year?
Mr. Mueller. Thank you. If I can just add to the last
response----
Mr. Rose. Please.
Mr. Mueller [continuing]. I want to note that under Glass
Lewis' proxy voting policies, if a proposal gets a vote above
30 percent, not a majority, then the board is expected to take
some type of action or risk having Glass Lewis recommend votes
the following year. So, some of what we are hearing is not how
it operates in the real world. The SEC's proxy rules have
really shifted over time, shifted with the political winds. As
Mrs. Keel has said, they use vague terms that are open to
interpretation and really complicate and make the process more
expensive for both proponents and companies.
Mr. Rose. Thank you. I appreciate that insight, and so,
Mrs. Keel, back to you. Can you please explain why it would be
useful to raise the resubmissions thresholds that are currently
in Rule 14a-8(i)(12)?
Mrs. Keel. Sure. So, we use the word ``shareholder
democracy'' a lot in wanting to protect shareholder rights. I
think the resubmission threshold is so important because if
shareholders vote against something 9 to 1, nine against, one
for, and we let the proposal go back on the ballot the very
next year, I mean, what does it mean to have a voice, right,
for those nine shareholders who voted against it? Why are we
putting it back on the ballot when it was very clear that there
was no support for this? So, I think that is the kind of the
first point, is really respecting a shareholder's vote. The
other thing that I think we need to really think about
carefully as we consider whether to revise the standard is,
what does it mean to be substantially similar subject matter?
So, it is not just the number of the threshold. It is how it is
applied. What is the scope? Is it a carbon copy? Is it a
general topic? That is something that we would need a lot more
clarity on because right now, the SEC applies it so narrowly.
Mr. Rose. Sure, I think as a shareholder who actually reads
these things and tries to be thoughtful in my responses, I
think we all have to acknowledge that when we ignore that the
shareholders have rendered a verdict, if you will, yet it comes
back, the inevitable inclination is to think, okay, this issue
must have more support than it appears to, right? I mean, that
is just kind of a natural human response is that something that
keeps getting put back in front of you is going to kind of
persuade if, for no other reason, that it is present. Do you
agree with that?
Mrs. Keel. Completely.
Mr. Rose. Does the outcome in these things reflect that
kind of natural human tendency?
Mrs. Keel. Yes, absolutely. It puts a magnifying glass on
the issues, and that is the point of my testimony, is that you
get to basically buy this megaphone and this platform to put
forward these sometimes important issues, but not necessarily
relevant to a company. I think that it can kind of distort what
companies should be really focused on.
Mr. Rose. Mrs. Keel, again, do the procedural requirements
for a company to exclude a proposal create an excessive and
expensive burden, even for proposals that are clearly non-
material? Can you explain why this is?
Mrs. Keel. Absolutely. So, there are three things. One
would be fear of the proxy advisors, right? So, if you know for
a fact that a proposal is not accurate--maybe they did not have
enough shares, they missed the deadline, some sort of clear
procedural deficiency--companies will still ask the SEC for
their official no-action relief because they are afraid that
the proxy advisors are going to vote against their directors
for not doing so. Then they are also afraid of the shareholders
themselves and bringing some sort of litigation and joining
their annual meeting, which would be an absolute disaster kind
of in corporate world and then they are afraid of making the
headlines, right? If you go against the grain and do something
that is different, it would be problematic.
Mr. Rose. Thank you. My time has expired. I yield back.
Mr. Loudermilk. The gentleman yields back. The gentlewoman
from Massachusetts, Ms. Pressley, is recognized for 5 minutes.
Ms. Pressley. Thank you. Diversity, equity, and inclusion
matter. Diversity means all people--veterans, LGBTQ, women,
rural communities, Black people--equity means fair access to
opportunities, and inclusion means having a real pathway to the
American Dream. No executive order from Donald Trump is going
to change that, and certainly no legislation from my Republican
colleagues will, but that does not stop them from trying.
Republicans are proposing bills that would make it harder or
even impossible for shareholders to increase transparency
around diversity hiring and inclusive workplaces.
Shareholders want this information because study after
study has affirmed that diverse teams create more money for
companies, they are more innovative and are better and faster
at making decisions. Diversity, equity, and inclusion is good
for business, and it is good for the economy. Mr. Mueller, does
Gibson, Dunn & Crutcher value the practice of diversity and
inclusion, and just a simple yes or no.
Mr. Mueller. Yes.
Ms. Pressley. Thank you. Mr. Chair, I would like to enter
into the record this webpage from Gibson, Dunn entitled,
``Diversity and Inclusion.''
Mr. Loudermilk. Without objection.
[The information referred to can be found in the appendix
on page 142.]
Ms. Pressley. Mrs. Keel, you are a partner at Jones Day.
Does your firm value the practice of diversity and inclusion?
Just a simple yes or no.
Mrs. Keel. Yes.
Ms. Pressley. Thank you. Mr. Chair, I would like to enter
into the record this webpage from Jones Day entitled,
``Inclusion.''
Mr. Loudermilk. Without objection.
[The information referred to can be found in the appendix
on page 144.]
Ms. Pressley. Comptroller Lander, do you, as New York City
Comptroller, value the practice of diversity and inclusion in
your office?
Mr. Lander. Absolutely.
Ms. Pressley. Thank you. Thank you for your express
commitment today. I also want to commend you on your statement
in February pushing back against Trump's attacks on DEI, and I
would like to enter that statement into the record.
Mr. Loudermilk. Without objection.
[The information referred to can be found in the appendix
on page 147.]
Ms. Pressley. Now, it is really wonderful to see this type
of agreement, bipartisan agreement, by Republican and
Democratic witnesses here today. However, the fact remains that
the fiscally irresponsible policies from the White House and
Republicans in Congress are pushing people out of the
workforce. Unemployment is on the rise, and Black women are
bearing the brunt of the job losses, but what else is new? We
bear the brunt of everything. Black workers are the last hired
and the first fired. The alarming spike in Black women's
unemployment is the canary in the coal mine, a devastating
warning of where our economy is headed. That is exactly why I
wrote a letter to Federal Reserve Chair Jerome Powell calling
on the Fed to do its job and honor their statutory mandate to
promote maximum employment and address this crisis for Black
women, but it is not just the Fed who must take action. The SEC
must, too.
Comptroller Lander, do the Republicans' proposed changes to
SEC rules help or hurt transparency for shareholders?
Mr. Lander. They hurt transparency for shareholders.
Ms. Pressley. Thank you. We need policies that empower
shareholders and protect investors. Diversity, equity, and
inclusion matter. It is good for business, it is good for
families, it is good for the economy, and the data supports it.
I yield back.
Mr. Loudermilk. The gentlelady yields. The gentlewoman from
Michigan, the Republican Conference Chair, Mrs. McClain, is now
recognized for 5 minutes.
Mrs. McClain. Thank you, Mr. Chairman. I just want to make
sure I am in the right hearing. We are here to talk about proxy
advisors. Am I----
Voice.
[Inaudible].
Mrs. McClain. Okay. Just making sure. All right. Let me
start by saying this. This is my kind of stance, opinion, and I
would like to have a conversation around it. It seems to me
that two proxy firms should not be deciding how trillions of
dollars in shareholders' votes are cast. Would you agree with
that? Anyone disagree with that?
[No response.]
Mrs. McClain. Thank you. Yet today, every American thinks
they are investing in the market, but their votes are actually
being hijacked and dictated by unelected, unaccountable foreign
proxy advisors. This is not, in my opinion, shareholder
democracy. Instead, it is concentrated power that is unchecked,
and it undermines the integrity of our capital markets. I
believe proxy advisors should stick to providing what they do
best: research, right? Their job, their goal is research. They
should stick to their job, research, right? I do not believe
they should act as shadow regulators of corporate America. I do
not know if I am going to get a bunch of disagreement there,
but does anyone disagree with that premise that they should not
act as a shadow regulator?
[No response.]
Mrs. McClain. Good.
Mr. Lander. They neither regulate nor dictate.
Mrs. McClain. But you would agree with my premise that they
should not act as shadow regulators, correct, or do you
disagree with my premise?
Mr. Lander. They neither regulate nor dictate.
Mrs. McClain. So, that is a great answer to a question,
sir, I did not ask. Are you disagreeing with my premise, or are
you agreeing with my premise?
Mr. Lander. You said they were dictating to shareholders
how they vote.
Mrs. McClain. I said I believe proxy advisors----
Mr. Lander. And they do not dictate to shareholders how
they vote.
Mrs. McClain. So, let me rephrase it, sir.
Mr. Lander. Okay.
Mrs. McClain. I believe that proxy advisors should stick to
providing research and not act as shadow regulators of
corporate America. Would you agree or disagree with that
statement? It is a really simple question.
Mr. Lander. I agree, and they do not do it.
Mrs. McClain. Thank you very much. Mr. Copland, would you
agree proxy advisors, unaccountable, unelected firms, have too
much power and direction of the U.S. public companies? Would
you agree or disagree?
Mr. Copland. Agree.
Mrs. McClain. Can you expand on why?
Mr. Copland. Because effectively, we are talking about
controlling 20-25 percent of the shareholder votes. They are
non-transparent. They are non-regulated. They are non-American
in ownership----
Mrs. McClain. Wait. They are non-American. Wow.
Mr. Copland. Yes, one is owned by----
Mrs. McClain. I wonder if they have any ulterior motives. I
am sorry, sir.
Mr. Copland. Yes, one is owned by the German stock market,
another is owned by a Canadian private equity firm, and they
are deciding huge chunks of the vote in our stock market.
Mrs. McClain. Thank you. Does that not mean that millions
of American votes are being hijacked by foreign proxy advisors?
I mean, could one come to that conclusion, and not by the
Americans who actually own the shares?
Mr. Copland. Well, I mean, hijacked may be a strong word,
but I do think that, de facto, they are controlling it. They
are controlling it because they are given that authority by a
number of institutional investors. Not the New York City funds,
not BlackRock, but a lot of institutional investors are giving
them that authority. I am really glad to hear a bunch of people
talking about shareholder rights here. There is a disconnect
between those shareholder ownership rights and the actual
execution of these votes in practice.
Mrs. McClain. Amen to that. My question is: is that not a
betrayal of the fiduciary duty?
Mr. Copland. On behalf of the institutional investor? It is
debatable.
Mrs. Clain. Debatable.
Mr. Copland. I mean, at the end of the day, they are trying
to execute these votes at low cost. I think it would be helpful
to clarify. I mean, the SEC has done this in its own guidance,
but it would be helpful to clarify that these institutional
investors are not required to vote at all, but they are trying
to do this. They do not get an advantage from it. It is an
infinitesimal almost disadvantage from being a bad voter, so
they are sort of discharging it, and there are no fiduciary
duties, let us be clear, for these proxy advisors.
Mrs. McClain. Interesting. I just want to be clear. There
are no fiduciary duties, responsibilities by the proxy
advisors. That would be pause for concern.
Mr. Copland. Aside from basic anti-fraud? No.
Mrs. McClain. Yes. Very interesting, do you not think? Mr.
Chairman, I am sorry, but I am out of time. Thank you for your
witnesses. Thank you for your time.
Mr. Loudermilk. The gentlewoman yields back, and the
gentlewoman from Texas, Ms. Garcia, is recognized for 5
minutes.
Ms. Garcia. Thank you to all the witnesses for being here
this morning, and I want to give a special welcome to the
comptroller because as a former elected city comptroller in
Houston, I know the role, I know the business, and I know how
busy you are, but thank you for taking the time for being here.
I also want to personally thank you for standing tall with the
immigrants showing up to court in immigration court in New
York. Like you, I have done that, too. I have gone to visit our
Houston immigration courts, and it is just shameful what the
current felon in the White House is doing to keep people from
their day in court. So, thank you for that, too.
Mr. Lander. Thank you.
Ms. Garcia. But tell me, this kind of silencing and
criminalization of almost everything, I mean, I am where Mr.
Casten is. It is like, why are we going through all this? You
know, why are we spending so much time on something when,
frankly, all these lawyers at the table could just advise their
clients to go private? If you do not want to deal with pesky
shareholders, then go private, then you do not have to worry
about it, but, no, they want it both ways. They want the
dollars, they want the investment, and they want the control
but why is Wall Street just trying to push shareholders out?
Are these companies not rich enough?
Mr. Lander. The companies are doing well. The CEOs are
doing well. I thought $56 billion was an extremely excessive
CEO compensation. I never would have dreamed they would propose
a trillion dollars of executive compensation. It boggles the
mind, but I can only----
Ms. Garcia. Can you just repeat it? I think everybody who
is watching needs to understand the number of zeros involved in
that when people are just worried about the cost of housing,
the cost of healthcare, and the cost of even buying pens and
pencils for their kids to go back to school.
Mr. Lander. So, this is a board. So, Elon Musk sought a pay
package of $56 billion, which was, by enormous amounts, the
largest CEO executive compensation ever, even though he was not
working full time at the company, which any board would expect
their CEO to work full time at the company for $560,000, much
less for $56 billion. There was some objection from investors,
so they re-domiciled the company in Texas. They are seeking to
prevent shareholders from bringing shareholder resolutions.
They are seeking to prevent shareholders from bringing
securities litigation if their rights are violated. Now they
are proposing to give him a $1 trillion payout, which I can
only believe is, like, both to enrich him, but also to stick it
in the eye of every hardworking person in America.
Ms. Garcia. You know, it is not a bad part-time job. Where
do I sign up, you know?
[Laughter.]
Ms. Garcia. It just baffles me that things like a
shareholder proposal to get a report on the use of child labor
law would be considered outrageous, or a proposal for a company
to conduct a health and safety audit regarding employee working
conditions. I mean, I have seen so many of these. I mean, the
words that are being used at this hearing--``activists, out of
control''--I mean, if shareholders cannot have a voice because
they have invested in the company, well, then, who can,
because, if you really do not like the pesky investor--and I am
calling them pesky in a very gentle, dear way--then go private.
There is an exception for all this, is not there, things that
are seen as harmful disruptions that distract from the core
business, and really the economic relevance exclusion. I mean,
who decides what is relevant or not?
Mr. Lander. So, the SEC sides with management 68 percent of
the time when management objects to shareholder proposals. So,
I would think, if anything, the balance might be tipped a bit
in the favor of shareholders, not further to the CEOs.
Ms. Garcia. Because I certainly would consider, if a
business was starting in Houston in a flood-prone area close to
the waters they should disclose and really reconsider and would
support a proposal for them to reconsider if we know that
Houston gets hurricanes and floods, and it is something also
that they should disclose in their IPO, should they not?
Mr. Lander. Of course.
Ms. Garcia. So that, to me, just makes common sense.
Mr. Lander. Almost all of this is about disclosure, even on
DEI. You know, we brought resolutions asking people to disclose
their EEO-1s, which they are already giving to the government,
so give them to shareholders as well. Most now do. Disclose the
matrix you use for determining who is on your board. The idea
that is overreach when it is simple information investors use,
I do not understand----
Mr. Loudermilk. The gentlewoman's time has expired.
Ms. Garcia. Thank you, Mr. Chairman. I yield back.
Mr. Loudermilk. The gentleman from South Carolina, Mr.
Timmons, is recognized for 5 minutes.
Mr. Timmons. Thank you, Mr. Chairman. Today's discussion
focuses on critical issues of transparency, market competition,
and what can only be described as the swing of the political
pendulum in regulatory policy. The proxy advisory industry is
effectively dominated by a foreign duopoly that controls
approximately 97 percent of the market. That level of
concentration creates systemic challenges for corporate
governance and shareholder engagement. Since 2003, SEC
rulemakings on proxy advisors have shifted significantly from
one administration to the next, reflecting broader political
and regulatory swings. In addition to these concerns, I want to
focus today on a growing and often overlooked risk: The
potential for foreign influence in U.S. public companies made
possible by this proxy advisor duopoly. When two firms wield
this much power with so little transparency, the risk is not
just economic, it is also a national security concern. These
firms frequently push ESG-driven proposals that may align more
with left-leaning political agendas than with shareholder value
or the long-term health of American businesses.
Mr. Copland, do proxy advisory firms have clients with ties
to foreign governments, sovereign wealth funds, or politically
motivated international organizations? If so, how transparent
is that relationship to the companies they influence?
Mr. Copland. They have some relationship, right? I mean,
the Norwegian Sovereign Wealth Fund, for instance, is very
active in influencing this. You know, they dialog, they
colloquy with these proxy advisory firms. It is not very
transparent, though, so it is hard to give definitive answers
on exactly who might be influencing.
Mr. Timmons. Thank you for that. What are the current
consequences of this lack of transparency and disclosure?
Mr. Copland. Well, I think it is hard for regulators to
know what is happening. It is hard for investors necessarily to
know what is happening, and there are only a couple of these. I
mean, the reality is they are not that big of businesses. They
are valued high, but it is probably not just based on their
cash-flow. It is probably based on the control that they exert
over the market, and we know that because from time to time,
they have been subsidiaries of publicly owned companies. So we
know that, for instance 15 years ago, it was reported from MSCI
that ISS in its proxy advisory business got $11.5 million in
profits. I mean, that is a lot of money, but it is not a lot of
money compared to 15 percent of the stock market.
Mr. Timmons. Thank you for that. I want to turn briefly to
the business model of large proxy advisory firms and the
conflicts of interest that result. Firms like ISS not only
issue proxy recommendations but also sell consulting services
to the same companies they evaluate, including through their
ESG corporate rating service. This creates a financial
incentive to issue recommendations that could drive more
business, raising serious concerns about the objectivity of
their guidance. In addition, some proxy advisors are affiliated
with advocacy organizations that actively promote specific
shareholder proposals often aligned with particular political
or ideological agendas. When the same firms are both shaping
and scoring these proposals, it becomes difficult to separate
impartial analysis from activism. That is a problem for
transparency, for market fairness, and for the long-term
interests of American investors.
Mrs. Keel, could you walk us through an example of this
conflict of interest in practice and discuss the negative
consequences that result for both the corporation and everyday
shareholders?
Mrs. Keel. Sure. So, I think one important thing to address
first, especially on the influence from abroad, is they are
incorporating European standards of investing into the
standards that they are then imposing in the recommendations
that they give to companies directly. So, in Europe, they have
an idea of double materiality. It is this idea that we can
consider what is material to us and also to the outside world.
That is just not the standard in the U.S., so it is applying an
entirely different investment theory, essentially, of
materiality to U.S. companies. From a complex perspective,
companies are subscribing to the services that tell them to do
this, and if they do not comply, the implicit threat is, we
will vote against your directors. So, they are stuck between
this rock and a hard place. They have to hire them, and they
have to do what they say.
Mr. Timmons. These are the same Europeans that shut down
all of their nuclear power facilities because they were not
clean and now buy dirty Russian oil. Interesting. As a follow
up to that, do you believe the SEC has the tools it needs to
address this kind of conflict of interest, or should Congress
consider additional steps to ensure proxy advisors remain
neutral and accountable to shareholders?
Mrs. Keel. There definitely needs to be some sort of
regulation at Federal level would be great. They fought tooth
and nail against some really commonsense regulatory oversight,
which would have just simply had them not make false and
misleading statements, right? That is what they were so
against, so I think we need some explicit acknowledgment of----
Mr. Timmons. Thank you for that. The proxy advisor industry
holds too much influence with too little accountability. The
absence of transparency, the potential for foreign involvement,
and the presence of clear conflicts of interest create serious
risk for public companies and for the strength of our capital
markets. I am out of time, and I yield back, Mr. Chairman.
Thank you.
Mr. Loudermilk. The gentleman yields back. The gentleman
from California, Mr. Liccardo, is recognized for 5 minutes.
Mr. Liccardo. Thank you, Mr. Chair. I appreciate all the
testimony of the witnesses, particularly the written testimony.
Mr. Mueller, I very much appreciate you going through in detail
much of the existing regulation. I wanted to refer first to
Mrs. Keel's examples that were raised during both your
testimony today and in your written statements with regard to
several proxy proposals relating to things like reproductive
rights, geopolitical issues in China, gun sale regulation,
Bitcoin investment. How many of those were actually adopted?
Mrs. Keel. I do not have the exact passage rates, but I am
guessing none of them.
Mr. Liccardo. Were any of them?
Mrs. Keel. That is my guess, yes.
Mr. Liccardo. Okay. So none of them were----
Mrs. Keel. Correct.
Mr. Liccardo [continuing]. to your knowledge were actually
approved. In fact, there are criteria that exist already,
exclude proposals like these, most prominently, that lay into
economic relevance under 14a-8(i)(5), ordinary business, that
can mitigate micromanaging and so forth. I certainly appreciate
that there is time expended, and I think that issue has been
raised and a lot of resources expended, but fundamentally, the
rules already exist to exclude many irrelevant proxy proposals,
and, in fact, the SEC appears to uphold managers' decision to
exclude them 68 percent of the time, according to Mr. Lander.
So, help me understand better what we are doing here. If the
rules exist, why should Congress get involved if rules already
exist to exclude irrelevant proposals?
Mrs. Keel. I am happy to take that one. You know, it is not
required to go to the SEC for no-action relief, but it has
become the thing that companies do. To deviate from that, there
is even an example from a long time ago, before my time, where
a company said I am just going to notify the SEC of an
exclusion, and the SEC said you have got to go through the
normal process, even though it is not required and even though
it is just guidance, it is not law but there is this feeling
among public companies that you do not want to rock the boat,
right? It can be intimidating to make headlines. It can be
intimidating to instigate scrutiny from the proxy advisors
because the stakes are so high, so they will just fall back on
reliance on this system because that is what people are used
to, and the alternative is it is the unknown is too scary.
Mr. Liccardo. I can appreciate the point. I have been in
public life for a long time. It is just the fact that
executives are uncomfortable and do not feel like that is
enough to justify congressional action here.
Mr. Mueller, I appreciate very much both your and Mrs.
Keel's excellent written statements, but what I am particularly
concerned about is narrowing the definition of ``relevance'' to
the point where very relevant considerations would be included.
For example, on page 14 of your written statement, you refer to
the proxy proposal requesting JPMorgan Chase to disclose clean
energy supply financing ratios. That is the financing of energy
generation renewables versus fossil fuels. Now, I know there is
a wide variety of opinions here about climate change in this
room and perhaps in America, but do you not agree that it would
be critical for a lot of investors to understand how JPMorgan's
executives have internalized the litigation risks, the
regulatory risks, the long-term risks of how it is deciding to
finance energy investments?
Mr. Mueller. Sure. This issue on that is that, and I cannot
comment on what JPMorgan was doing, but many of the other banks
were already disclosing information about what they were doing
with financing fossil fuel and non-carbon energy sources and
so, the proposal was not so much about, hey, let us increase
the disclosure. The proposal was we want you to do it this way,
not the way that management thinks it is best to communicate
with the shareholders.
Mr. Liccardo. Okay. So, you do not disagree that disclosure
itself may be quite relevant in that context, because after
all, BlackRock in its 2021 Global Insurance Report consulted
362 insurance company executives, and 95 percent of them
confirmed that climate risk would have a significant impact on
their portfolio construction over the next 2 years. So this is
a relevant consideration. Is that right?
Mr. Mueller. Yes.
Mr. Liccardo. It is. Okay. I just want to make sure here in
Congress we do not decide to start excluding very relevant
considerations from whatever we define to be appropriate proxy
proposals.
Mr. Mueller. I think the issue is what is relevant, and
under SLB 14L in the Gensler Administration, the first year
that came out, only----
Mr. Loudermilk. The gentleman's time has expired.
Mr. Mueller [continuing]. 35 percent of the proposals were
excluded.
Mr. Liccardo. Thank you.
Mr. Loudermilk. The gentleman from Pennsylvania, Mr.
Meuser, is now recognized for 5 minutes.
Mr. Meuser. Thank you, Mr. Chairman. Thank you to our
witnesses very much. Last Congress, this committee pushed back
against Biden regulators who imposed ESG mandates that elevate
social or political agendas above material business decisions.
This was most evident in the previous SEC's climate rule.
Republicans were largely successful in restoring materiality
and the guiding principle in disclosures and the shareholder
proposal process. However, proxy advisory firms, through their
concentrated influence, often function as de facto regulators
by recommending ESG votes for shareholders when voting on board
decisions. It is not about being against ESG as an investment
choice. If individual investors want to prioritize
environmental, social, or governance factors, that is their
freedom. What we oppose is when these ideological views are
mandated, when investors are forced to comply with burdensome
regulations that prioritize political ideology over sound
financial decisions.
So, Mr. Mueller, under Chairman Gensler, the SEC issued
Staff Legal Bulletin 14L, which required companies to include
shareholder proposals on broad societal issues even if they
were immaterial to the company. What effect, in your view, did
that shift have on companies and their shareholders?
Mr. Mueller. It resulted in a lot of wasted effort by both
the companies handling these shareholder proposals and by
shareholders at large, who had to review and vote on these
proposals and overwhelmingly voted against them. They said they
were a waste of time.
Mr. Meuser. Thank you. From your perspective, advising
large companies as you do, what are the costs in terms of time
and resources that you just alluded to for companies to respond
to such proposals that have no material connection to its line
of business?
Mr. Mueller. Yes. Both my written testimony and Mrs. Keel's
testimony lays out all the actions that are borne by that, and,
again, it is important to bear in mind this may be a
shareholder who has only owned $2,000 worth of stock. You know,
bless those shareholders, it is good to have small
shareholders, but when they are putting all that burden on the
company at large, you have to question whether that is a
rational system.
Mr. Meuser. Okay. Thank you. Mrs. Keel, when the SEC
refuses to block an ESG proposal for being immaterial, courts
often treat that refusal as a green light. Does that not
combine with proxy advisors recommending yes votes to turn
immaterial proposals into mandates in practice?
Mrs. Keel. Yes. I mean, whatever the SEC says is how all of
the different stakeholders really interpret whether or not the
proposal should be included or excluded, especially the proxy
advisors. So, if you were to go against what the proxy advisors
recommend, I mean, there would be major consequences, and I
think it is relevant what Mr. Mueller has said before, is that
there is a 30-percent threshold that Glass Lewis imposes. So,
if a proposal gets 30 percent support, they expect you to
publicly address how you have engaged with shareholders on the
particular proposal. I think it is also kind of interesting
that the shareholder proxies influence. We hear some numbers
like 20. I commonly see the number 30 percent of what they
control for a company. It really depends on company to company,
but those numbers are suspiciously similar.
Mr. Meuser. Okay. Great. Thank you. Mrs. Keel, you have
advised companies facing ESG lawsuits. Do boards feel pressured
or even threatened to engage with ESG proposals even when their
shareholders have rejected them?
Mrs. Keel. Absolutely, I mean, but the real issue that I
would like to also highlight, which I have said earlier, is
boards are grappling with these issues in the boardroom not
every single day, but at every meeting, right? These are
important topics when you see news about the tariffs or you see
news about environmental issues. These are raised in the
boardroom absent exactly what the proposal is putting forth.
Mr. Meuser. All right. Thank you. Mr. Copland, proxy
advisory firms, like ISS and Glass Lewis, often recommend yes
votes on ESG proposals, even when those proposals are not
material and shareholders repeatedly reject them. Does that not
amount to an ESG mandate in disguise?
Mr. Copland. Effectively because of the way they treat
this. As we have heard during this hearing, they will no vote
directors. Even though it is an advisory proposal, they will
no-vote directors if they do not reply. Sometimes even for
minority votes, where a majority of shareholders say no, they
will no vote directors if the company does not respond.
Mr. Meuser. My understanding is the performance is not that
much worse off, but the idea of mandating and the problems that
it causes is serious. Is that your understanding as well?
Mr. Loudermilk. The gentleman's time has expired.
Mr. Meuser. My time has expired. Yes, I yield back, Mr.
Chairman.
Mr. Loudermilk. The gentleman from Texas, Mr. Green, is
recognized for 5 minutes.
Mr. Green. Thank you, Mr. Chairman. I thank the ranking
member and the witnesses for appearing. Mr. Lander, I would
like to visit with you for just a moment, if I may please.
There are some CEOs who make more in a day than some of their
employees will make in a year. There seems to be a belief among
many that those who are wealthy need more to do more and the
poor can do more with less. Is it material for the shareholders
to want to see a living wage paid to employees and for those
shareholders to insist upon that by using the limited amount of
authority that they have, to have a living wage for people who
are working and making it possible for CEOs to make these huge
salaries? You just talked about the possibility now of a
trillion-dollar salary. I mean, that is more than the mind can
imagine. Your thoughts, please.
Mr. Lander. Yes. So, I will start from the people whose
money I am managing and who I represent. They are teachers, and
school crossing guards, and secretaries, and public hospital
nurses, and cops and firefighters, and sanitation workers like
hardworking people, who, largely because they organized a
union, secured retirement security. They are not making a lot
of money every year, but we guarantee them this retirement
security, so they are paying attention to how their money is
invested and what they mostly have the right to, for me,
invested with fiduciary duty, is to make sure that it is
invested well with good risk-adjusted returns.
They know that companies will do better if those companies
have good workforce management and live up to their own
policies. So, many of the companies that we invest in have
policies, that they respect the rights of those workers to
organize a union, to seek to bargain collectively, and to have
good workforce management practices. So, I will give the
example on climate policies. It tends to be that our----
Mr. Green. Talk to me about the living wage.
Mr. Lander. Yes. Well, what I was going to say there is all
five of our funds, including the police pension fund and the
firefighter pension fund, often vote for shareholder proposals
asking companies, as they did at Starbucks, where we brought a
proposal. We had heard that there were issues of workforce
management, refusal to allow people to organize and bargain
collectively, so we brought a proposal, and 52 percent of
investors voted in favor of asking Starbucks to do an
independent assessment of its workforce practices, including
its adherence to international labor rights standards. Then,
the company agreed to do so and provided that assessment to its
investors, including those teachers and cops and firefighters
that I represent. That is all we are talking about here at its
most aggressive. Usually, those proposals do not get a
majority. In this one case where they did, it resulted in a
corporate assessment of its workforce policies so that
investors could make wise decisions going forward.
Mr. Green. I am going to take it that you believe that it
is acceptable for the shareholders to push inquiries that would
lead to a living wage being paid to workers.
Mr. Lander. So, let me distinguish. At the policy level, I
am a big advocate of living wage policies broadly across the
economy and have advocated them as law in New York City and
nationally. As an investor, I have fiduciary duty to focus on
risk-adjusted returns to shareholders, and so I focus on
workforce issues broadly because if you immiserate your
workforce and you have such rapid turnover, as Amazon does, for
example, that is a risk not only to the workers, but to
investors.
Mr. Green. I agree and let me say this as we close this.
When we are making these decisions to pay the CEOs billions, we
do not seem to get into the question of how this is going to
have this level of adversity as it relates to the business
model that the company has but when we talk about the people
who are making $7.25 an hour or some amount of money that CEOs
will give as a tip as they leave a restaurant, it becomes a big
issue. We seem to think that the poor can do more with less,
and the wealthy, they need more to do more. I yield back.
Mr. Meuser [presiding]. The gentleman yields back. The
gentlewoman from California, Mrs. Kim, is now recognized for 5
minutes.
Mrs. Kim. Thank you, Mr. Chairman. Welcome, witnesses.
Thank you so much for being here.
You know, in California, our drivers, custodians, local law
enforcement, and other public employees rely upon the
California Public Employees' Retirement System to manage their
pensions and ensure that they can have a comfortable
retirement. Unfortunately, rather than being focused on
securing the highest possible return for its members, the
California Public Employees' Retirement System (CalPERS) has
been focused on left-wing politics and supporting changes to
force companies to adopt these ESG initiatives. One way that we
have seen companies forced away from focusing on their products
and services is by burdening companies through the shareholder
proposal process.
I want to ask my question to Mrs. Keel. What are the steps
that a company takes when they receive a shareholder process or
proposal?
Mrs. Keel. Sure. So, first, it will decide whether it is
actually substantially implemented already, whether it has
considered it. It will then go into whether investors have
raised this as a particular issue that they actually care
about, and then it will assess what is the harm that could come
from this, right? It is a risk mitigation analysis at the end
of the day. So, is it going to jeopardize legal privilege? Is
it going to disclose some sensitive competitive information? Is
it going to disclose sensitive employee information, which is
what a lot of the reports would request.
Mrs. Kim. Mm-hmm.
Mrs. Keel. Is it legal? There are examples of shareholder
proposals being put forth that, if they were to be implemented,
would actually be illegal. We have seen this in the insurance
industry and with respect to diversity and equity and inclusion
proposals. Last, you have to evaluate whether it is actually
going to harm the company, right? So, then, there are examples
of proposals that are effectively trying to hurt a business.
One example would be to a pharmaceutical company, asking them
to stop issuing patents or to reduce patents. Another example
would be asking an energy or oil and gas company to reduce
Scope 3 emissions since that would require them to reduce the
sales of their actual products. If you----
Mrs. Kim. What about the costs that companies are burdened
with when dealing with shareholder proposals that may not be
relevant to the business activity?
Mrs. Keel. You know, there are costs that the SEC has said.
It is maybe upwards of $150,000. There have been other studies
that put that at a top of $600,000. You know, it is nice to
have those dollars and cents, but it is really the intangible
energy and effort that goes into these that is really hard to
quantify. So, that analysis that I went through is just a kind
of drop in the bucket in terms of the focus.
Mrs. Kim. Mr. Mueller, can you talk about whether the
investors are the ones that bear the burden of the costs and
consequences of non-material shareholder proposals? Can you
talk about that, too?
Mr. Mueller. Yes, they bear those expenses and typically
vote down these proposals, particularly in recent years as the
proposals have gotten more extreme, more prescriptive. The
votes are dropping down, and large shareholders are coming to
the company saying why are we even having to deal with this,
and so they are not happy either.
Mrs. Kim. Let me talk about another issue. Companies want
to be focused on delivering great products or services and
continuing to innovate but when they spend thousands of hours
attempting to deal with a shareholder proposal regarding
whether they will go from plastic straws in their cafeteria to
paper straws, that is vital time and resources that is taken
away from improving the business and customer experience.
CalPERS should return to being focused on its stewardship of
the retirement of my constituents and not supporting a left-
wing political agenda.
So, another concern I have is with the duopoly in the proxy
advisory market and ISS and Glass Lewis' lack of economic
analysis. So, in July 2023, ISS testified that the firm does
not generally conduct an economic analysis before providing a
vote recommendation, and last year, investment stewardship
global head of ISS stated on that CNBC interview that the firm
leaves the investment thesis up to the investors. So I want to
ask you a question, Mr. Mueller. Have you observed anything
that will lead you to believe that ISS or Glass Lewis evaluates
the specifics of each shareholder proposal at each company?
Mr. Mueller. No, there is nothing in their voting
recommendations report suggesting that they are evaluating
other than intangible speculative risks.
Mrs. Kim. Okay. You know, when economic analysis is not the
guiding principle of shareholder proposals, then it leaves one
to question what the guiding principle is, so----
Mr. Meuser. The gentlelady's time has expired.
Mrs. Kim. Oh. Can I just finish my sentence?
Mr. Meuser. Go ahead.
Mrs. Kim. The takeaway that I am left with is that personal
and political bias are what guide the recommendations of Glass
Lewis and ISS. So, it is also concerning to me that ISS and
Glass Lewis appear to have a significant conflict of interest,
and I just wanted to share that and put it on the record the
concerns I have.
Mr. Meuser. The gentlelady yields. The gentleman from New
York, Mr. Ritchie Torres, is now recognized for 5 minutes.
Mr. Torres. Thank you, Mr. Chair. Republicans often accuse
Democrats of ``politicizing capitalism,'' so I have a simple
question for the comptroller. Who is the most efficient
allocator of capital, Donald Trump or the free market?
Mr. Lander. The free market.
Mr. Torres. Okay, because Republicans believe the answer to
that question is Donald Trump, so it sounds to me like you are
much more capitalist than your Republican critics. Republicans
have no objections to socialism so long as it is Donald Trump
doing the socializing. A wise person once said, if you do not
have a seat at the table, then you are probably on the menu,
and Rule 14a-8 ensures that shareholders have a seat at the
table. It promotes the democratization of corporate governance.
It brings checks and balances, accountability and transparency
where none would otherwise exist. The purpose of securities
law, as I understand it, is to correct information asymmetries
and to level the playing field between issuers and investors.
Comptroller Lander, do you worry, as I do, that the Stop
Woke Investing Act would undermine the very purpose of
securities law and radically restrict the flow of material
information to shareholders?
Mr. Lander. Yes, I do.
Mr. Torres. Republicans often accuse cities like ours, like
New York, of ``woke investing.'' What were the most recent
performance returns of the New York City pension system?
Mr. Lander. Let me get the numbers. We just announced June
30 that for the year ending June 30, we had 1-year returns of
10.3 percent, exceeding the State standard of 7 percent, and
saving about $2 billion for taxpayers.
Mr. Torres. So, you saved $2 billion for taxpayers, and so
under your financial stewardship, New York City has shown that
it is possible to do well and to do good at the same time, that
shareholder value and social responsibility can be mutually
reinforcing.
Now, under the Stop Woke Investing Act, the word
``material'' is radically redefined. It will no longer include
``any portion of financial risk that primarily relates to
events that involve a high degree of uncertainty regarding what
might occur in the long-term future.'' With that definition in
mind, I want to present the following hypothetical to you. I
sit on the China Committee, and we in Congress have a
bipartisan concern about rising tensions in the Taiwan Strait.
So, suppose I were a shareholder of the Taiwan Manufacturing
Semiconductor Company, and I had a desire to file a shareholder
proposal asking the company to disclose the possible impacts
that an amphibious invasion would have on the advanced
semiconductor supply chain in Taiwan. It would seem to me that
under the Stop Woke Investing Act, my proposal would not
qualify as material because it involves a high degree of
uncertainty regarding what may occur in the long-term future.
So, let that sink in for a moment: an existential risk to the
world's most critical and fragile supply chain would not
qualify as material under the Stop Woke Investing Act. Is there
any universe in which that makes sense to you as a fiduciary?
Mr. Lander. Investing is assessing risks exactly like this
one, and I agree. As I read the bill, it would not allow you to
ask a company where you were an investor to assess and disclose
that risk to you.
Mr. Torres. Okay. Well, look, the cruel, almost Orwellian
irony of this legislation is that the most material risk that a
company can face, whether it be climate change or war, would no
longer qualify as material under the law, and that, to me,
makes a mockery of securities law. As a pensioner in the New
York City system, I am pleased with the 10-percent return.
Please doubling down on your winning strategy. I will yield
back.
Mr. Lander. Thank you.
Mr. Meuser. The gentleman yields. The gentleman from
Tennessee, Mr. Ogles, is now recognized for 5 minutes.
Mr. Ogles. Thank you, Mr. Chairman, and thank you to the
witnesses. I know it has been a long morning or now into the
afternoon.
Two proxy advisory firms, mostly through three index funds,
are driving corporate governance across the entire economy. No
one elected these firms, yet they wield incredible power, and
to borrow a phrase from the progressives, they do it with other
people's money. Mr. Copland, if BlackRock and State Street are
voting tens of billions in retirement assets, most of it from
ordinary Americans who never opted in to ESG activism, do you
see that as a distortion of shareholder democracy?
Mr. Copland. Yes.
Mr. Ogles. Would you agree Congress needs to explore ways
to restore some voice to the ultimate beneficiaries, the
retirees and workers, instead of leaving it all to
intermediaries and advisors?
Mr. Copland. Yes.
Mr. Ogles. Thank you. The First Amendment does not let the
government force people to take political positions, but
through Rule 14a-8, activist shareholders are forcing companies
into political speech as the price of being public. That is
compelled speech by another name. Mr. Mueller, do you agree
that many of these proposals are not about material business
issues, but about forcing companies to take sides on divisive
social debates?
Mr. Mueller. Yes, we often say that.
Mr. Ogles. Mr. Copland, you raised First Amendment concerns
in your testimony. Would you expand on how compelled corporate
speech under 14a-8 mirrors the kinds of unconstitutional-
compelled speech that the courts have struck down?
Mr. Copland. Yes. I mean, effectively, these companies are
being required to put on their proxy ballots political
statements that are drafted from people like in the New York
City Comptroller's Office, right, and that clearly runs afoul
with a lot of compelled speech doctrine. I mean, there is some
uncertainty about how this applies in the securities. What is
unambiguous is that the way this is operating in practice,
there is viewpoint discrimination. I pointed out in my
testimony where the National Center for Public Policy Research
litigated this into the Fifth Circuit, and it was mooted, et
cetera but there was a situation where the SEC staff said you
had to include on your proxy ballot a shareholder proposal
talking about equal employment opportunity for sex orientation
and gender identity, and the exact same language was used by a
conservative group as a shareholder proposal saying viewpoint
and ideology, and it said, no, you can exclude that, and a no-
action letter was granted. I mean, that is the sort of thing
that should be troubling. It is a First Amendment issue.
Mr. Ogles. That is right. Well, again, this gets back to
the idea that it is more about compelling political speech
versus getting back to the basics of the actuarial component.
Most retirees in Tennessee just want their pensions and 401(k)
to be safe. They do not sign up to subsidize culture war
battles, yet the proxies divert resources away from shareholder
value and onto politics. Mrs. Keel, you gave the example of one
shareholder forcing a company into expensive proxy fights over
issues like DEI or gun policies. From a fiduciary duty
standpoint, is that not effectively transferring wealth from
retirees to activists?
Mrs. Keel. Yes. Well, yes, it depends on whether it passes
and they implement----
Mr. Ogles. Sure, sure, absolutely, but the intent would be.
Mrs. Keel. Yes. I think maybe a good example for this would
be kind of climate targets, for example, right? You know,
proposals are asking a pizza company that I order my Friday
night pizza from to impose Scope 3 climate targets. It is kind
of hard to see the relevance to certain of these companies, and
it, ultimately, kind of feels like an unsanctioned tax really.
Mr. Ogles. I have more questions. I am running out of time.
I want to go back to this idea, Mrs. Keel and Mr. Mueller. You
both commented on the technical versus effectively with some of
these proposals, so my colleague on the other side technically
was correct, but when you get back to the boardroom and how it
is issued in the markets. Please expand or put a fine point on
technically versus effectively.
Mr. Mueller. Sure. Companies do not want to be out there
publicly opposing their shareholders. They want to be focusing
on business and not being dragged into political debates.
Oftentimes, the vote is irrelevant. The shareholder has gotten
the issue into the proxy statement, has forced the company to
make a statement about it, and the shareholder does not really
care what the vote is. They have achieved their purpose, and
that is really kind of effective----
Chairman Hill [presiding]. The gentlemen's time has
expired.
Mr. Ogles. Thank you, Mr. Chairman. I yield back.
Chairman Hill. The gentlewoman from Michigan, you are
recognized for 5 minutes.
Ms. Tlaib. Thank you, Mr. Chair. Thank you all so much for
being here. You know, I just left a number of advocates, or
maybe my colleagues like to call them activists, around the
housing crisis. It was powerful speeches about just how
terrible and horrific the housing crisis is across our country.
I am getting back from there and I am thinking, well, I am on
Financial Services Committee. Somehow we are going to be able
to address the housing crisis. No, that is not what we are
doing here. Then I thought, okay, well the President is
shamelessly using his office for vast personal gain. I mean, I
think he has doubled his net worth since last year, mainly
through cryptocurrency and crypto corruption.
I am just saying this because I am like why are we having
this hearing? I always like to kind of dig deeper, and then I
found out, oh, well, the anti-ESG, which for my residents
listening, it means environmental social governance. These are,
many of my colleagues will call, activists because they have
social causes, and they want to make sure their money is not
going to something they do not support, and it is because it is
funded by big mega donors, the fossil fuel industry. It is
true. You all know it, and figures like Leonard Leo and Peter
Thiel.
I would like to submit for the record a fact sheet on the
Manhattan Institute from the Center for Justice and Democracy.
Chairman Hill. Without objection.
[The information referred to can be found in the appendix
on page 151.]
Ms. Tlaib. Thank you. You know, I think, what $1.5 million
from ExxonMobil and $3 million from the Koch Brothers. The
public takes that seriously, when I have a community in Wayne
County that has not met Clean Air Act standards in years, where
our kids are literally being poisoned. Their brains cannot
develop if they are being poisoned. I say this because we are
here because of mega donors. We are here to talk about this
whole anti-ESG, whatever they want to call, movement. You know,
this issue, to me, is fabricated, but the stakes are real in
regard to people having disclosure and transparency. The
retirement savings of hardworking families are on the line.
Mr. Lander, can you discuss the issues here? I mean, I am a
person that does deeply care about the climate crisis and how
the risk to executive compensation and a shareholder proposal
can force companies to disclose that and why those issues
should be of interest for investors.
Mr. Lander. I mean, I do think it is extraordinary that
what is being demonized is the simple effort to disclose the
basic risks that a company is facing, and we have heard this a
few times today in ways that are so obviously relevant to the
shareholders of that company. Of course, there is a broader set
of questions that are critical here, but for many companies,
their exposure to climate risk is a simple and straightforward
issue. Yes, if you have most of your book of financing for
fossil fuel financing, an investor might say I think it would
make sense to have more exposure to renewable energy and
investment and you could decide, do I want to keep investing
here, do I not want to keep investing here, and have that basic
information. That is what is being demonized, not any requiring
of changes, not dictating, not regulating----
Ms. Tlaib. I mean, they really want to muzzle people's
First Amendment speech. I know you all see it that way. Do it
all you want. You are getting funded by people. I mean, come
on. I am looking at you all, and I am telling you these
companies are not my constituents. The 12th Congressional
District Congressional District Residents are, and if they want
more disclosure and transparency, then they deserve it. Then
what is the problem? I mean, somebody said that none of these
even proposals pass, but you are all here because of Peter
Thiel and Leonard Leo. You all know it. That is exactly why we
are here because they donate to my colleagues. This is why we
are here.
Nobody cares about what is going on with housing. Nobody
cares about the fact that I am literally fighting for HeadStart
program dollars. That is what people care about. This is not,
like, political. This is me, the girl from Southwest Detroit,
looking at this, growing up in the back shadow of the only oil
petroleum refinery in the State of Michigan, Marathon Oil. You
are telling me that if a teacher and others that are concerned
about this that live in that neighborhood cannot have
transparency and disclosures, cannot have a say? See, they call
them activists because they politically disagree with them, and
most of them were activists before they got here. They were.
They might have been activists on issues that I might disagreed
with them, but I respectfully disagree because I am like that
is your right to disagree.
So, Chairman, I wish we could do more on housing, we could
do more on issues of corruption.
Chairman Hill. The gentlewoman's time has expired.
Ms. Tlaib. I look forward to that. Thank you.
Chairman Hill. The gentleman from Iowa, Mr. Nunn, you are
recognized for 5 minutes.
Mr. Nunn. Well, thank you, Chairman Hill, and thank you for
all of you joining us here today. I will say that inflation and
rising costs are directly impacting people in the heart of the
Heartland, including in my home State of Iowa. So, as opposed
to just talking about it, let us get after doing something
about it. This situation was made worse by proxy advisor firms
and their robo-voting that put millions of Americans' 401(k)
and pensions at risk. This is happening as half of Iowans rely
on some type of retirement account to pay for their future,
their kids' 429th programs, or simply to buy a home. So, let us
get to it.
Mr. Copland, are you aware that only two firms control
approximately 97 percent of the proxy advisory market, and how
does this effective duopoly really limit investors' choices?
Mr. Copland. Yes. I mean, the percentage may or may not be
exactly that, but it is a massive percentage. Over 90 percent
of voting is controlled by the two foreign-owned firms, Glass
Lewis and ISS, and how does it limit choices? I mean, listen,
it is a hard market to break into, but it is not a big market
where you are going to get venture capital throwing money in
it. There is not a huge amount of money in it. They are paid a
premium because people want control over the voting, not
because it is a great business model.
Mr. Nunn. Yes.
Mr. Copland. But it also makes it very subject to capture
for that reason because it is not a business that could get a
lot of public buyback. No individual is hiring ISS or Glass
Lewis, and so they can be sort of captured by these activist
forces, the professional activist forces. They make more
money----
Mr. Nunn. Right.
Mr. Copland [continuing]. when they are more supportive of
this environmental and social activism because the companies
pay them to leave them alone, et cetera, et cetera, so.
Mr. Nunn. I think you are absolutely right here. These are
both foreign entities influencing a U.S. market. Mr. Mueller,
if investors are 20 percent more likely to oppose a management
simply because proxy advisors recommend it. It does not show
that these firms wield disproportionate power over the overall
investor. Would you agree with that?
Mr. Mueller. Yes, I do, and it is not just correlation.
There is evidence of causation. When these firms flip their
votes, occasionally they do it, it is rare, but you see that
20-percent flip right away.
Mr. Nunn. All right. So, now that we have kind of laid the
base ground for this, let us consider the influence of proxy
firms over voting outcomes. I think you would agree, as you
just highlighted, that the practice of robo-voting, especially
how robo-voting works, is not only troubling, but where
investors automatically adopt a proxy advisor's recommendation
silences the First Amendment rights of our retirees. I have got
a bill out there. It is called Protecting Americans Savings
Act. It requires the SEC to finalize rules prohibiting the use
of robo-voting with respect to votes related to proxy advisors.
So, Mr. Copland, I am going to come back to you on this. Do you
think this would help restore accountability of fund managers?
Many of them are handling trillions of dollars in retirement
savings.
Mr. Mueller. Yes. As Mr. Copland said----
Mr. Nunn. Yes.
Mr. Mueller [continuing]. particularly for many of the
smaller administrators, there is no motivation for them to take
the time to do an independent review and analysis and actually
exercise their fiduciary duties before voting. Instead, they
have blind reliance on the proxy advisory firms.
Mr. Nunn. I would highlight here, it also ensures that this
voting is optional, which is important to protect our
shareholders, particularly our retirees, from being dragged
into these often very social-focused political fights and
allows them to just really focus on getting their retirement.
Mr. Copland, is that true?
Mr. Copland. I think that is very important to do
statutorily. I mean, the SEC has moved that way in guidance,
but these proxy advisors came about in part because first the
DOL and then the SEC said, oh, well, you have got a fiduciary
duty to vote, here is a safe harbor, and it really empowered
these firms. Now, while they have clarified this, this could
always swing back, it can always change, so I think making it
clear in statute would be very useful.
Mr. Nunn. Mr. Chair, I would like to be able to submit for
the record the letter here to the American Securities
Association that details of proxy power proposal abuse and the
reform rules that we could go that complement the----
Chairman Hill. Without objection.
[The information referred to can be found in the appendix
on page 152.]
Mr. Nunn. I would like to just now quickly talk about the
SEC rules. Former Secretary Gensler expanded the definition of
``solicitation'' to cover proxy voting advice. Normally,
solicitation means directly asking someone for their vote.
Gensler went further. He said even research or recommendations
from proxy advisors should count, so just the thought process
versus the actual. Mr. Copland, do you believe that the SEC
exceeded their authority by going from asking for it to just
implying that people should be able to do this?
Mr. Copland. I mean, the D.C. Circuit certainly just said
that.
Mr. Nunn. They struck it down. You are exactly right.
Mr. Copland. But that is why it is important for this body
to act in this space, I think, because I do think that the
proxy advisory firms should be regulated in some form.
Mr. Nunn. Yes, absolutely. Thank you, Mr. Chair. I would
yield back the remainder of my time.
Chairman Hill. The gentleman from Iowa yields back. The
gentleman from New Jersey, Mr. Gottheimer, you are recognized
for 5 minutes.
Mr. Gottheimer. Thank you, Mr. Chairman. Mr. Lander, if I
can direct a few questions to you, and thank you for being here
today. The phrase ``globalize the intifada'' is an antisemitic
slogan that refers to a wave of terror that killed more than
1,000 Jews. Mr. Lander, Mr. Mamdani recently said he will
``discourage the use of the phrase `globalize the intifada,' ''
but has refused to condemn it as antisemitic rhetoric. You have
also failed to outright condemn this phrase as antisemitic and
a blatant call for violence against Jewish people, which is
obviously surprising given that antisemitic violence, as you
know, is at an all-time high in this country, including in New
York and New Jersey, where I am from. I just want to know if
you condemn the phrase ``globalize the intifada'' as a call to
violence against Jewish people?
Mr. Lander. I have made it very clear on occasions that
when I hear that phrase, what is ringing in my ears is violence
against Jews in the Second Intifada and, unfortunately, here in
the United States recently.
Mr. Gottheimer. So, you condemn the phrase? It is like a
yes or no question. You are either for it or against it. I
mean, given what you said, I assume----
Mr. Lander. I make clear that I think when people use it,
they are saying open season against Jews.
Mr. Gottheimer. So, we should do everything we can to get
them to stop using that phrase, correct?
Mr. Lander. I would not want a law against the phrase. I
guess what I would say, when you say everything we can do, I
make clear how I feel about it and what I think when I hear it.
Would I want a law saying that it was banned? I would not.
Mr. Gottheimer. So, you think we should allow that? You
think we should discourage it or condemn it? What do you think
we should do on that phrase? You will not even condemn the
phrase? Even if you say we should not have a law, do you
condemn the phrase ``globalize the intifada?''
Mr. Lander. I mean, I have made very clear how I feel about
that phrase.
Mr. Gottheimer. It is just a ``yes'' or ``no,'' man. It is
not that hard.
Mr. Lander. But when you say anything we could do, are you
saying that you think there should be legislation that would
prohibit people----
Mr. Gottheimer. This question----
Mr. Lander [continuing]. or criminalize people?
Mr. Gottheimer. Sir, I reclaim my time. This question is,
do you condemn the phrase ``globalize the intifada?'' It is a
simple ``yes'' or ``no'' question.
Mr. Lander. Tell me what you mean by ``condemn.''
Mr. Gottheimer. You do not know what the word ``condemn''
means? You are a very smart guy.
Mr. Lander. I am afraid it means I think there should be
legislation making it illegal to say, and I hate it. I do not
like it.
Mr. Gottheimer. Okay. Fine, and do you----
Mr. Lander. I do not like how it sounds.
Mr. Gottheimer. Do you personally----
Mr. Lander. But if I condemn, you mean----
Mr. Gottheimer. You cannot condemn----
Mr. Lander [continuing]. I would support legislation making
it illegal to say? I do not think it should be illegal to say.
Mr. Gottheimer. I condemn lots of things that I will make
sure the legislation----
Mr. Lander. If you mean do I think it is awful and I wish
people would not say it, then I condemn it.
Mr. Gottheimer. Got it.
Mr. Lander. If you mean do I think it should be made
illegal by legislation, then no.
Mr. Gottheimer. Got it. So, it sounds like I heard you say
you condemn it. You personally condemn it. You would not say
it. You think it should not be said.
Mr. Lander. I would prefer people not say it.
Mr. Gottheimer. Okay. Mr. Lander, it is surprising you are
advocating for free market policies and good corporate
governance, which I support. Do you believe the government
should be running grocery stores in New York City?
Mr. Lander. I am supporting, as you know, Assembly Member
Mamdani, and he is supporting five pilot grocery stores
throughout the boroughs in order to address grocery store costs
by----
Mr. Gottheimer. Yes. So, you think government-run stores
are exempt from property taxes and rent. You are not worried
they are going to hurt small businesses, like local grocery
stores that are owned by long-time residents and immigrants and
others, because they have to compete with the government-run
ones.
Mr. Lander. I mean, we do not have enough information to
know what the shape or the form of those stores would be and
how competition would take place. I love my local bodega. I
love my local grocery store. Yes, they are owned by immigrants.
I want to see them thrive.
Mr. Gottheimer. Right. It would be tough if they are
competing against socialist-driven government grocery stores.
Mr. Lander. But then we have many places in New York City
that are food deserts and have no good grocery store providing
decent, nutritious affordable food, and in those places, I do
not see any harm offering additional options.
Mr. Gottheimer. You could have incentives like we have had
incentives in other places to encourage that.
Mr. Lander. We have incentives. We have a program called
the Fresh Program in New York City, which my office audited and
found that it is a pretty ineffective incentive.
Mr. Gottheimer. Got it but having the government going in
to run a grocery store is what you think is a solution?
Mr. Lander. In places where there currently are no grocery
stores that are food deserts, what would be the harm?
Mr. Gottheimer. I want to just talk about people from New
Jersey who commute to New York to work, to see doctors, to
spend money and contribute to the economy.
Mr. Lander. We love to have them.
Mr. Gottheimer. That is great that you love them. I mean,
you have obviously supported the congestion tax, which is
hurting them. The Metropolitan Transportation Authority (MTA),
as you know, just recently announced that they will be
increasing subway fares, the very mode of transportation you
are suggesting commuters take instead of driving, which is part
of what is encouraged. Do you support those price increases at
the MTA?
Mr. Lander. I support congestion pricing. As you know, we
want to welcome folks from New Jersey----
Mr. Gottheimer. What about the fare increases----
Mr. Lander--and we want to pay for----
Mr. Gottheimer [continuing]. the fare increases of the MTA.
Do you support those?
Mr. Lander. I do not support----
Mr. Gottheimer. The subway fares.
Mr. Lander [continuing]. the fare increase at the MTA.
Mr. Gottheimer. Okay. Great, because I worry about nickels
and dimes, folks. It hurts a lot of people, just like
supporting Boycott, Divestment, and Sanctions (BDS) Movement
would do the same thing and going after Israeli bonds and
encouraging divestment, which would really hurt the economy of
New York. With that, thank you very much, and Shana Tova.
Mr. Lander. Shana Tova.
Chairman Hill. The gentleman yields. The chair of our
Subcommittee on Capital Markets, Mrs. Wagner from Missouri, you
are recognized for 5 minutes.
Mrs. Wagner. Yes. Thank you, Mr. Chairman, and I want to
make clear to my friend, Mr. Gottheimer, that I absolutely
condemn the phrase, ``globalize the intifada,'' so, and I know
you do, too.
Now, to the topic at hand. Mr. Mueller, there you are.
Okay. I reviewed your firm's August 8, 2025, report on the most
recent shareholder proposal season. It caught my eye that 37
companies received a nearly identical proposal from the same
proponent, and that these proposals made up 18 percent of all
successful no-action requests this prior year. These numbers
seem absolutely staggering to me, so I want to dig in a little
bit more. Can you tell me briefly a little bit about this
proponent? For example, what did his proposal ask that each
company do 37 times?
Mr. Mueller. Yes. This was an individual named Chris
Mueller--no relation--and he submitted three different types of
proposals, all really addressing a very technical issue about
ownership of stock certificates in a certificate form instead
of owning them through your bank or brokerage firm.
Mrs. Wagner. Was he selling something?
Mr. Mueller. I am sorry?
Mrs. Wagner. Was he advocating on behalf of something?
Mr. Mueller. It was not clear why he was doing this, and he
typically owned very little stock.
Mrs. Wagner. Yes. How many shares of each company did the
proponent typically own?
Mr. Mueller. In most of them, he only owned one or two
shares?
Mrs. Wagner. Yes. So, to be clear, the proponent only had
one share of each company. This typically would not meet the
Rule 14a-8 ownership threshold, correct?
Mr. Mueller. That is correct, and you are right that those
companies still had to go through all the process----
Mrs. Wagner. Yes.
Mr. Mueller [continuing]. that you do for a shareholder.
Mrs. Wagner. So, given that the proponent did not meet the
ownership threshold, did companies ask the proponent to
withdraw his proposal? What did he say?
Mr. Mueller. Yes, many of my clients did. We always try to
negotiate and engage with the shareholder proponent, and,
typically, his response was, well, if you do what I ask, then I
will withdraw my proposal.
Mrs. Wagner. Well, ``if you do what I ask.'' Wow. Sounds
like blackmail to me. To your knowledge, did some companies
simply cave to his demand to purchase the software that he was
pitching?
Mr. Mueller. I am not aware of any of my clients that did.
He did say that some clients, companies did, but I do not----
Mrs. Wagner. So, some did. Okay.
Mr. Mueller. There is no transparency on that.
Mrs. Wagner. I am glad none of your clients did, but some
certainly have. If it was so clear that his proposal could be
excluded, why did companies need to submit no action letters to
the SEC because they did, and how do proxy advisory firms play
a role in this?
Mr. Mueller. Yes. So, the proxy advisory firms, both of
them have policies that, if a company excludes a shareholder
proposal from their proxy statement without having either a
court opinion or an SEC no-action letter, that they will view
that as bad governance, regardless of the circumstances, and
will recommend votes against the directors.
Mrs. Wagner. Well, this is just one--one--of many examples.
It clearly demonstrates, Mr. Chairman, just how broken our
shareholder proposal process is, and under this flawed system,
companies are often forced to waste valuable time and resources
finding proposals that are irrelevant to the company's bottom
line, hurting investors and workers alike.
Mr. Mueller, in your firsthand experience dealing with
activist proposals and the bureaucratic hurdles that they
create, what changes do you think are necessary to fix this
system and ensure that investors--investors again--investors'
interests are put first?
Mr. Mueller. Sure. There are a number of helpful proposals
in the legislation, but raising the threshold that a
shareholder has to meet. Certainly, Mr. Lander has skin in the
game, but not all of them do, eliminating or raising the
resubmission thresholds, and, really, there is also a problem
with just serial proponents. There are shareholder proponents
who will drop a proposal at a company every year. It may not be
the same proposal, but they are just after some other game.
Mrs. Wagner. Well, and I thank you, and I am sure there are
others, and I would like you to submit them for the record. I
am proud to have my legislation, the Corporate Governance
Examination Act, included as one of the bills the committee is
considering in this hearing today. It requires the SEC to
conduct a study at least every 5 years on the shareholder
proposal and proxy processes and this is then going to make
sure that the process does not become unnecessarily politicized
and will help to inform both Congress and the SEC on changes
that might be needed to ensure that we put investors first. I
thank you, Mr. Chairman, and I yield back my time.
Chairman Hill. The gentlewoman yields back. The gentleman
from Florida, Mr. Donalds, you are recognized for 5 minutes.
Mr. Donalds. Thank you, Chairman. It is good to be here. We
said earlier in this committee, actually, a couple of things,
that a lot of members who are activists in their way to be
coming to Capitol Hill. I was an activist locally in my
community before I came to Capitol Hill. The thing we always
advocated for was free markets, the United States Constitution,
and we did not want to have outside groups wielding this
nefarious power to try to shift the very fabric of our
capitalist system underneath our noses, and it looks like what
these proxy advisory firms have been doing is that very thing.
They have been using our system of free information as a way to
shift the very nature of free market competitive economics and,
actually, substitute that with nefarious, counter-cultural,
socialistic policies that are not in the best interest of the
United States. ESG policy is very indicative of that fact, and
so this is a hearing that, in my view, is long overdue.
Mr. Copland, can you elaborate on how activists have
hijacked the proxy proposal process to push left-wing ideology
through corporations?
Mr. Copland. Yes. A very small percentage of shareholders
are introducing virtually all of these shareholder proposals.
They are corporate gadflies. There is a guy, John Chevedden,
who, this year, himself proposed one-third of all shareholder
proposals. Then you have got social investing funds with an
express purpose that is different from just maximizing share
value that introduces a lot of these proposals, and the other
block are really labor-affiliated funds. They could be private
labor unions like the contractors' union. They could be public
pension funds for public employees, such as the New York City
funds that Comptroller Lander works on, and that is really who
supports all these proposals. None of the other institutional
investors that are simply focused on the markets do that. Now,
some of them vote for them----
Mr. Donalds. Mm-hmm.
Mr. Copland [continuing]. in part because the proxy
advisors are directing them to, telling them to, and they defer
to those proxy advisors, or, in part, because they are passive
index funds, and they have been captured. They have gotten a
little better in the last year, but they have historically gone
for this, but they do not really have skin in the game in any
of these companies because they are just mirroring the stock
market.
Mr. Donalds. No, I agree with you, and I found some of
those funds, social impact funds, the performance is actually
worse than funds that are actually looking for value, which is
a detriment to the shareholders across the board. Mrs. Keel, do
proxy advisory firms have fiduciary duties to the companies or
shareholders that they are advising?
Mrs. Keel. They do not have any fiduciary duties to the
companies that they are advising, and they are imposing these
standards on and a kind of an implicit threat to follow their
regulations. Some of them, ISS does have a fiduciary duty to
its clients because it is regulated under the Investment
Advisor Act, but Glass Lewis is not. So, I think that is an
important distinction because they do the exact same thing, and
so it is a query in my mind as to why one of them is regulated,
and I should also mention that it is a very, very light-touch
regulation but it does not really make any sense that one would
be regulated and one is not.
Mr. Donalds. Okay. You know, this hearing got really
interesting a little bit ago with my colleague from New Jersey.
So, Mr. Lander, I have to come to you. You are the comptroller
of the city of New York. You talked about the proposal by Mr.
Mamdani for government-run grocery stores. Do you think that is
a viable proposal for the people of the city of New York?
Mr. Lander. All around the country, there are quite a few
places where there are publicly owned grocery stores designed
to offer healthy, nutritious, affordable food in food deserts
where people have no other options----
Mr. Donalds. Mr. Lander----
Mr. Lander--that is working in red and blue States around
the country.
Mr. Donalds. Mr. Lander, you do realize that these grocery
stores have less product available. The food is not nearly as
good. Some of them shut down. The standards in them are, quite
frankly, disgusting. Do you think it is in the interest of the
people of New York to open this up? By the way, I am from
Brooklyn, New York, so I have grown up in the city. I know what
foods----
Mr. Lander. I am so glad to hear it, but if you grew up in
low-income neighborhoods in Brooklyn, you would see that you
had----
Mr. Donalds. Sir, I grew up in Crown Heights, Brooklyn, a
low-income neighborhood. The city of New York----
Mr. Lander. Then you would have seen that many of the
privately owned stores nearby----
Mr. Donalds. The city of New York----
Mr. Lander [continuing]. had low quality and high prices.
Mr. Donalds. The city of New York got out of the business
of distributing food when I was a kid. The city of New York
used to distribute food. They got out of that business. They
did when I was a kid. Do you think it is okay to go back?
Mr. Lander. We still provide a whole lot of free meals in
our summer camp programs, in our after-school programs, and in
our schools that an enormous number of low-income and working-
class families rely on.
Mr. Donalds. Reclaiming my time.
Mr. Lander. That is government distributed food. Should we
cut it off?
Mr. Donalds. Reclaiming my time because I have got 10
seconds, yes. Last question for you. Can you condemn the phrase
``global intifada''?
Mr. Lander. I made really clear, I do not think people
should say it. I condemn it.
Mr. Donalds. So, you will not condemn it?
Mr. Lander. If you want to make it against the law----
Mr. Donalds. So, you would not condemn the phrase?
Mr. Lander [continuing]. and send people to jail for saying
it----
Mr. Donalds. You will not condemn the phrase.
Chairman Hill. The gentleman's time has expired.
Mr. Lander [continuing]. I do not.
Mr. Donalds. This is why the city of New York is going down
the toilet. I yield.
Mr. Lander. It is doing great. Thank you. You should come
back and visit.
Chairman Hill. The gentleman's time has expired. Thank you.
Now, the gentleman from Wisconsin, Mr. Steil, who chairs our
Digital Assets, Financial Technology and AI Subcommittee, is
recognized for 5 minutes.
Mr. Steil. Thank you very much, Chairman Hill, and thank
you for holding today's hearing. This is a really important
topic that we need to discuss, but it tells you a lot about the
State of the Democratic Party where their witness has to come
and defend government-run grocery stores. Tells you a lot about
the State of the Democratic Party but let us dive into proxy
advisors because I think that is one of the biggest unknown
challenges that we face.
The proxy advisor duopoly run by foreign-owned operations,
as highlighted by Mr. Copland, that is not properly regulated,
as highlighted by Mrs. Keel, sets us up for an opportunity to
stop the abuse that has been occurring in Americans' retirement
accounts, their 401(k)s and their pension plans, which have
been weaponized to deliver a political agenda rather than to
prepare them successfully for retirement. I, in particular,
want to talk about potential conflicts of interest and whether
or not that conflict exists inside ISS and Glass Lewis, who are
providing two key services at the same time and claiming that
there is not a conflict. On one side of the ledger, they are
advising asset managers about the underlying shareholder
proposal votes. Is that correct, Mr. Copland?
Mr. Copland. Yes.
Mr. Steil. On the other side, are they also providing
advice and consent to the companies that they are advising
upon?
Mr. Copland. Yes.
Mr. Steil. So, they are being paid on one side by asset
managers to review proposals that will directly impact
management, and on the other side they are being paid by
management to provide consulting services. Is that right?
Mr. Copland. Yes.
Mr. Steil. That seems like a conflict of interest, right?
Mr. Copland. It does to me.
Mr. Steil. So, one of the best ways that we address
conflicts of interest is we disclose information to the public.
Sunlight is often the best disinfectant, and so it would be
rational to me that the Securities and Exchange Commission
would come in and force ISS and Glass Lewis to disclose any
conflicts of interest when they are on both sides of the
ledger. Do you agree that is a reasonable proposal, Mr.
Copland?
Mr. Copland. It is reasonable to me.
Mr. Steil. Does the Securities and Exchange Commission
require this type of disclosure?
Mr. Copland. It does not. There were efforts made. So, in
2020----
Mr. Steil. There were efforts made, right, and you come in,
and we had a proposal that then is struck down by Chairman
Gensler, but you could come in under this Securities and
Exchange Commission, and Atkins and the team at the SEC could
come in and force those disclosures by ISS and Glass Lewis,
ultimately, right?
Mr. Copland. It has been litigated in court, and courts are
coming down in slightly different ways. I mean, I think it is
why this body ought to act, probably, because proxy advisors, I
think you have got a bill in here that would have them be
registered, right, with the SEC.
Mr. Steil. My bill does exactly that. Mrs. Keel, your
comment that only ISS has some basic level of regulatory
regulation on them--Glass Lewis is pretty much outside the
structure--you would encourage that Congress to pass
legislation that puts both of them under a regulatory
environment in the Securities and Exchange Commission, right?
Mrs. Keel. Absolutely. I think that it would be welcome to
have regulation at the Federal level.
Mr. Steil. Mr. Mueller, would you agree?
Mr. Mueller. Yes.
Mr. Steil. What do you think the risk is, Mr. Mueller, to
folks that are saving for retirement, people that have funds
that are ultimately being voted on by these large asset
managers as they prepare for retirement, could be in a 401(k),
could be part of a pension plan, that the underlying vote on
shareholder proposals is being driven by two proxy advisors,
one ISS and both Glass Lewis, which are owned by entities
outside the United States. What does that say to Americans
saving for retirement?
Mr. Mueller. The concern is whether Americans can trust
that their votes are being used productively or whether they
are being used to help enrich these two firms with their
advisory services.
Mr. Steil. Have you seen instances of that? Have you seen,
for example, oil companies being told to stop producing fossil
fuels, or have you seen an insurance company being told to
price insurance based on race, which is obviously illegal? Have
we seen these types of recommendations by this duopoly?
Mr. Mueller. We have seen them supporting shareholder
proposals that ask to interfere with the company's business,
yes.
Mr. Steil. So, not in the best interest of Americans who
are trying to prepare and save for retirement. Instead, we have
seen it hijacked by duopoly, foreign-owned entities not
disclosing conflicts of interest. This seems incredibly
problematic. We have an opportunity to act here. I have had
legislation that I have introduced time and time again. It is
time that we move this all the way across the line, the
Securities and Exchange Commission comes in, ends this duopoly,
and finally stands up for the American people who are working
their tails off to save for retirement so that their retirement
funds are not being hijacked to deliver the political agenda of
these proxy advisors.
Chairman Hill. The gentleman's time has expired.
Mr. Steil. I yield back.
Chairman Hill. The gentleman yields back. The gentleman
from New York, Mr. Garbarino, the chair of the House's Homeland
Security Committee, you are recognized for 5 minutes.
Mr. Garbarino. Thank you very much, Mr. Chairman. I thank
the witnesses for being here today. Urgent reform is necessary
for the shareholder proposal process. What once was a mechanism
for democratizing shareholder oversight has been increasingly
utilized by activist shareholders to push niche policy
objectives that do not align with maximizing shareholder value.
This untethered activism diverts significant resources and
management attention from fundamental business matters, thereby
undermining market efficiency and discouraging firms from
becoming publicly traded. Mr. Copland, do companies feel that
they have to hold votes on certain proposals for fear of public
scrutiny?
Mr. Copland. Yes, under the current rules.
Mr. Garbarino. So, what are some of the ramifications that
they are afraid of?
Mr. Copland. Well things can be mis-portrayed in the press.
The proxy advisory firms can treat these advisory or precatory
proposals as effectively binding and vote against their
directors if the company does not act. If the board does not
say, with our fiduciary duty, we disagree, they could be asked
to violate that, or we are going to vote no on your directors
next time as a proxy advisor, and they will do that. Glass
Lewis expressly does it when 70 percent of the shareholders
vote no on the proposal. I mean, that is insane.
Mr. Garbarino. It is definitely insane, goes after what
these directors are supposed to be doing, what the company is
supposed to be doing for their shareholders. Under former SEC
Chair Gensler--thank God he is gone--changes to proxy rules
made it easier for special interest groups to include
politically motivated shareholder proposals in annual
statements, reversing prior reforms. From 2020 to 2024, the
total number of proposals grew with environmental and social
proposals on topics such as climate change, DEI, human rights,
and lobbying, seeing a 59-percent increase and becoming a
dominant part of the shareholder landscape. Mr. Copland, I
mean, this is an obvious answer, I think, but is the
shareholder proposal process being abused by these special
interest groups?
Mr. Copland. Yes.
Mr. Garbarino. Yes. So, I want you to go on record and talk
about some of the examples for this abuse.
Mr. Copland. Yes. I mean, and I have pointed to these for
years where a shareholder will buy a small amount of shares,
for instance, an animal rights group like People for the
Ethical Treatment of Animals (PETA) and Levi's and talk about,
like, leather patches on the jeans, and get on the agenda with
small amounts of shares on this.
Mr. Garbarino. When you say ``small,'' what do you mean?
Mr. Copland. A few thousand dollars----
Mr. Garbarino. Yes.
Mr. Copland [continuing]. which would be enough to get over
the threshold. I mean, if the thresholds go up, they will get a
little more. We commissioned a study when Comptroller Lander's
predecessor, Scott Stringer, launched his Boardroom
Accountability Project, and really----
Mr. Garbarino. Great.
Mr. Copland [continuing]. as Representative Velazquez said
the New York City pension funds have been playing politics for
years with corporate proxies, but he really ratcheted it up to
another level. So, we commissioned a study by Tracie Woidtke at
University of Tennessee and found not only a negative
association in terms of sheer value with the environmental and
social activism that public pension funds were engaging in, but
we found they typically invested less relative to other
companies than the companies they were engaging with. So, they
were not really putting their money where their mouth was. They
were buying enough stock in these companies, but not as much.
So, we have seen individual shareholders make a living out
of this. I mean, the late Evelyn Davis was one of the early
corporate gadflies. She used to make $600,000 a year selling a
12-page booklet to corporate CEOs, and you had to buy two and
she charged like $650 per booklet, basically, because they
wanted to stay in her good graces. They did not want her to
target them. I mean, it is rife with abuse.
Mr. Garbarino. Absolutely, and what is even worse is I
think a lot of these proposals, less than 30 percent of
participation vote totals indicates that this is out of step
with most shareholders. Switching gears a little, investment
advisors rely on proxy advising firms to help meet their
fiduciary duty by providing research, voting guidelines, and
support for thousands of votes each year. While we can all
acknowledge a need for reform, we must also take into account
the costs that come with the legislation for advisors of all
sizes. How can Congress, Mr. Copland, and regulators ensure
reforms preserve the independence and availability of these
services without adding costs or barriers that impair advisors'
abilities to vote for their clients?
Mr. Copland. Well, I think the colloquy we had with
Representative Steil a minute ago was instructive. I mean, I
think they should be registered. I think they should have
oversight. I think there should be disclosure. I think there
should be disclosure on the institutional investor side if they
are utilizing the services, certainly if they are robo-voting
the services, if they are just deferring to the proxy advisors.
All of these things could help.
Mr. Garbarino. Thank you. I yield back. Thank you.
Chairman Hill. The gentleman yields back. The gentleman
from Wisconsin, Mr. Fitzgerald, you are recognized for 5
minutes.
Mr. Fitzgerald. Thank you, Mr. Chair. I would first like to
ask unanimous consent to submit a letter titled, ``Proxy Power
and Proposal Abuse,'' to the record.
Chairman Hill. Without objection.
[The information referred to can be found in the appendix
on page 155.]
Mr. Fitzgerald. Thank you, gentlemen, for being here, and,
Mrs. Ferrell Keel, thank you. Trying not to be redundant, but I
wanted to go back to something and say it kind of just in black
and white, and that is, ISS and Glass Lewis leverage their
control of the proxy advisory market to encourage U.S.
companies to purchase their consulting services. That is
happening. Creating that appearance and doing so, it may help
to avoid the negative voting recommendations, but, Mr. Mueller,
in your experience working with public companies, what risks do
you see when proxy advisory firms issue voting recommendations
while also selling consulting and advocacy services?
Mr. Mueller. I will address three really quickly. I mean,
first, it encourages the firms to have a lack of transparency
so that you have to buy their services to know how they are
going to recommend on something. It also encourages kind of a
check-the-box approach by the proxy advisory firms because they
do maintain an ethical wall, but if both sides of that wall
have the same checklist, then that wall does not matter. There
is still a conflict of interest and then, of course,
shareholders and companies are the ones that are suffering from
the votes. The customers of ISS, as we have heard, may not have
the economic incentive to exercise a lot of scrutiny on those
voting recommendations, but they are not the ones that are
hurt. It is the shareholders at large and the companies that
suffer from the voting recommendations.
Mr. Fitzgerald. So, in your estimation, is there any way
for this to be kind of shifted or changed in a way that would
eliminate the conflict, or is the only way to really get rid of
this the way we are addressing this with legislation, which is
to simply sever the ability to do that, to get rid of the
conflict?
Mr. Mueller. There should certainly be regulations because
right now, the SEC has its arms tied behind its back on this,
and yes, they should certainly evaluate. I mean, certainly, for
example, audit firms are not allowed to both audit a client and
give certain consulting services to those clients. It is just
an irreconcilable conflict and is prohibited, and that may be
the solution here.
Mr. Fitzgerald. Mr. Copland, turning to you. Based on your
research and analysis of the shareholder proposal process, can
you discuss how recurring or the duplicative proposals affect
the efficiency and the clarity of the proxy materials that
people are receiving very often and in a way that sometimes is
nonchalant? It is simply mailed to them, and they are
overwhelmed.
Mr. Copland. Yes, it can be hard to figure out. I mean, if
you have got two proposals on similar subject matter, are you
going to really tease those apart well and then what if
shareholders vote ``yes'' on one and ``no'' on another and it
is sort of ambiguous, or there are conflicts, a recurring
issue, because the resubmission thresholds have traditionally
been so low, proponents can get these on the ballot year after
year after year after year. The proxy advisors take the odd
position that if it fails year after year after year after
year, and then 1 year it gets a majority, they have got to act
on that or we may vote against your directors, even though it
could potentially flip back the next year. So, it is kind of a
mess. I did not put much in this testimony about it, but I put
a lot more in my 2016 testimony and in common letters to the
SEC in 2020 and 2022 on this issue, and they are all referenced
in my written testimony.
Mr. Fitzgerald. Yes. So, you currently believe the
thresholds for resubmitting the failed proposals, which is kind
of a whole other area. You did not get the outcome you wanted,
so you simply bring it back again, maybe with different
verbiage, right?
Mr. Copland. Could be different. Could be the same
verbiage. If it hits above those relatively modest thresholds,
they can keep doing it year after year. So, if you get a proxy
advisory firm that likes it, it is going to stay on the ballot
in perpetuity, effectively, even if the vast majority of
shareholders vote against it year after year.
Mr. Fitzgerald. Thank you, Chairman. I yield back.
Chairman Hill. The gentleman yields back. The gentleman
from Nebraska, the chair of our Housing and Insurance
Subcommittee, Mr. Flood, you are recognized for 5 minutes.
Mr. Flood. Thank you, Mr. Chairman. As we have talked about
today, we have an increasingly alarming problem as it relates
to shareholder proposals in this country. Sixty-two percent:
that is the number I want you to remember. In 2024,
environmental and social proposals made up 62 percent of total
shareholder proposals, according to a report from ISS
corporate. Think about that: more than 60 percent of
shareholder proposals last year were related to environmental
and social topics. That is a really staggering total, and it is
one that should alarm everybody on this committee. We have
activists treating public companies as their own personal forum
for social and environmental change, and, quite frankly, it is
a waste of time, and it is a waste of money, and it is
ultimately sucking productivity out of our economy and into
organizations that seek to perpetuate endless social and
cultural war in corporate America.
Something that I do not think proponents of progressive
social and environmental shareholder proposals fully understand
is that with the door open to political shareholder proposals,
we are now seeing politically motivated shareholder proposals
coming from, now, both directions. According to a Financial
Times article from last week, U.S. shareholders did not pass a
single environmental shareholder proposal in 2025. On the other
hand, anti-ESG proposals are increasing in frequency. According
to a recent study, anti-ESG proposals increased--get this--67
percent from 2023 to 2024 in the 500 largest U.S. public
companies by revenue. So, if we do not act, I fear we are
seeing the beginning of what is likely to become a pattern. In
years when the cultural momentum is moving to the left, we have
a surge of environmental and social proposals, and in years
when we have a cultural movement to the right, we are going to
see more anti-ESG shareholder proposals. The end result is that
we never actually address the underlying issue of activist
shareholder proposals. Instead, these investors will use our
public companies as a political football, and we will see them
whipsaw from one set of cultural objectives to another.
Mrs. Keel, in your testimony, you highlighted one example
of a shareholder proposal that would have asked a store that
sells hammers and nails to make a public statement on abortion.
Let us use that particular proposal as an example. What kinds
of costs would the company incur on a single proposal like that
in terms of money, employee time, and legal fees?
Mrs. Keel. Sure. So, when you think about how a company
would analyze that coming in, they would have to think about
their internal policies, procedures, how they are currently
addressing these issues of healthcare with their own employees,
what sort of information would they have to disclose with what
this report is requesting of them. I think the bigger point
maybe is the intangible kind of cost, right, of taking a stance
on something that is so polarizing and personal. They are being
asked to come out and take a stance on something that
employees, customers, suppliers, everyone is going to have a
different view, and it really has nothing to do with the
business and so query why they are having to address it in
their proxy statement.
Mr. Flood. I appreciate that. Think about a steel worker in
my hometown. Believe it or not, we make steel in the middle of
the prairie in Norfolk, Nebraska. Their retirement is
underpinned by mutual funds and investments in public
companies. They go to work every day, and they watch that
balance, and they want to know that if America is booming, so
are they, but instead, some activist shareholder get in there
and start messing with that steelworkers' future and their
balance, and I think you make a very good point there.
I think it is important to highlight these are frivolous
proposals that are not victimless, and they are not costless.
These activists are using our capital markets to play these
games. I would like to speak briefly on the proxy advisor firms
and their extreme power in this story. In an article recently
published by the Financial Times, I was struck by a quote about
the proxy advisor firm, ISS. Marc Lindsay of Jasper Street,
which is a firm that advises public companies for shareholder
proposals, said the following. We asked why zero environmental
shareholder proposals passed this year. He said, ``Every
environmental proposal that has passed had ISS as a supporter,
and this year, no proposals have ISS as a supporter.'' Mr.
Copland, can you speak to the weight of an ISS recommendation
in the result of shareholder proposals?
Mr. Copland. Studies vary on it. We did one in 2012, and
what we found using the data set we were looking at was that an
ISS recommendation was about a 15-percentage point bump in
favor of a shareholder proposal. I have seen higher estimates.
I have seen lower estimates. It probably depends a lot on
company size in terms of how much delegation to ISS there would
be on the part of the institutional investors.
Mr. Flood. I appreciate that, and with that, I yield back.
Chairman Hill. The gentleman yields back. The gentleman
from Indiana, Mr. Stutzman, you are recognized for 5 minutes.
Mr. Stutzman. Thank you, Mr. Chairman. The shareholder
proposal process we are discussing today was originally
designed to give investors a voice in the companies they are
shareholders of, but today, the process has been hijacked. A
small group of activists will buy just enough shares to qualify
under the law, then flood companies with radical social and
political proposals that have nothing to do with profits, jobs,
or innovation. Instead, they force businesses into costly and
divisive debates on things like climate change, DEI, abortion,
and gender ideology, and it is not just companies on Wall
Street in the crosshairs. It is businesses across the country,
including those in Indiana, that are targets as well.
Cummins, headquartered in Columbus, Indiana, was the target
of a resolution demanding that it tie its executive pay to
unrealistic climate targets that would destroy its business.
Eli Lilly, another Indiana-based company, activists demanded
that it divert critical resources toward a report on DEI hiring
quotas instead of focusing on its core mission of developing
lifesaving medications. These activists are not hiding the ball
either. Groups like As You Sow flaunt their proposals on their
website, and I encourage those watching at home to look for
themselves and see how extreme these proposals truly are. Here
is one for Amazon in which activists successfully pressured the
company into hiring an expensive law firm to conduct a full-
fledged racial equality audit. In fact, over 30 American
companies, ranging from Uber to Chipotle, have been pressured
into similar audits. Here is another for Coca-Cola that
demanded they study how to increase abortion access for their
employees. Here is a similar proposal for McDonald's that asked
the company to explore gender-affirming care for employees'
children. Since the barriers to entry are so low, all it takes
is a few thousand dollars for these activists to propose these
radical ideas and have them included for a vote.
Thank you all for being here today. Mrs. Keel, I know you
spend a lot of time working with companies that receive these
types of proposals. How difficult is it for companies to combat
these proposals, and what are the costs for those that choose
to do so?
Mrs. Keel. Sure. So, there are a few different ways you can
go about it, and I think one important word to focus on is
``combat,'' right? It would be ideal, right, if we were not
thinking of it in that direction and, instead, we were able to
think of it as, we are deciding what is material to our
investors and what we are going to put on our proxy statement.
Are we exercising a legal right by going to court and trying to
understand the application of these rules? I would not consider
those combative. I would explain those as exercising one's
legal rights. Yes, it is inordinately expensive, both in terms
of legal fees, but then also in terms of making the headlines,
right? Navigating the discussions with your shareholders and
customers and suppliers, that is very taxing on companies.
Mr. Stutzman. Are you seeing a lot of activity in relation
to this sort of action, and investors that are pushing
companies, has this calmed down a little bit, or are we still
seeing quite a bit of activity?
Mrs. Keel. It is heightened more than ever, and I think we
see that because we see both left and right activists, right?
To Mr. Copland's point, we will see that on the same proxy
statement, a pro-DEI proposal and an anti-DEI one, and a
company can be a bit stuck in the middle, if you will, on how
to address that.
Mr. Stutzman. Yes. Mr. Copland, I have got a question for
you. Something we have heard about today is the need for more
transparency from proxy advisory firms, and there is little
doubt about the influence these firms have over the outcomes of
proxy voting and their lack of transparency, and it is
certainly cause for concern. Just two proxy advisory firms, ISS
and Glass Lewis, control 90 percent of the market, yet lack any
sort of meaningful oversight. As a result, we have little
information about the independence of their recommendations or
potential bias. Do these proxy firms tend to favor certain
types of proposals and also specifically, do they give more
support to left-leaning ESG and DEI proposals than do proposals
that might reflect conservative concerns?
Mr. Copland. Historically, yes, right? I mean, as has been
mentioned, there was sort of a pullback this year from ISS on
some of its recommendations, but historically, we have seen
upwards of 70 percent, upwards of 50 percent, upwards of 30
percent of various sort of left-leaning ENS-inflected proposals
and essentially never support for more free market or
conservative proposals on the other side.
Mr. Stutzman. Very good. Thank you, Mr. Chairman, for
having this hearing today. I have seen this up close and
personal in some of the companies in my private activity
before, and it can cause real problems. So, thank you for
bringing awareness to this, and I appreciate the witnesses'
testimony as well. I yield back.
Chairman Hill. Thank you. The gentleman yields back. The
gentleman from New York, Mr. Lawler, you are recognized for 5
minutes.
Mr. Lawler. Thank you, Mr. Chairman. Mr. Lander, the New
York State comptroller, Tom DiNapoli, just put out a report
that $1.2 billion in taxpayer money was spent paying for
healthcare premiums for Medicaid recipients who no longer live
in New York State. Have you seen that report?
Mr. Lander. I have not reviewed that report.
Mr. Lawler. Are you going to review that report?
Mr. Lander. I am absolutely going to review that report,
and I assume you are representing it accurately, doing anything
like that.
Mr. Lawler. This is Tom DiNapoli's own report.
Mr. Lander. I believe you. I just have not had the chance
to----
Mr. Lawler. Okay. So, you will be evaluating the impact on
New York City?
Mr. Lander. Absolutely.
Mr. Lawler. Okay. Do you support the use of taxpayer money
that has been used over the last few years in New York to
provide healthcare for illegal immigrants?
Mr. Lander. I mean, the short answer is yes. Where folks
are undocumented, but they are working in New York City, it is
so much better for them to have access to primary healthcare
than it is for them to wind up in emergency rooms in ways that
bear much greater cost.
Mr. Lawler. So, you just distinguished if they are working.
If they are not working, do you support the use of taxpayer
money to provide free healthcare for illegal immigrants that
are not working?
Mr. Lander. I mean, the primary care approach is what we
generally try to use through our federally qualified health
centers. If someone is brought to an emergency room, do I think
that their life should be saved rather than worrying about
their immigration status----
Mr. Lawler. That is the law.
Mr. Lander [continuing]. or how they can pay for their
healthcare?
Mr. Lawler. That is the law.
Mr. Lander. I do think so, yes.
Mr. Lawler. That is the law, and hospitals do provide that
care, but specifically in New York, billions of dollars of
taxpayer money have been used to provide free housing,
clothing, food, education, and healthcare to illegal
immigrants, regardless of whether or not they are working or
not. We have seen, obviously, in New York City in particular,
the city of which you are the comptroller, billions of dollars
of taxpayer money being used. Do you support the use of those
funds to provide free healthcare to illegal immigrants? That is
what I am asking. It is ``yes'' or ``no.''
Mr. Lander. I answered yes. Billions of dollars are being
generated by folks who are undocumented in taxes and revenue
for New York City and New York State as well.
Mr. Lawler. There is no question that immigrants contribute
greatly to our economy. The issue here has been, as you well
know, in New York, okay, hundreds of thousands of migrants
coming into the city. The city has crippled under the weight of
that cost, okay? Those are the words of the mayor. Those are
the words of elected officials----
Mr. Lander. I have financial oversight. I can tell you that
each year we----
Mr. Lawler. Those are the words of the elected officials in
New York City, that New York City voters duly elected. Now, you
called yourself in 2016 a Brooklyn Jewish Democratic Socialist,
and so my question to you is----
Mr. Lander. I am pilloried in that article, just to be
clear.
Mr. Lawler. My question to you is, what is your
relationship with the Working Families Party of New York and
the Democratic Socialists of America of New York City chapter?
Mr. Lander. Of the Working Families Party, I am a member
and a donor. Of the Democratic Socialists of America, I am not
a member or a donor.
Mr. Lawler. Do you support the Democratic Socialists of
America (DSA) of New York City?
Mr. Lander. I am not a member or a donor to the DSA of New
York City.
Mr. Lawler. There is a lot of overlap between the DSA of
New York City and the World Food Programme (WFP) of New York.
Do you support the work of the DSA of New York City?
Mr. Lander. There are things they have proposed that I have
supported, like raising the minimum wage, and there are things
they have proposed that I do not support, like BDS.
Mr. Lawler. Okay. So, with respect to BDS, and I am glad
you brought that up, the DSA of New York City just adopted a
resolution as part of this national convention. They want to
expel members who do not comply with their extremist views and,
specifically, anyone who supports Israel's right to defend
themselves. Do you oppose that position in their platform?
Mr. Lander. Yes.
Mr. Lawler. Okay. Zohran Mamdani, who you support for
mayor, is fully endorsed and embraced by the DSA of New York
City, and, in fact, just the other day said that Israeli bond
investments violate New York City values. Do you agree with
your endorsed candidate for mayor that Israeli bond investments
violate New York City values?
Mr. Lander. So, I am the fiduciary for New York City's
investments, and I make those decisions based on that fiduciary
obligation. First, I will broadly say, I do not support BDS, as
I said. New York City's pension funds, under my watch, have
over $300 million invested in Israeli companies. We do not have
Israeli bonds because we do not broadly have foreign bonds in
other countries, in Canada or England or France.
Mr. Lawler. Do you think Israeli bond investments violate
New York City values? Do you agree with Zohran Mamdani?
Mr. Lander. My job as comptroller is not to assess
alignment of value.
Mr. Lawler. It is a pretty straightforward question that
you as comptroller should be able to answer----
Mr. Lander. No, no, I have a fiduciary duty to figure out
best risk adjusters.
Chairman Hill. The gentleman's time has expired.
Mr. Lawler. So, you slightly support it?
Chairman Hill. The gentleman's time has expired.
Mr. Lander. I did not think that the Israeli bonds that
were held in the----
Chairman Hill. Mr. Lander, the time has expired. I am
sorry. You can continue this in writing at the request of
Congressman Lawler or after the meeting in the hallway.
Chairman Hill. We now recognize the gentleman from Montana.
Mr. Downing, you are recognized for 5 minutes.
Mr. Downing. Thank you, Mr. Chair, and thank you to the
witnesses here. As a former commissioner of securities, I had
certain interactions with the former administration of the SEC,
Gary Gensler. When he would bring things down, such as rule
promulgation, non-mandatory climate disclosures, and some other
things, I would reach out to him and say, my job as the
commissioner of securities is to protect investors, your job is
to protect investors. Let us both stay in our lanes here, and
that was a common refrain there.
Another short story is, I was also the commissioner of
insurance, and I had a meeting with a reinsurance group, I will
not name here, talking about the risk that they were pulling
out of oil and gas. They were pulling out of, they said, animal
rights issues and some other things, and that kind of raised my
interest, and I said, hey, I come from a State where we have
more cows than people, and we plan on eating them. Is that
going to be a problem, and their response was, we are not sure.
So fast forward a little bit, I had under the condition of
confidentiality, a reinsurance group came up to me telling me
about their shareholders, their proxy votes. They said we are
being pressured to take these positions on ESG issues that we
do not believe are in the interest of our business, and that
really caught my attention.
So, all of this stuff that I am dealing with as a
commissioner of securities and insurance is coming from
something that has another goal, and my theory there was that
folks that did not like certain industries, that did not like
oil and gas, did not like agriculture, whatever it is they did
not like, could not shut it down from the front door, so they
were trying to come from the back door and make sure you did
not have access to capital markets and make sure you did not
have access to insurance. I am going to start here on proxy
advisors. Thank you for bearing with me on that.
Today, we have a duopoly with ISS and Glass Lewis, making
up 97 percent of the proxy advisory market, and often it seems
like these firms care more about pushing a social and
environmental agenda on public companies than doing what is
best for their shareholders. In fact, proxy advisor firms have
no legal obligation to act in the best interest of their
shareholders despite having enormous sway. I am going to start
with Mr. Copland. How does this lack of a fiduciary duty for
proxy advisory firms impact the quality and the objectivity of
their recommendations?
Mr. Copland. Well, I mean, it has to. There is really no
check on them. They can say, to some degree, whatever they
want. I mean, there are going to be anti-fraud repercussions
they could face, et cetera, but it is not a clear fiduciary
situation, right? I mean, they are contracted with other
fiduciaries.
Mr. Downing. Right.
Mr. Copland. So, it is tricky, but it certainly affects the
quality.
Mr. Downing. Yes, it really is a shame that the previous
administration focused on the needs of activists rather than
the needs of everyday investors. The SEC, under the previous
leadership, essentially encouraged activists to force companies
to consider and adopt policy changes that Joe Biden and the
Democrats could not get through Congress. Thankfully, SEC
chair, Paul Atkins, has already rescinded some of these
decisions that permitted the worst abuses of the shareholder
proposal process.
I am going to move on to Mrs. Keel. In June, the D.C.
District Court upheld the SEC's 2020 amendments to Rule 14a-8,
which set eligibility requirements for submitting shareholder
proposals and proxy statements. The Court found that the SEC
acted appropriately in updating the rules to increase ownership
thresholds and support levels required for proposal
resubmission. Do you think the SEC should consider raising the
current submission and resubmission thresholds further?
Mrs. Keel. I definitely do. From an ownership standpoint, I
think it is important in a lot of areas of securities we really
try to align the people with influence with an economic
interest and skin in the game, so we do that for directors. We
do that for the kind of real activists, not the activists that
we are talking about today, we do that for employees and
executive officers, but here, we do not really have any
economic alignment there to kind of safeguard against somebody
exploiting it with their own interests. On the resubmission
thresholds, definitely I think that when we ignore the majority
of a shareholders' vote on something, it is really ignoring
their voice, and so if we are talking about shareholder
democracy, we really should respect what they have to say.
Mr. Downing. All right. Thank you. Shifting gears a little
bit, there are obviously costs in terms of time, resources,
legal fees, and responding to engaging with shareholder
proposals. Do you have any thoughts on whether these costs
increased during the Biden Administration and roughly by how
much?
Mrs. Keel. I do not have a dollar amount, but I would say
that the cost is indirect really because it has been the
pressure on the companies to adopt these disclosure standards.
One statistic I found is that it would take about half a
million dollars to do a kind of sustainability report this
year.
Chairman Hill. The gentleman's time has expired.
Mr. Downing. Thank you, Mr. Chair. I yield back.
Chairman Hill. The gentleman yields back. The gentlewoman
from South Texas, Ms. De La Cruz, you are recognized for 5
minutes.
Ms. De La Cruz. Thank you, Mr. Chairman, and thank you to
all of our witnesses for being here today. As a South Texas
Member of Congress, I come from a district where we are
hardworking, blue-collar, entrepreneurial, and really business-
driven. Most people I know walking into my local grocery store
and familiar faces, I can tell you that the money that they
earn and that they invest, they want to know that money is
growing for their future, for their family's future, and not to
promote a political agenda. So, I am grateful for you all to be
here today to discuss this important issue because there are
some activists that are using this system to advance their
agendas rather than maximize shareholder value for our
constituents.
That being said, Mrs. Keel, I think that for some people
back home, it is hard to understand what the Rule 14a-8 really
is and just the basics of it, how it impacts. So, if you were
talking to my person in rural Texas, could you give us some
basic information about this rule and how it greatly impacts
their life in George West, Texas?
Mrs. Keel. Sure. So, the rule, basically, it came into
effect in the 1940s, and the purpose of it was to bring matters
of concern to their fellow stockholders, so it is meant to have
stockholders have access to management but over the years, what
we have seen is that it is not really bringing matters of
concern to their fellow stockholders. It is bringing matters
that are concerning to them and very narrowly just them. So,
right now, we will see lots of shareholder activists from both
the left and the right will submit proposals relating to all
sorts of issues. Some are governance, some are compensation,
and then we have a lot of proposals on what we call the E&S, so
the environmental and the social, and those are going to be
addressing highly politicized topics that reasonable minds can
certainly disagree on. Once they submit those to a company, a
company will be obligated to consider that and put it on its
proxy statement unless it decides to exclude it, and then there
is an entire process for going through that process.
Ms. De La Cruz. So, you mentioned that these are activists
from the far right and the far left, that there is an issue
here that we need to address, and that issue needs to be
rational guardrails to put in place, so this should really not
even be a partisan issue. This should be a commonsense issue.
What guardrails could you share with my constituents listening
today that would be very effective?
Mrs. Keel. Sure. The simplest one is really a threshold of
ownership, right, to ensure that there is some sort of
alignment, that somebody is not just buying $2,000 worth of
stock, which is not to say that is not a lot of money, but to
be able to influence the policy of a Fortune 500 company for
that amount, there is a big gulf there. So, I think that is
what would be the most important thing is that they, as
shareholders in the pension funds, the 401(k)'s that they have
worked so hard with, they want people to be bringing proposals
of value to the stockholders, that they can consider
interesting ideas, not ideological agendas that are narrowly,
sometimes tenuously would be maybe a generous word, connected
to a company.
Ms. De La Cruz. So, what I hear is ownership is vital to
having a voice and putting your opinion into the agenda and
into the future proposals. Is that correct?
Mrs. Keel. Yes.
Ms. De La Cruz. Thank you. I thought that your written
testimony, especially your explanation on the company intake
and response process to shareholder proposals, was helpful in
showing just how costly and time consuming they can be. Can you
please briefly walk us through this response process?
Mrs. Keel. Sure. When someone gets a proposal, first, they
are going to say if they have ever actually already addressed
it. In many instances, they will have already considered it,
but if not, a company will have to think about how it could
impact the company. A lot of potential harms here: legal
privilege, disclosing confidential information, disclosing
strategies, disclosing sensitive information for employees.
Sometimes it will not even be legal, right, so they have to
analyze that, and then they have to analyze whether it would
harm the business or whether there would be a cost-benefit,
having to understand what that connection is and whether it
merits the investment.
Ms. De La Cruz. Thank you. I yield back.
Chairman Hill. The gentlewoman yields back. I want to thank
our panel for their testimony today, for the great interaction
with all of our members on both sides of the aisle.
Without objection, all members will have 5 legislative days
to submit additional written questions to the witnesses to the
chair. Questions will be forwarded to the witnesses for your
response. Witnesses, we invite you to respond no later than
October 15, 2025.
[The information referred to can be found in the appendix.]
Chairman Hill. This hearing is adjourned.
[Whereupon, at 2 p.m., the committee was adjourned.]
APPENDIX
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