Month: August 2011

President Obama’s Administration continues to bailout Big Labor through the use of bureaucratic rulings.  The latest “independent agency” to do Big Labor’s bidding is the Securities and Exchange Commission, according to the Wall Street Journal.

WSJ: The SEC’s pro-union board access rule gets a legal challenge

Around half of all Americans own stock directly or indirectly in a public company and want CEOs to make decisions based on long-term profitability, not anyone’s political agenda. Last week the D.C. Circuit Court of Appeals heard oral arguments in a case that will either preserve that traditional standard of corporate governance or change it for the worse, for years to come.

The appeal concerns the Securities and Exchange Commission’s decision last year making it easier for big shareholders to get their board of director candidates onto company ballots and have the company pay for the privilege, reversing the practice of having shareholders pay. The Business Roundtable and Chamber of Commerce are challenging the decision.

SEC Chair Mary Schapiro sold proxy access as a way to inject “fairness and accountability” into boardrooms. But she wants to do that in a remarkably undemocratic way: by mandating that all companies adopt proxy access—whether they want it or not—and granting this privilege arbitrarily to shareholders who own 3% of a company’s outstanding stock for three or more years. So much for one share, one vote.

The real beneficiaries here aren’t small shareholders but big public pension funds with political agendas. It’s no coincidence that Teachers Insurance and Annuity Association of America and its affiliates ($434 billion of assets under management), California Public Employees’ Retirement System ($220 billion), California State Teachers’ Retirement System ($141 billion), the State of Wisconsin Investment Board ($67 billion) and others filed an amicus brief supporting the SEC.

These public funds are heavily influenced by politicians and union officials who often put their narrow political interests above the overall shareholder interest in higher returns. Witness the American Federation of State, County and Municipal Employees pension plan’s move last year to pressure Lazard to pay more taxes, to prevent government layoffs. How does a higher tax rate help Lazard investors?

We also remember in 2004 when Calpers, the giant California pension fund, used its investment in Safeway to assist a union that was striking against Safeway. The Calpers chairman at the time was executive director of the union that was doing the striking. No wonder Calpers likes the new proxy rule.

The larger problem for corporate organization, pinpointed by SEC Commissioner Kathleen Casey in her dissent last year, is the deviation from corporate law’s long-held assumption that directors are fiduciaries charged with maximizing shareholder value. The new proxy process runs the risk of pitting some directors as adversaries of management.

The SEC also tried to justify proxy access by arguing that shareholders needed a cheaper way to nominate directors. But when it came to cost estimates, the regulators flip-flopped and said companies wouldn’t use the rule that much, so it won’t be too burdensome. So which is it? And what of the costs to management of fighting the nomination of a director they don’t want?

Last year’s Dodd-Frank law says the SEC “may issue rules” on proxy access that are “in the interests of shareholders and for the protection of investors.” Ms. Schapiro took that opening and rammed through a rule on a partisan 3-2 vote that benefits a few large shareholders at the expense of the many. Ms. Schapiro’s tenure at the SEC has been notable for her fidelity to unions and Democratic Party priorities. Let’s hope the courts instruct her on fidelity to the law.

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While the editors of the Washington Post may charge Rep. Darrell Issa with overreaching, the real overreach is being done by the National Labor Relations Board (NLRB). Earlier this year, the NLRB filed a complaint against Boeing for building a facility in a right-to-work state and Rep. Issa is merely investigating this unprecedented NLRB action. As chairman of the House Oversight and Government Reform Committee, Issa is certainly not overreaching in demanding timely answers from an agency whose actions call into question its independence and its devotion to the law.

As the editorial points out, the NLRB is an “independent” Federal agency. It is supposed to interpret Federal labor law fairly and without political influence. Issa is merely trying to determine if the NLRB is living up to its mission. As part of Congress’ oversight responsibility, it is proper to look into instances where Federal agencies seem to be deviating from their legislative mandates and advancing the interests of one entity to the detriment of the nation.

For instance, the House Oversight Committee is trying to determine if the NLRB’s chief counsel consulted with the White House or a union when he decided to target Boeing. If he did, it calls into question the independence of the NLRB. Given the nature of the complaint and the timing of the action, there is ample reason to ask questions, particularly considering the reactions from employers stating it has had a chilling effect on the economy.

The NLRB’s complaint against Boeing is so egregious that it’s clear why Rep. Issa has issued a subpoena requesting this material. The NLRB would destroy a thousand jobs in South Carolina and make any business looking to create jobs in a right-to-work state think twice. Its complaint is a blatant attempt to intimidate employers into going along with union demands and to bolster Big Labor’s sagging fortunes.

This complaint could take years to wind its way through the judicial system. The American people deserve to know today whether the NLRB is enforcing the law or following the dictates of union bosses. The NLRB has broad power over U.S. businesses. Its actions can affect our economy in ways both good and bad. Rep. Issa is right to seek immediate answers from an agency that appears to be trying to make the law, not interpret it.

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