Revitalize the SEC

The SEC should be revitalized with more resources and expanded oversight and enforcement authority.  The agency also should substantially enhance disclosure requirements.


Reform Elections for Directors of Publicly Held Corporations

Directors of publicly traded corporations should be elected through true majority voting of shareholders.  Shareholders should have “proxy access,” enabling them under some circumstances list candidates in the company’s proxy solicitation materials.  Stock brokers should not be able to vote shares that they hold in their own names for clients.


Compensation Reforms

Shareholders should be allowed to vote on executive compensation schemes, and Congress should pass “clawback” legislation that requires executives to forfeit compensation and bonuses paid on the basis of fraudulent corporate numbers.


Private Right of Action

Shareholders themselves are a key line of defense against fraud and other corporate malfeasance.  Shareholders’ private right of action should be strengthened by restoring “aiding and abetting liability,” protecting whistleblowers and confidential sources, eliminating federal preemption as a defense to state-law liability, and rolling back the unintended consequences of the Private Securities Litigation Reform Act that permit companies to stall private evidentiary discovery even as they turn over evidence of fraud to government investigators.



Executive Compensation


A series of reforms in executive compensation are necessary.  There must be no excessive golden parachutes or golden coffins.  Compensation plans should be subject to clear disclosures demonstrating that they are performance-based and promote long-term value creation for shareholders.


Executives should have to hold their equitable interests for two years past their termination of employment, also known as “hold through retirement,” or “HTR” for short.  Short-term incentive plans, if not designed with effective safeguards, could inappropriately encourage senior executives to manage for the short term and take on excessive risk.  Executives of failed companies receiving government support should be subject to “clawbacks” of their bonuses.


We should eliminate full tax “gross-ups” for new executives and phase them out of existing agreements, and we should place a $500,000 cap on the tax deductibility of compensation.



Financial Transaction Tax


A financial transactions tax (FTT) should be levied to constrain the financial sector and raise much-needed revenue.  A modest set of taxes (for example 0.25 percent on a stock purchase or sale and 0.02 percent on the sale or purchase of a future, option, or credit default swap) would have almost no impact on productive use of these assets, and would easily raise an amount equal to 1 percent of GDP, currently $150 billion a year or more than $1.8 trillion over the course of a decade.


Taxes of this size will discourage speculation and raise substantial revenue with extremely little effect on desirable investment activity.  An individual buying stock to hold for 10 years will be little affected by a 0.25 tax on the purchase.  But the financial industry would be forced to accept somewhat lower profits on trades and would see a smaller volume of trading.



Regulation of Financial Intermediaries


The law requires investment advisors to act in the interests of their clients, while holding brokers to a lower standard more appropriate to a sales relationship.  However, many brokers have begun acting like advisors, calling their sales representatives financial advisers, offering extensive investment planning services, and marketing their services based on the advice offered.


Brokers who either portray themselves as advisers or offer advisory services should be subject to the same standards that govern other advisers—a strong fiduciary duty to act in the best interest of their clients.  In addition, compensation practices should be reformed to eliminate conflicts of interest.