Cardin and Van Hollen Join Effort to Give Workers a Greater Voice at Public Companies

U.S. Senators Ben Cardin and Chris Van Hollen (both D-MD) are joining 11 of their Senate colleagues in calling on the Securities and Exchange Commission (SEC) to use its upcoming Staff Roundtable to consider implementing reforms that will promote worker engagement, drive long-term growth and investment, and give workers a greater voice in public companies by allowing workers to be elected as company board members.

In the letter, the Senators note research has shown that company boards with worker representation make better resource allocation decisions, over a longer period of time.

“In developing the roundtable agenda, you asked SEC staff to consider, ‘Whether meaningful ownership in the company can be demonstrated by factors other than the amount invested and the length of time shares are held.’ We strongly believe meaningful ownership can and should be determined by the value of contributions made to the company by its various stakeholders. Workers, for example, invest their time, skill, and effort in the company, and—like shareholders—depend on managers to both generate a return on that investment and share that return in the form of increased compensation,” wrote the Senators in their letter.

They continued, “Congress has proposed several pieces of legislation to promote worker engagement with corporate management and in the selection of directors. Research has shown that boards with worker representation make better resource allocation decisions over a longer time horizon. Because your agenda seeks a forum for engagement, we believe the SEC’s agenda should include a discussion of the merits of directly electing of workers to company boards.”  

The letter was also signed by Senators Tammy Baldwin (D-WI), Sherrod Brown (D-OH), Cory Booker (D-NJ), Kirsten Gillibrand (D-NY), Elizabeth Warren (D-MA), Bernie Sanders (I-VT), Edward Markey (D-MA), Mazie Hirono (D-HI), Kamala Harris (D-CA), Jeff Merkley (D-OR) and Patty Murray (D-WA).

The full text of the letter is available below and here.

Dear Chair Clayton:

We write to you today to request agenda items for the Securities and Exchange Commission’s (SEC) Staff Roundtable on the Proxy Process, announced on July 30, 2018.  As you noted in your announcement, shareholder engagement at S&P 500 companies has increased from six percent in 2010 to 72 percent last year.  This dramatic increase reflects a growing interest in the priorities of large companies. As a reflection of this growing interest in (and power of) large publicly-traded companies, we ask the Commission to add topics to the proxy process roundtable agenda to address the obligations of corporations to all of their public stakeholders, including employees, consumers, local communities, and taxpayers—in addition to public shareholders.

In developing the roundtable agenda, you asked SEC staff to consider, “Whether meaningful ownership in the company can be demonstrated by factors other than the amount invested and the length of time shares are held.” We strongly believe meaningful ownership can and should be determined by the value of contributions made to the company by its various stakeholders. Workers, for example, invest their time, skill, and effort in the company, and—like shareholders—depend on managers to both generate a return on that investment and share that return in the form of increased compensation.

Congress has proposed several pieces of legislation to promote worker engagement with corporate management and in the selection of directors. Research has shown that boards with worker representation make better resource allocation decisions over a longer time horizon.  Because your agenda seeks a forum for engagement, we believe the SEC’s agenda should include a discussion of the merits of directly electing of workers to company boards. 

You recently wrote that encouraging long-term investment in our country is, “a key consideration for American companies and, importantly, American investors and their families.”  Similarly, in setting the roundtable agenda you asked SEC staff to consider, “if the voices of long-term retail investors are appropriately represented in the shareholder proposal process and in the shareholder engagement dynamic more generally.” Given the research demonstrating the benefits of worker engagement, and the interest in the subject from Congress, we believe that fostering this engagement should be reviewed at the roundtable, in order to evaluate how it can drive long-term investment to benefit retail investors or, “Mr. and Mrs. 401(k).” 

We recognize the costs that increased engagement impose on companies and others in the proxy process. As such, we support your suggestion that the roundtable should examine scalable engagement requirements. Larger companies use more public resources and should be accountable to wider groups of stakeholders. Engagement rules should also consider the needs of small and emerging businesses, which you have rightly noted will provide these companies access to capital while expanding opportunities for Main Street investors. 

In his 2018 annual letter to CEOs, BlackRock Chairman Larry Fink wrote, “Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”   As representatives of those stakeholders, and often arbiters of how taxpayer resources are spent, we believe that public companies should adjust their engagement focus to ensure that they are better stewards of the resources—including worker and taxpayer resources—that have been contributed to them. We appreciate your attention to this matter and look forward to working with you to make shareholder engagement more inclusive.

An online version of this release is available here.

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