Financial Services and General Government Appropriations Act, 2017

Floor Speech

Date: July 7, 2016
Location: Washington, DC


Mr. GARRETT. Mr. Chairman, I rise today on an amendment that would prohibit special interests from having their agendas advanced by Washington bureaucrats, and to refocus the Securities and Exchange Commission on its important threefold policy mission: to protect investors; maintain fair, orderly, and efficient markets; and to facilitate capital formation.

Strong and efficient communication between the boards and management of public companies and their shareholders is foundational to healthy capital markets and to maintaining the ability of companies to innovate and to create jobs for everyone.

Fortunately, recent studies have shown that communication between the investors and the companies has actually improved over recent years, and shareholders are now increasingly able to effectuate change without all of the drastic measures, such as launching a proxy fight.

In fact, according to a 2015 report from Ernst & Young, the number of companies disclosing engagement on government topics rose from a mere 6 percent of the S&P 500 companies all the way up to 50 percent in 2015. In many ways, this is a private market at work as investors demand that boards and management be more responsive to their request for how to improve the company and their long-term performance.

A number of regulatory hurdles still need to be overcome to improve the U.S. proxy system, which remains one of the primary ways in which public companies communicate between the two. Back in 2010, the SEC put forth a number of ideas, the so-called ``Proxy Plumbing'' concept release, which explored various ways to improve the transparency, if you will, of corporate government systems here in the United States.

Importantly, the Proxy Plumbing concept release also discussed at length the importance of getting retail investors more involved in the process. For a variety of reasons, retail investors have for years been disenfranchised by the current proxy system, and they rarely exercise the rights of shareholders to engage in improving the way that the companies work.

Unfortunately, for nearly 6 years, the SEC has, and maybe not surprisingly, allowed this Proxy Plumbing concept release to languish and has chosen not to act on it, even on some of the most basic and noncontroversial parts of it.

But then last year, out of the blue, SEC Chair Mary Jo White had directed the SEC staff to develop a rulemaking for what is known as ``universal proxy ballots.''

You ask: What are universal proxy ballots? Good question. Put simply, while they sound quite benign, actually, universal proxy ballots are a means for special interest groups to easily then nominate their preferred candidates to a company's board, and that would fundamentally change things. It would fundamentally change the way in which public company directors are elected here in the U.S.

This is an initiative that has been pushed for years by insiders and special interests. It has also been pushed by a number of activist pension funds, many of which have been horribly managed themselves and now find themselves with unfunded liabilities that threaten the retirement security of the public sector workers over which they were responsible.

The adoption of the universal proxy rule would only increase the likelihood of high profile proxy fights at public companies, which would then serve to distract the employees and management of these companies from carrying out their core mission.

More importantly, it would make the vast majority of public company shareholders, including the smaller retail investor, pay the price for the costs associated with these big fights.

Finally, it is unfair to those investors who do not wish to carry the water for these special interests.

Aside from these specific policy concerns, there are also issues of how the SEC has been prioritizing its finite resources. The SEC recently missed the rulemaking deadline for yet again another congressional mandate to simplify and modernize our current corporate disclosure regime.

This is an initiative that has bipartisan support and would help boost confidence by making quarterly and annual reports more effective for the small investor by reducing some of the unnecessary and the not material disclosures within them.

Unfortunately, once again, the SEC chose to ignore what Congress mandated and, instead, prioritized rulemakings over such things as that universal proxy I mentioned, which, again, would benefit simply a minority of insider special interests over the vast majority of public company shareholders.

This rulemaking should be nowhere on the SEC's agenda. My amendment would simply disallow the SEC from using its finite resources.

I urge all of my colleagues' support.


Mr. GARRETT. I yield to the gentleman from Florida.


Mr. GARRETT. Mr. Chairman, the gentleman said it more succinctly than I did in the last 4 minutes, and I thank him.

Mr. GARRETT. Mr. Chair, I rise to prevent government regulators from expanding the corrupt doctrine of ``too big to fail'' into even greater parts of our economy.

Under Dodd-Frank, the Financial Stability Oversight Council, FSOC, has the power now to designate companies as systemically important financial institutions, SIFIs. I have heard it said that the SIFI status does not necessarily mean ``too big to fail,'' but that is a ridiculous claim that is on par with the reassurances that there was no implicit guarantee with Fannie and Freddie. In the real world, the Federal Government will never allow a SIFI to fail. The SIFI designation is nothing less than the government's stamp of approval and the enshrining of taxpayer bailouts. Simply put, a SIFI designation is the guarantee that the taxpayers will, once again, be on the hook for the bailouts of Wall Street.

First, megabanks were designated as ``too big to fail.'' Now FSOC is claiming that nonbank firms, such as insurance companies and asset managers, should also be designated as SIFIs. FSOC's words and actions belie its true purpose, which is to grow its regulation of the economy so that every sector of the financial industry is propped up on the backs of taxpayers.

I am offering this amendment to prevent the Secretary of the Treasury and the Chairman of the SEC, who are both voting members of FSOC, from designating any additional nonbank companies as SIFIs. When companies become SIFIs, they cease to operate in the free market. Instead, they operate under a new system--a system that protects entities by sparing them from the costs and the consequences that other regular companies face in a competitive market. So, over time, the combination of this protected status and the Fed's risk-averse regulation will zap the energy and competitiveness of this company. Simply put, the government will corrupt the private sector, which, in turn, will corrupt the government.

``Too big to fail'' must not take root in the nonbank financial sector. These companies serve as an important counterbalance to the megabanks. You see, Dodd-Frank was built on a foundation of sand--a foundation that mistakenly views the financial crisis as having been caused exclusively by the greed of large financial institutions and that intrusive government regulation would have prevented the crisis by keeping them from making risky investments. So it should come as no surprise that, instead of solving the problem, Dodd-Frank gave ``too big to fail'' the force of the law. FSOC is not working as intended because it is unworkable.

Finally, even with its absolute and unaccountable powers, its faulty premise dooms FSOC to failure. We must prevent FSOC from continuing to dig a deeper hole in free market capitalism and get Wall Street off the backs and out of the pockets of the American taxpayers.

Mr. Chair, I yield to the gentleman from Florida (Mr. Crenshaw).


Mr. GARRETT. Once again, the chairman said it more succinctly than I. I urge all Members to support the legislation.


Mr. GARRETT. Mr. Chair, how much time do I have remaining?


Mr. GARRETT. Mr. Chair, the harm that has occurred is from the Dodd- Frank legislation, and the harm that has occurred by the FSOC designations is twofold.

One, the large one, is the fact that it has given a regulator the ability to put financial institutions and non-financial institutions and their problems on the backs of the American taxpayers, meaning that you and I and everybody who is listening to us may someday have to reach into their pockets and bail out, once again, Wall Street for its bad decisions. That should end now.

Two, the even larger issue, is the failure of Dodd-Frank. In the legislation here, we are trying to fix the fact that it has had a debilitating effect on the overall economy. It has created disincentives in the marketplace, which is bad for the economy, and it is why we are having such a slow growth in the GDP, which translates into less job growth, fewer jobs for the American public, and fewer jobs for your neighbor and my neighbor as well. We need this legislation to fix it.

Mr. Chair, I yield back the balance of my time.