Providing For Consideration Of H.R. 1257, Shareholder Vote On Executive Compensation Act

Floor Speech

PROVIDING FOR CONSIDERATION OF H.R. 1257, SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION ACT -- (House of Representatives - April 18, 2007)

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Mr. SESSIONS. Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, I rise today in opposition to this rule and to the underlying legislation, which I think constitutes an unnecessary and unwarranted Federal intrusion into the free enterprise system and the private sector. The legislation that the Democrat majority has brought to the House today would create a new Federal mandate on publicly held companies, but does so in a half-hearted way that would have absolutely no practical impact on its purported goal of improving disclosure and addressing ``excessive'' executive compensation.

The Democrats' Shareholder Vote on Executive Compensation Act would force every publicly held company to bear the costs of administering a toothless, nonbinding shareholder vote on pay packages of its highest compensated officials during every proxy vote. It is unclear, however, what the outcome of this vote, which under current rules could already happen today at any publicly held company, would mean for the company, the board of directors, executives or the shareholders.

Yesterday in the Rules Committee, Chairman BARNEY FRANK testified that this vote was not intended to create a new fiduciary responsibility for board members. Even if a majority of shareholders agreed that a company's executives were being compensated too generously, there are no provisions in this legislation to obligate a board to comply with this decision.

So if a board does choose to ignore an affirmative vote, again according to Chairman Frank's testimony in the Rules Committee, since there is no fiduciary responsibility and no private right of action created by this new mandatory shareholder vote, there is no legal recourse provided in this bill for shareholders to force board compliance.

So rather than demonstrating the courage of their convictions that executive pay is wildly out of control in this country and that shareholders should be able to rein it in unilaterally through a ballot process, Democrats have chosen to bring legislation to the floor today, forcing private entities to take an action that they are already capable of taking by their very own nature. But this would make this new mandatory vote little more than a weak ``sense of the shareholder'' resolution that can be simply ignored by a board with impunity.

I am also extremely surprised, Mr. Speaker, by the Democrat leadership's recent conversion to the merits of democracy in determining an organization's actions. Less than 2 months ago, this same leadership brought to the floor legislation that strips American workers of their right to use a secret ballot to decide whether or not to unionize and provides for unprecedented intimidation of employees by union bosses under a fundamentally antidemocratic process known as ``card check.'' But I suppose the Democrats' new-found selective commitment to democratic principles is better late than never.

The reality is that shareholders already have a democratic option available to them if they think that a board is shirking its fiduciary responsibilities to investors. They can sell their shares and vote with their dollars. This is a basic principle of how markets work in a free enterprise system, and it has been the steadfast commitment to principles like these that has made the American economy the envy of the world over the last decade, even while economies across Europe have stagnated and shrunk.

Mr. Speaker, Mr. Frank has represented to the House that the real aim of this legislation is not to create a new class of lawsuits for the trial bar to exploit, and I take him at his word. But that leaves only one sensible explanation for why the Democrat majority would bring such a toothless bill to the floor of the House today, and that is to provide outsiders, such as Big Labor bosses, environmentalists and so-called ``consumer activists,'' with a new avenue to criticize the management of corporations and to compel boards to do their bidding.

Information about executive compensation is already fully disclosed to investors, who have every opportunity to determine whether or not it is too generous before becoming an owner of a listed security. And under this bill, even if they decide that it is too generous, the legislation contains no enforcement mechanism. This legislation simply provides a foot in the door for outside organizations to try to bully boards of directors in hopes of weakening management and gaining concessions down the road. This bill does nothing to improve corporate governance. It does nothing to improve board decision-making or increase shareholder value. That is why I have submitted an amendment that would force any person or organization who spends a significant sum on trying to influence the outcome of this new mandatory vote to disclose who they are, how much they have spent and on what activities so that investors can have a full picture of who is trying to influence them in this decision-making process.

While I think this amendment would improve a misguided bill, I am not holding my breath at all that the majority party will join me in standing up for increased transparency. But who knows? Today we learned that they have radically changed their opinion on the merits of secret ballots, so perhaps they will stand up for transparency in proxy vote influence-peddling also.

Mr. Speaker, I oppose this rule and the weak underlying ``sense of the shareholder'' legislation. Congress can do better than this. And rather than mimicking the interventionist economic policies of Europe, I believe we should reject this legislation and stand up for what sets our economy apart and has spurred our continued economic and job growth while others sank, which would be a commitment to free markets and an understanding that when given information, investors can make good decisions on their own.

Mr. Speaker, I stand up for the free enterprise system and the American way of doing business.

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Mr. SESSIONS. In response to the gentleman at this time, I do not have any additional speakers. I would use this time for my close. I thank the gentleman for the inquiry.

Mr. Speaker, I think the point that would be taken here would follow those words that DAVID DREIER spoke on, and that is, we simply call things what they are honestly. We don't try to call things what they aren't. We follow the regular order of this House, as has been established, going back at least to the 103rd Congress when Mr. Moakley, the chairman of the Rules Committee, said, this is what we will call things, this is what an open rule is, this is what a modified rule is. That is the point we are trying to make today, that you should call something what it is.

At this time, I would like to include a statement of administration policy on this bill.

Statement of Administration Policy--H.R. 1257--Shareholder Vote on Executive Compensation Act of 2007

(REPRESENTATIVE FRANK (D) MASSACHUSETTS AND 27 COSPONSORS)

The Administration opposes H.R. 1257, which would require public companies to hold a separate advisory shareholder vote to approve the compensation of executives. The Administration does not believe that Congress should mandate the process by which executive compensation is approved.

The Administration supports full transparency to shareholders regarding executive compensation decisions. Recent enhancements in corporate governance and disclosure have strengthened the executive compensation decision-making process of boards of directors. Corporate governance changes have made boards more independent, including through the establishment of compensation committees composed solely of independent directors. In addition, as a result of the Securities and Exchange Commission's revised disclosure rules on executive compensation, which recently became effective, shareholders are receiving comprehensive information on executive compensation. Before additional corporate governance requirements are legislated, the Administration believes that recent enhancements should be given time to take effect.

The statement of the administration is quite succinct, and that is at the end of this statement it says ``before additional corporate governance requirements are legislated, the administration believes that the recent enhancements should be given time to take effect. That is in reference to the SEC and what the SEC had done.

Mr. Speaker, I am asking Members to oppose the previous question so that I may amend the rule to make it a true, modified open rule. As the distinguished chairman of the Committee on Financial Services pointed out yesterday at the Rules Committee, he is expecting that consideration of the bill is likely to continue through the end of the week.

But under a normal modified open rule, Members would still be allowed to submit amendments for printing today or tomorrow so that they might be considered tomorrow or Friday. This restrictive rule severely limits the fluidity which traditional and modified open rules allow. This rule is not an open rule as it is currently drafted. It would not even be qualified as a modified open rule. This is a restrictive rule.

Mr. Speaker, I ask unanimous consent that the text of the amendment and extraneous material be printed just before the vote on the previous question.

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