Capital Markets

Reform Effort Rebuked

Despite professions of independence, the Committee on Capital Markets Regulation has been accused of being sympathetic to the Bush Administration.
Alix StuartFebruary 21, 2007

To anyone who has ever grumbled about shareholder lawsuits or Sarbanes-Oxley, last fall’s debut of the Committee on Capital Markets Regulation should have been welcome. Comprising 22 members from the worlds of business, law, and academia, the CCMR announced that it would examine the effects of regulations on the competitiveness of U.S. capital markets. But both the committee and its first report, released in November, have come in for criticism.

For one, the committee has been accused of being sympathetic to the Bush Administration, despite professions of independence. Critics note that Treasury secretary Henry Paulson publicly praised the committee’s efforts, and that one of its co-chairs, John L. Thornton, was a top executive at Goldman Sachs during Paulson’s tenure there. Meanwhile, the other co-chair, Columbia Business School dean R. Glenn Hubbard, was formerly chairman of President Bush’s Council of Economic Advisers.

Hal S. Scott, a Harvard Law School professor who assembled the committee, responds to charges of bias by noting that he asked Thornton to help lead the CCMR in the summer of 2005, nearly a year before Paulson was nominated to the Treasury. Others assert that the CCMR’s objectivity has been compromised by financial support it has received, including $500,000 from a charity tied to former AIG chairman Maurice Greenberg (currently the target of a civil lawsuit filed by the state of New York) and donations from two prominent investors on the committee.

As for the committee’s report, it sets out 32 recommendations in four areas: Sarbox, shareholder rights, regulation, and enforcement. The report’s repeated, albeit vague, emphasis on the need for greater shareholder rights would seem to mollify corporate-governance activists. But they read it instead as a cover for the report’s stronger recommendations that regulators lighten up on Sarbox Section 404, and that shareholders refrain from filing class-action lawsuits.

“It is disingenuous of [the committee] to ignore the fact that Sarbanes-Oxley has played a crucial role in restoring confidence to the capital markets,” says Nell Minow, editor of The Corporate Library, a corporate-governance research firm. As far as litigation is concerned, she adds, “courts, the [Securities and Exchange Commission], and the [Public Company Accounting Oversight Board] are able to handle any abuses to the system.” But Office Depot CEO Steve Odland, a coauthor of the shareholder-rights section, says the authors’ intention “was not to weigh in on shareholder rights, but rather to look at empirical evidence on the competitiveness of U.S. capital markets.”

Critics say the report won’t inspire notable changes. The SEC has already proposed some adjustments to Section 404, and while the report does advocate majority-voting policies for directors and shareholder approval of poison pills, Pat McGurn, executive vice president of Institutional Shareholder Services, says that “the CCMR jumped on the crest of the wave that was already crashing onto the beachhead.”

Noticeably absent from the report are controversial issues such as the disclosure of performance thresholds for executive compensation and shareholder access to proxies, a subject now under debate at the SEC.

Who’s Who on the CCMR

Accounting: PricewaterhouseCoopers Global CEO Samuel DiPiazza, Deloitte CEO William Parrett

Wall Street: The Financial Services Forum CEO Donald L. Evans, Former chairman and CEO of the NASD Robert Glauber, NYSE president and co-COO Cathy Kinney, Lehman Brothers chief legal officer Thomas A. Russo, Brookings Institution chairman (and former Goldman Sachs president) John L. Thornton

Corporate America: Office Depot CEO Steve Odland, CIT Group CEO (and a former Merrill Lynch EVP) Jeffrey M. Peek, Venture capitalist Arthur Rock, WellPoint Health Network founding chairman Leonard Schaeffer

Political/Academic: Dean of Columbia Business School and chairman of the Council of Economic Advisers (2001–2003) R. Glenn Hubbard, Harvard Law School professor Hal S. Scott, Harvard Business School professor Peter Tufano, University of Chicago Graduate School of Business professor Luigi Zingales

Investors and governance activists: CEO of Governance for Owners USA (and former chief counsel at TIAA-CREF Investments) Peter C. Clapman; TIAA-CREF EVP of Asset Mgmnt. Scott C. Evans; Citadel Investment Group CEO Kenneth Griffin; Weil, Gotshal & Manges partner Ira M. Millstein; MFS Investment Mgmnt. chairman Robert Pozen; WL Ross CEO Wilbur L. Ross Jr.; Capital Research and Mgmnt. chairman James Rothenberg