On Tuesday (July 31) Chairman Cox testified before the Senate Committee on Banking, Housing and Urban Affairs on, among other things, the shareholder access proposal. The relatively descriptive written testimony is here. The hearings themselves (a video can be found here) were more interesting. A number of committee members made some interesting comments on topics covered by this Blog. We share some of them.
Senator Reed was troubled by the process used in approving these proposals as well as the merits. He repeated the concerns expressed by Commissioner Nazareth about the ability to "cherry pick" from both proposals. He also has "serious concerns" over the 5% threshold, noting that it would "make any subsequent rule meaningless." It would deny even large institutional shareholders such as Calpers access to the proxy statement.
Senator Schumer talked about the "exquisite balance" between investor protection and entrepreneurial activity, something challenged by the global market. This allows companies to go to where the regulatory scheme is the weakest, something he thought would hurt them in the long run.
Senator Sununu noted the decline in the competitiveness of the US securities markets and that "several domestic factors" explained this trend. Specifically, "trial lawyers are a big part of the problem and the fear of litigation drives business overseas."
Senator Enzi (R-Wy) praised the Commission and the Enforcement Division for its investigation into the "illegal backdating of stock options." He noted that the practice "seems to be getting bigger as the investigation continues." He indicated support for the "speed and determination with which you've been conducting these investigations" and noted that the PCAOB could play an "important role" in possibly developing new auditing practices.
What is perhaps the most interesting is that while there was a great deal of talk about competitiveness and concern that regulation be balanced, there was no serious tone about the need to repeal SOX or portions of SOX. Instead, many opening statements praised the SEC and the PCAOB for adopting less onerous standards implementing Section 404.