Jeff Mahoney, Council of Institutional Investors

Welcome to shareholder Primacy from freefloat media, a podcast about activist investing Securities Law, and all the ways, the financial legal world's intersect in Collide in real life and Lipton. And I are here again for you and is a law professor at the University of Colorado, law school, who teaches and researches Securities and business law. She holds up the legal end of this podcast and that's Mike Levin an activist investor who lives and works in Chicago. He covers the financial side of our podcast. Hey, Anne. We have a guest. Today, we have a guest today, so we are delighted. Hi Jeff, how are you? Good. Great to see we have, we have a guest, Jeff, Mahoney of the Council of institutional investors, Jeff is the general counsel there. He is responsible as general counsel connotes for all things legal. So, like here writes, the letters that CI sends to Congress and to the SEC among many other important roles. He's also part of the leadership team there. And can help us understand kind of what the CI is about overtime in these days. And where it's going on a number of subjects and questions. Yeah, we have a lot of questions about what's CA I and its members think about Stuff that's going on. So we have a big list of them to talk to Jeff about and before we continue really quickly, we've gotten some emails. We'd love to get more. You can email us at shareholder at freefloat LLC. Yes please email us. We want to hear what you think of our interview with Jeff today. How's that sound? All right. Hey Jeff. We have some followers here, we're going to start off easy, some followers here, that believe it or not are possibly not that familiar with the CII. Can you just give us the brief overview about who the CIA represents and kind of what it does. Sure. Thank thank you for the question. And First of all, thank you. And I'd like Michael for inviting me on your podcast. I'm a huge fan. So it's greatly in honor for me to be your guest. And I look forward to hosting you as my guests on a few. Let's see how you think about that. When we're done today is a Non-profit. Non-partisan association with core members that are US public. Corporate and Union employee benefit funds with combined assets under management of over five trillion dollars. That's that's with a t. Those members include major, Long-term shareholders with a duty to protect the retirement Savings of millions of workers and their families, including public Pension funds with more than 15 million participants. These are my mind are true and real Main Street investors through their Pension funds. Since the eyes formation in 1985, we have developed and maintained a comprehensive body of membership. Approved corporate governance. Best practices that are well respected. In both the investor and corporate communities. Those policies are free publicly available on our website at www.cii.org and those policies provide the foundation from which CII Advocates matters of importance to our members. Oh, cool. All right. So, do you want to ask the next question? And that's fine with me. All right? So, well, I mean, one thing that's been on my mind, I mean, obviously, there's all this stuff going on with ESG and ESG, proposals and various kinds of controversies over these. So we wanted to know, I want to know how your membership views all of their developments and in particular, is there disagreement among members? I mean, the fact is that this has become very politicized and you've got members from all over the country from public and private, as you said. So how are you navigating this? How do you remember us feel about these issues? Well, so it's our formation in 1985 as I mentioned our our expertise and focus is been on. The key of ESG corporate governance and corporate governance. Best practices at the companies are members invest in with our primary focus being on the corporate governance of the US public companies. So our comprehensive set of membership approved policies Believe It or Not does not include a single reference to ESG. Oh, and I indicated earlier, we want to find those. We won't find those letters anywhere in any of that literature. That's correct. Nowhere in our membership approved policies. Will you find ESG as I noted earlier, CII is a non-partisan organization, and as you both know, the Divide between the pro ESG and the anti ESG movement is largely partisan. It wasn't always. So I didn't know. Yeah, to navigate more recently. True. Are as as you mentioned earlier, our asset owner member's, including our board members, our base in red blue and purple States. Right. And as you know, some red State treasurers and other Financial officers support, the best men efforts and Anti-Trust actions targeting ESG policies. Often arguing that ESG consideration subvert traditional fiduciary duties, by prioritizing Progressive political goals, over Maximum Financial Returns. On the other hand, some of our some of their blue State counterparts. Publicly support mandating consideration of ESG factors, arguing that long-term Financial risks such as climate impacts our material. To an Investments bottom line. so, so The focus, is it fair to say that the way that the CII has kind of navigated some of these more? And I want to explore this, a little more recent kind of controversies about ESG is to kind of maybe stay above it. Is that is that is that kind of fair or is that is not quite accurate. Well, we're Big Ten organizations so when we develop or mend our policies you know we focus on big tent issues. And what issues are highly partisan, is less likely. Those are the types of issues that are going to get the approval. Of our policy committee, our board, and then our asset owner membership. Eddie policy change has to go through the process and get approval from all three of those groups. Sure, that's very difficult when it's a partisan issue. Contention. Or maybe not has the G part has these governance debates. Gotten within the Committees within the membership and so forth. You know, setting aside the environmental and the social stuff where I'm guessing CI sometimes is called on to sort of take positions and needs to, and we'll get to that in a minute. But are the governance disputes pretty heated? Or is there tend to be pretty uniform agreement? About a lot of the governance policies? How does that kind of look these days? Well, as I mentioned in order to get to be a CII membership approved policy. There's a difficult. Route that includes. Policy committee representation. And board representation, and member representation. And those core asset order members that do those votes. Come from. Public pension plans Union, Township plans, corporate, pension plans. And as I mentioned earlier there from red blue, purple States, so, we have differing views. When we discuss most issues. Sometimes we are unable to get approval either at the policy committee or board. Level for an item. So we have to continue the revised it or decide to move to a different. Item. Just drop the item and move to something else where we can get the majority support from the committee and the board. Typically, by the time we get it to the membership, It's in such a place where the membership generally approves the policy or the policy change but it can be a difficult road to get there. You know, we start talking about some issues, including in some cases, Chi issues and we just ultimately drop the issue because we're not able to get approval either at the policy or board level other times, we're able to tweak the issue to get sufficient support to get it through. I think it's fair to say when you have public corporate and Union, employee benefit plans being the core core of your membership. There's a lot of discussion is back and forth that goes on. Before we can ever get to the point of having a policy or policy Amendment be voted on by our entire membership. All right cool. Okay and I just you know I I suppose if the Es are out out of the picture maybe it's less of an issue. But one thing there's been so much discussion lately about antitrust concerns. If shareholders get together and urge things is that an issue that you guys have to handle. Well, the preamble to our membership approved corporate governance policies. It explicitly, supports share owners discretion to employ a variety of stewardship tools to improve corporate governance at the companies they own and those stewardship tools reference in the Preamble. Explicitly include casting well-informed proxy votes and engaging in dialogue with portfolio companies. However, in answer your question, CII as an organization. Does not provide proxy voting advice to our members or Chevrolet participate. In member engagement with portfolio companies. However with respect there is an exception to that with respect to member engagement during our semi-annual conferences. CII offers what we describe as a CII investor company engagement exchange that exchange involves a kind of a matchmaking program where we host that we host that facilitates private one-on-one meetings between institutional investors and corporate represent corporate Representatives. It provides investors direct closed door access to Senior Management. Fester relation professionals and board directors from publicly traded companies. As you indicated Ed you know we are well aware that some state and federal officials and other parties have alleged that various media of investors for violating antitrust laws. But the date, I'm not aware of a state or federal official or any other party for that matter that has publicly alleged that CII has violated. If I trust laws in some way, I'm glad you brought that up because It's really interesting. Now that you think about it see I hasn't this is probably good. It hasn't gotten nearly the attention. I probably none of the attention that you see from the proxy advisors or certain major funds that are big investing, you know, members of CIA. I'm thinking, you know, CalPERS in the New York funds and so forth. Yeah, but yeah. Well, yes. And Mike, you know, part of that might be. Because we're intentional about not requiring or allowing collective decision making or action. With respect to any commercial issues and including the acquiring holding disposing and or voting of Securities sure. We've communicated that message. Both to our members and a publicly to those who who access our website. So I think that's been helpful to us. Okay. So the members have sort of ordered the proxy advisors or others, you know, have sort of taken a lot of the Taking a lot of the heat that has been kind of launched at the shareholder Community writ, large. I guess, interesting. All right, so they tend to kind of make their own decisions where CI kind of assess a coordinating body. But coordinating only to an extent but also educational, you know, with all the long list of policies and research and so forth. Kind of helps those members get a lot smarter about in this case, mostly governance. Issues. I'm guessing there's not nearly as research on environmental social, there's plenty of other people who do that, right? I mean, what I mean, when I started at CI, 20 years ago, we did very little education. Related to environmental and social issues. We do much more today. And go to any of our conferences. You'll see some programs, sometimes it's our own sometimes, it's sponsored events on the side of our program that get into e&s issues. So, when I started 20 years ago, that, that didn't happen. But because of Member interest in that space. We do do education. And, you know, whether it's webinars or podcasts or other educational events at our conferences and say. And then Have sponsored events alongside our conference that we are responsible for and those events much more frequently than 20 years ago where we rarely had any events whether it's ours or sponsored events on e&s, it's much more common. Now Ah, that we have at our conferences. Sponsored events related to ens Wow hey here's here's another question for you. We a couple more and then maybe we'll take a quick break. I'm really and this this is a little more directly related to also what I do day-to-day. But what's the current thinking among I guess the CIA members and so forth about what I'm going to call for our purposes right here. Financial activists and and and and there are, I should say our efforts at, you know, our portfolio companies now and I have struggled, I don't have struggled but we've debated extensively, what the right label For those, you know, sometimes called hedge fund activists Financial, whatever. You know folks who aren't like You know, ESG proponents but are really turn around. Go ahead and I just I just call it Big A and little a big hedge fund intervention stuff and little a Is the shareholder right now? There's are these kind of funds and these kind of investors how active are they at CIA? I don't think there's many CI members that come from this community. Is that correct? We have a handful. Of members that I think would would fit that category and they participate at various levels and connection with our conferences and our educational. Programs. So it's, you know, it's not there's not a lot. Okay. Yes, I bet you know response earlier question is, when you say, you know, what's the current thinking? As I mentioned earlier, you know, our core members include public red, blue, State, purple corporate and you didn't pension plans. So when you ask me any question about anything, you know there's there's not going to be a single answer coming out of our core members. Giving that diversity. Well and we currently do not have any Membership approved policies that explicitly address so called Financial activists. One possible exception to that is we do have a membership approved policy, that goes back to 2009. Entitled best disclosure practices for institutional investors. That policy states that in order to Foster an environment of transparency and accountability, institutional investors, and it includes specifically Pension funds hedge funds, private Equity firms, and a sovereign, wealth funds. Among others that they should under our policy. Make publicly available in a timely manner. Series of information that includes proxy voting guidelines proxy, votes cast investment, guidelines, names of governing body members and in Android report on Holdings. And performance. So that's a policy that was adopted you know 15 or so years ago for justice but broadly including Activists so, cold activists members. The reason I was kind of wondering about this is because I think again, I wasn't there at the founding none of the three of us work. But my understanding or my sense was that, there is always, there was at least. Early on some kind of what I'll say, weariness. Um, between the core founding members the pension fund. Members from all sorts of States as you say, absolutely right, you know, corporate government whatever and some of the hedge funds and again going back in time, you know, that was at a time when, you know, activists weren't what they are today, they were much more. I'm not going to say Reckless but there are, you know, they were really cutting jobs. They were really going after companies and some very aggressive ways and I could see where those investors might attract some, some of the ire of pension fund investors whose jobs were at risk here, who's members jobs are riskier. It's always been a basic tension, the union versus like, yeah, right between the hedge funds and all. And I was wondering if there's a way to kind of characterize the state of, you know, if there's even even some sort of a way to describe the current thinking, I mean, is there like some sort of a Much warmer Alliance or is it still are still people aware? He is people having thought about it since then? What? The What's your, what's your take? Yeah, Michael the way. I would describe it. My view is that. you know, the one thing that all of our core members have in common, Is that they have long-term obligations to retirees that are the benefits of their funds. and when you look at it that way, I I think A ciis, it owner member will be more likely to support an active as investor when you know the investors goals as evidence by, you know, their prior track record their and their current plan for particular portfolio company. When those goals appear to be clearly aligned with the members view of their fiduciary duty to maximize long-term Financial returns for retirees. I think that's kind of the decision point for all of our members now. Do some of them, get there, a different ways to sometimes, they reach. Different conclusions and going through that thought process. Yes, they do. That relates back to my earlier point that, you know, we have very diverse core members and public corporated Union employee benefits. Sure. Well, that's, I think I like that answer. That's, that's well, no, really, that's, that's encouraging that there's a commonality of Interest. Between Financial activists who are really just, you know, again, wealth maximizers. You know, and pension, pension fund managers or asset owners as you've talked about them, who are also, you know, they may have other Considerations. But overall The View seems to be for most of them that they also are trying to maximize their turns. But in this case for the retirees, I'm trying to do it for LPS. and the CIA members predominantly are doing it for their how many millions, 15, 20 million, whatever number of retirees that they're responsible for, Wow. Okay, that's that's that's that's nice to hear. We have a whole lot of other questions we want to cover because there's a lot more specific stuff. Around developments that the federal level at the state level and all sorts of things that are going to get a little more legalistic here. So what I proposed to do is, let's take a quick break and then we can return to those. Is that sound good to everybody? Okay, great. We're gonna take a break and come back here at shareholder Primacy. Primacy is brought to you by free flow analytics.com. The only free database of corporate directors, their influence and their performance. If you want a Stocker, retirement plan go to free flow. Analytics.com and look up which of your elected directors are performing well and which aren't use your vote in the alternative democracy and get your data at free flow. Analytics.com. Now, back to the show, Welcome back to. Shit. I'm here with Mike Levin and we're also here with Jeff, Mahoney of the CII, the Council of institutional investors Capital Ventures. So we're going to talk about recent developments and how CII and its membership. Think about them. Right. Should we start? Let's, let's start at the top and go and dive deep. And the top means the federal level, the federal level, yeah, Federal stuff Federal, which is Securities Law, and the SEC and all that. I don't know. And what do you want to ask Jeff about? We got him here. Well, just pick his brain. Jeff, I know you said you guys don't take positions on ES issues, but what about 1488, proposals, and the developments there. Considering that a lot of those are being used for ES. Not always some of them are just pure governance, but how does CA I feel about the sec's new positions and restriction? Well, I mean that's State not federal but 48 proposals, all that sure what's going on. So, at this Spring's, Yeah, I conference our asset owner members approved. In amendment to our existing corporate governance policy on shareholder participation. And that Amendment includes the following new sentence that states quote, the ability to submit and vote on shareholder. Proposals is a fundamental, right. And allows investors to Monitor, and hold corporate management accountable. the some of the background and Yeah. Yeah. To give you a little bit of the background and intent behind that policy. We actually had a number of bullet points that we discussed during the development of this policy, through the policy committee board and To the membership vote and I expect, you know, some of those bullet points. in the, in the background intent will probably be expanded upon and future CII comment letter is In response to the expected near term, issuance of Securities Exchange Commission proposal to amend and quote, Modern Eyes on quote rule, 1488 as described to the sec's current unified regulatory agenda. So, just run through quickly. Just a few of the bullet points that was part of the discussion as we were Developing, and a proving that policy. So, First. The advice of the tent talks about the fact that we believe shareholder proposals. Have encouraged many companies to adopt corporate governance policies that today are viewed as best practice. And we give some examples, including electing directors by maturity vote, which is a radical idea, decade ago, when shareholders press forward and proposals is it's now, the norm at 90%. Of large cap companies. We also talked about you know, governance enhance other governance, enhancements such as independent directors constituting, a maturity of the board. And annual elections of all directors. Those were all so, substantially driven by shareholder proposals. a second point, we discussed was that we believe that. The critics of shareholder proposals often contend that you're holding proposals are growing burden on companies. but we look at the data and the data on shareholder, proposals lease that file between those file between 2004 and 2008 are inconsistent With the credits View. In addition, you know, we believe that that companies often exaggerate the cost of shareholders. We believe that. Costs. Yes. The cost is what you their choice that it's much of it. It's the cost of trying to exclude The Proposal from the proxy and the cost actually put a proposal on a proxy statement. We view as the Minimus, this negligible, it's like nothing. We agree in any event the, you know, the We've concluded that the cost of shareholder, proposals to companies are farther away by the benefits to shareholders of increased board accountability so the except the SEC puts out a proposal to amend 14 day 8. Which we very much expect, they will, that seems to be a priority of the SEC, you know, we will be making these points and expanding upon them as well as a number of other points. We, we have weighed in ya, on many occasions to the SEC chair holder, proposal Survivor In the first Trump Administration SEC. Chair. Jay Clayton. had a proposal that amended 1488, we had a 60 plus page, comment letter address every single question that was raised in that proposal. And I expect you'll see the same again if chair Acts. Proceeds, with the proposal to Ben 14, AA. Let me, let me go back in. Just explore a little more about one aspect of this. We started by talking about 1488 proposals but you are the language that your membership adopted seem to be kind of broader. I mean I view 14 A8 is this, you know, legal mechanism and so forth or regulatory mechanism. But I think he were getting at something a little deeper, which is the whole idea that shareholders should shareholders have the right to be allowed to like propose business. At an AGM. And and that could be under 14 AAA regulatory process. There could be under 14, a four, which is the whole proxy solicitation method. I'm assuming that you're agnostic as to how this works between those two, the idea of, you know, precatory proposals compared to bylaw, amendments, which is a hobby of mine, and so forth. Is there, is there any new ones here? That's worth exploring. Is it really the right to just propose business that you think that was was the most important part of this? well, I yeah, I think our members wanted to make it clear. That they view this as a fundamental, right? We had not said that previously. Wasn't in our existing policies. It was not a term that we had used in the past and discussing shareholder proposals. But I remember ship was very important. That we do. So I think, you know, looking ahead as to The expected proposal to amend 148. I thought they thought it was important to get that that point out. You know historically we have been Quite pleased with the, you know, the SEC staffs operation of 14, AA. The know really process. Know, we've had times when we disagreed with the SEC staff. And we've let them know about it. But overall, we think that process, It's been pretty efficient and and effective and the alternative we think is unlikely to be superior. Whatever you think that alternative should be. Yeah. Because there would be there would be some members that I think that get deeply frustrated with the no action. Well, Process as it used to be and it doesn't really exist anymore. But the other, this is, I mean, I mean, I, I don't know if you can possibly anticipate the kinds of things, but one of the things that's been proposed in terms of what may change about 1488 is to try to specifically restrict environmental social proposals and I since you can't take a position on fire, I mean is your policy do you view it as it doesn't matter whether it's environmental social? The point is to have shareholders, be able to vote on it or is that going to be? I mean if you can't answer because you haven't seen it, that's completely fine. But I mean I just wonder if that's gonna turn out to be a fault line. If what they propose is restricting environmental social specifically Yeah, I I can't predict what what? They're going to propose other than You know, based on the statements, you know it does appear they're going to make it more difficult for shareholders to get their proposals on company proxies and right. And we're gonna as we, you know, we shared our Concerns on making a more difficult, right? under chair Clayton and excuse me, and I think Particularly bolstered by this new policy language. We're going to have concerns again if the objective seems to be to make it more, Difficult. Right, cool. All right. There's other other things going on at the SEC. Yeah, a few things. I don't know. Jeff if you've been probably started your job. So you know there's some other things they've talked about like like quarterly and semi-annual reporting, right? I don't think you guys have waited on that. I'm guessing you're likely to Is there been a position taking you out about that proposal? That regulatory thing? Yes, actually. This again, is kind of a repeat. Of the first. What happened during the first Trump Administration where oh, if I recall, you know, president Trump had a meeting with some corporate Executives and following that meeting. He tweeted out the idea of eliminating quarterly reporting. and then, Jake Clayton, then he put out a document, a request for, for comment, it was titled request for comment on earnings, releases, and quarterly reports. So, Jake Clayton put that out as in December of 20. 2018, following the president. Wow, tweet and we wrote a comment letter. In response to that request and then Jake Clayton. Held a public round table on the topic. And I, I participated On that round table. And then interestingly enough. The project was then essentially dropped after the round table was held. So, in other words, Cia didn't like it then and the annual probably doesn't like it. Now, well, I can highlight some of the things we said back in response. to the 2018 request for comment. Yeah. Just to summarize a couple of the arguments we made back then which I suspect will be similar. In the in response to the proposal they put out for common and yes. And I we currently do. Expect to respond. I just started reading it. It's it's not the shortest SEC proposal ever. And that's what I'm still in the early parts. So you're so working through it, you still working through. I was actually reading it this past weekend and I got a long ways to go, but a couple of points we made before, I think her likely to be made perhaps expanded upon in response to the current proposals. So, one point we made is that we believe investors companies and other Market participants benefit from the current Reporting. Frequency model. Which as you know requires domestic, issuers to file, quarterly reports on four Ted Q. Second, we made the point that the requirement to report historical earnings on a quarterly basis, we believe to be a key element of the timely and accurate information flow. That underpins the quality and efficiency of our Capital markets. And three. We made the point that the existing quarterly reporting requirement helps Ensure. that important information is probably and transparently provided to the marketplace allowing investors to assess concrete progress toward strategic goals. and finally, in 2018 or 2019 letter, we made the point that requiring corollary reporting Does not in our view lead public company managers to focus on short-term results to the detriment of long-term performance. We View. That point of view as outdated and not supported. By the existing empirical evidence evidence is I'm with him. I think that I just keep saying everyone's investing in AI for the like distant future and they're throwing billions of dollars. Some quarterly reporting is Yeah. Anyway, all right. So I've talked to some of the academics. Who have done? research in this space that I cited in my 2019 letter and I asked him, you know, is there anything new that would lead to a different result when doing an economic analysis of Getting rid of quarterly reports and they said no, I haven't found anything yet. Yeah, you know the quarterly report. I mean, you know, as The Economist among us because there's two lawyers on this on this. Yeah. I mean I can I can assure you that the evidence is that, you know, the difference between short and long term. There's a lot of Executives and Company leadership that make kind of jump up and down and say, oh, you know, this really You know, this quarterly reporting makes us make these, but if they're making the decisions, it's not because of some difference in short and long term. It's there's other pressures that changing out of quarterly report or eliminating quarterly reporting is not going to fix. You know, in the whole academic debate about short term and long term. You know, long term is just a series of short terms. I can show you that I can show you that mathematically. So anyway, go ahead Jeff, you're so early on to read the proposal and got to the economic Nelson yet, but just look at some of the email traffic. There's at least two prominent academics, who studies? Apparently been sighted. In the proposal and they have both at least I'm just about it. They both suggested that the Research cited is overstated or excited the way that's misleading. Don't use our don't use our paper. Don't put our names on this. Oh right. Oh wow. All right. There's a couple other people. Yeah. But I'm looking forward to reading it and and reading back the comments from some of those academics, on their view of how their paper was sighted. And what it was sighted for. I'm relying on the two you to read this proposal. So tell me, tell me about, tell me about it when you, when you get there. So anyway, let's go on. There's a couple of other other kind of subjects annual. We asked about these other other couples. Yeah, so mandatory arbitration in which so far public companies to this is just bylaws or Charter, Provisions that would require or betray. You usually a Security's claims the only company that so far is actually done. It is of course, the biblical oil and gas company but the reports are that SpaceX is going to have one of these. So to see, I have a view. Yes, we have a longstanding membership, approved. Policy that includes a provision. Opposing forced. Share owner, arbitration clauses in public company. Governing documents. And we've in the past have described. those Clauses as a Potential Threat to principles of sound corporate governance at balance, the rights of shareholders, against the responsibility of corporate managers to run the business policy was based in part, On a number of problems that were identified as when we were developing that policy by our members and and other experts. In a just mention, a few of them that were part of the bases for that policy. One, you know, concerns that the process for discovering evidence, may be limited in comparison with a Judicial proceeding Universal concerns that the right to appeal maybe rare. Because concerns that arbitration may not allow similarly impacted parties to organize as a class. Uh, and forth that disputes that go to arbitration. Do not necessarily become part of the public record and that can undermine deterrence is these are all the same things and that you've you've worked that. This exactly that's the whole right companies are using them precisely, because they make it difficult. You can't bring class actions. So so the whole idea mandatory arbitration is something that the CII has had a long-standing policy again though. If a few large investors brought cereal claims against Elon Musk and SpaceX, In accordance with their mandatory arbitration by us if you haven't seen yet, but I'm assuming they didn't deny class status and so that Elon Musk had to be deposed and testifying multiple times. That would be funny. That was, wow, that that's part of the reason why companies have left on these. It's because like, among other things, you don't have a lot of the protections of the pslra and all so they don't like the idea of multiple investors suing and then having to have their Office for playing if would start to really tie up companies. Yeah I mean section 11. Well sectional offenses on issues but it may not be applicable in SpaceX if it doesn't drop below the offering price but right it could come up and if there are 10 declines we'll see. Anyway one more is a general issue. Yeah. Make one more point out. Yeah no arbitration. um, we've made it clear that we don't oppose arbitration as a concept. We've specifically in our policy, refer to forced share, owner, arbitration clauses in in public company, governing, documents that. That's where our concern is. Yeah. And I don't know if you've had conversations with any corporate defense lawyers recently, but one of the things I've heard and I'm not sure how broadly, this is viewed this way, but but some corporate defense counsel is. I understand it. Have a fight. If I advise your clients not to adopt, manori arbitration Provisions, because Some of them have concluded that replacing class actions with mandatory arbitration. Could result in the complexity and cost of having. Thousands of individual arbitration claims filed at the same time. What some have referred to as mass arbitration? Which has been the recent experience in the consumer that a nation space. So I I've read as you have and that, you know, SpaceX is going to have a provision. But I've also heard from others that they've had similar, If they've heard similar information from defense counsel that I have that, some of them are are telling their clients, know, don't go down this path. At least from a resource. Point of view, this is going to be. This is going to be worse for you. It's more than that. It's like the play. Like the thing about consumers is they, the expectation with consumers is that, you know, most of them have claims that are so small that it's just not worth bringing them individually, and lawyers have found ways to do it, a lot of them anyway, but that's going to be worse in the investor space because there are a lot of investors who have, you know, reasonable size Investments that would make it Economical to bring claims at least an arbitration individually and it's more in the plaintiff bar is so opposed to these arbitration clauses that they're going to make sure to bring multiple arbitration claims if in companies that adopt them essentially to establish. You don't want to do this. So but what's interesting here is well is that what you? And I have talked about almost on a strictly kind of theoretical basis and kind of hypothetically is something Jeff. You've heard from company attorneys. That in fact is a legitimate worry. They have Protections in federal court that you don't get an arbitration. So I'm just surprised, I mean, we'll see the SpaceX thing when we see it. But the reason I'm surprised is there are if what he wants to do is kill section 11 claims, which is claims by people who buy in the offering. There are a lot of ways to do it without mandatory, right? I mean there really are and plus I'm not sure they're going to be section 11 Clays because first section 11 claim to happen, it has to drop below the offering price and I have no reason to think that's going to happen. All right. Yeah. So which is as long as we're talking about SpaceX, is this is a SpaceX, the issue early index inclusion. So NASDAQ 100 changed its rules so that the mega IPO SpaceX being the first, but also open Ai and dropping can be added to the index early. S&P 500 is considering changing its rules. Along these lines to see. I have a view about this. No, not at this point in time, we have a membership approved policy. Entitled, a statement on index provider consultation processes, and that statement urges index providers conduct robust. Public consultations when contemplating significant changes the methodology really to Major indexes that statement, however, does not Take a view on any substantive issues relating to early index inclusion. So such as nasdaq's recent adoption of a Fast entry rule. That reduces the time. It takes for certain newly public companies used to be included in NASDAQ 100. So today, you know, CII is not taking a public position on early index, exclusion inclusion, including nasdaq's fast. Entry fast track. It doesn't mean we yeah, take a public position at some point in the future but we have not right now. It's kind of you're kind of quiet on right now. S&P I mean as I understand it they are Consulting. So I guess they may very well be following CIS policies like 500 has made a decision yet. All right let's um let's talk a little bit about state level. Regulatory stuff. Now, I think I have a broad question about sort of CIS interest. I mean, to what extent to CII. Institutionally or is a members, think deeply and then it's our policies at the state level, you know, Delaware in particular. But other states. What, what's your level of involvement relative to kind of federal level Regulatory and legal issues. well, on the State corporate law issue. Just last month. The Council of institutional investors research and education fund, which is our nonprofit affiliate of Ciara. 51c 3, we issued a research report that offers a high level comparison of jurisdictional approaches among Delaware, the Nevada Texas, and the Cayman Islands. Oh, right. So that, yeah, the table. Yeah. It's summarizes what we view as critical corporate governance and shareholder rights differences, such as director at officer liability fiduciary duties and shareholder litigation rights highlighting. How specific features impact? Corporate, oversight, investor protection. but you know, with and within, you know, the past couple years CII as an owner members Have a proved two amendments to our existing corporate governance policies on reincorporation. and, On accountability to investors and those revisions to those policies. Reflect the view that, you know, domicile choices have become a significant issue for many of our members and and other institutional investors. all right, so It doesn't maybe you do Advocate kind of on individual issues. Say I'm going to focus on Delaware or we should focus on Delaware because that's the biggie was and there were like two or three kind of more recent ones, I don't know, and which ones you would. You think about would be ones, what changes to Delaware law, you mean? Yeah, sure. Well, I mean, obviously, we have two big things, which is when rapid succession, where they authorize these sort of overweening shareholder agreements and then they sort of made it easier to cleanse. Conflicted, deals, does CII have a view on those changes? Or did you did you Advocate did was there? Were you active, like in Delaware? I suppose in the legislature when some of these changes were coming out was that was that something that CIA was getting involved in? Yes, we did. Oh, okay, good. Let's hear about that. So, start with SB 313. Right, that's the shareholder agreement. One, was that the man was that the males one? Yes. Yes. Okay, thank you, great. That's how I think about it. Because, so, we, we publicly oppose That bill, including we submitted. A letter in July, 2024 to the governor of Delaware requesting that he veto the bill. of course, he didn't veto the bill but he was not so our concerns about that bill included a number of points, and I'll just mention a couple of them. One. There was in our opinion. No need for What we described as a legislative, rush to judgment. As to whether the opinion in the male's case was correct or not because the opinion was subject to potential review by the Delaware Supreme Court. Which had not yet ruled on the opinion when the bill was developed at approved second we noted that under the provisions of the bill, a company could go public with a single Class capital structure and then after the company has already public confer comprehensive control rights by contract without any shareholder vote. Thus, in our view, we saw that bill as in effect permitting companies to adopt a capital structure in conflict with our longstanding membership, approved policy on voting rights, which states that each share of common stock should have one vote. Corporation should not have classes of common stock with the spirit voting rights. Policy also says that companies should not adopt alternative structures or mechanisms that similarly Miss Allied voting rights and economic ownership. So we publicly commented that, you know, whether or not CI members and other long-term investors of checked to multi-class Capital structures. We found a very troubling that that bill Permitted a company to pursue a post IPO transformation to a stealth multi-class capital structure with out a shareholder vote. Here. And the third argument that we made was just a broader argument that. We believe the Hallmark of Delaware General Corporation law. Is the careful and deliberate nature in which it's adopted and enforced, as well as the ways in which Delaware law, balances board decision, making, with accountability to shareholders. And we believe, then as we do now that the enactment of SB 313, could it pair the reputation of Delaware corporate law because of the perception that influential corporate lobbyists could easily change Delaware corporate law, whenever the Delaware Court of Japan three rules against them right? Which The controlling shareholder. Really making it a lot easier to cleanse a conflicted deals. I don't remember if CII took a position on that one? Yes we did actually participated in some of the discussions including A discussions before the entire general assembly. Oh, wow. Okay yeah. so, after SB, 313 in March. Our membership approved, an amendment. To our policy on reincorporation that Amendment. Made two significant changes to our existing policy of reincorporation in part driven by Senate Bill 313 passage. So first, the amendment expanded, the existing policy on recuperation to place limits on reincorporation, between states. Our previous policy, it just focused on reincorporation International and not incorporation between states. So, we expanded the policy to include reincorporation between states. If the destination jurisdiction offers less robust corporate governance, structures second, the amendment provided protections for governing documents by including new language, indicating that boards. Should not amend to or adopt new Articles of Incorporation or bylaws in conjunction with the reincorporation. If Those articles are bylaws dilute. Shareholder rights. I publicly referenced this new policy before the general assembly in opposition to SB 21. Warning that the enactment of SB 21 in the implementation of this CII policy could lead. To more institutional investors supporting. Incorporations of reincorporation in States other than Delaware. Yeah. For specifically, with respect to the provision of best B-21. We raise I raise a number of concerns when I was in Delaware in our and in our related letters, you know, you mentioned that you mentioned some of them and I'll just highlight a couple first that The bill would curtail protections for shareholders in the context of conflicted controller transactions. by lowering the default standard of review for conflicted controller, transactions, allowing controlling shareholders to escape judicial review for transactions, which Under existing Delaware law. Required be negotiated by truly independent fiduciaries and approved by independent and disinterested directors and shareholders. Second, we we raise concerns that the bill further marginalizes shareholders by amending what. It means to be disinterested for purposes of a conflicted controller transaction, right by presuming that a director is disinterested at the board. Merely deems such a director as independent or the director satisfies. The standard for Independence already active will Stock Exchange rule. We are particularly honed in on that point. Because we believe that that approach is inadequate and more specifically at Falls far short of our longstanding membership approved, definition of independent directors and related guidelines for assessing Independence. That definition in the guidelines are very extensive in our membership approved policies, but they can be summed up, in our sumed up in a, in a single sentence, our policy are that in independent director, is a person who's directorship costs, his or her only connection to the corporation. So that's far different right than one. Delaware was, including at SB Twitter, the exchanges or whatever. So yeah, you know, third one interesting we did communicate. concern about controlling stockholders from liability for duty of care violations. Another thing that SP 21 did and at forth we did raise concerns that SP 21 restrictions inspection rights to the books and records of companies Liberty, the period of time from which year old is May inspect books and records and that it it heightens the standard For shareholders to request inspection. So those are four main points we made with. our biggest concern is, I've referenced earlier, one of our big concerns was how our policy related to Independent directors was in significant conflict. With the the amendments in SB. SB 21. Right, all right. We are starting to approach a limits of our available time here. so, I was gonna, I was gonna Ask a couple other more broader questions Jeff about kind of like what you've seen. So you you've been You've been with the CI like 20 years. Wow. You're saying I'm very old. No, I didn't say that. I'm saying you started when you're in high school. I was a high school intern. Right. But you're also, hey, you're you're a CPA. You were an attorney in private practice, you were all lock clerk. You worked at fast, be fast. Be a know, the I mean, accounting regulation, so that's good job. Now Michael's ever said, no, no, I don't know. You just kept in advance in your career. Well, no, you held a job at 20 years And so you've I hung around Seattle, a long time, corporate governance and Cheryl rights and so forth. But also like in Washington. How would you kind of characterize what you've seen? What's been a trend? One or two Trends in the past, I don't know, 20 years or whatever that that is worth kind of mentioning. Here, you know what? One of the changes I've experienced in the last several years. Actually, over a number of Years is. What I view as an increasing difficulty. Of the Securities Exchange Commission. The issue. A final rule that can actually successfully withstand. A legal challenge. And I think, you know, there's at least five, least, five reasons for this change that I believe believe has occurred. And, and that's beyond, you know, the, the budgetary issues, the reduction its staff. Yeah, yeah. The, the new political process where you have to go through OMB, for proposals and, and final rule setting setting all that aside. You know, I think there's there's been a number of reasons that you know, I I personally think SEC. Rulemaking is more difficult now than it has ever been. And their entire history. And, you know, a few of the reasons. are one, you know, the elimination of the Chevron deference that if you don't have much better than me, historically courts have deferred the federal agencies, interpretations of ambiguous statutes. But then we had Loper bright. And courts are now conducting de novo review of statutes. Meaning they They give the sec's interpretation, no special weight making it in my opinion, vastly easier to an invalidated SEC rule. Then, on top of that, you have the major questions Doctrine, following the Supreme Court's Landmark decision of West, Virginia versus EPA, Where courts again are increasingly require Congress to speak with unmistakable Clarity. So when the SEC issues A rulemaking. That's a judge could view as expansive, or transformative or economically impactful, judges are now have much more freedom to strike down those rules, arguing that the agency is attempting to regulate massive swaths of the economy without explicit legislative permission permission. And then you have, you know, the log standing administrative procedure act and possible violations there. Opponents of SEC rules more and more frequently are challenging. SEC. Final rules as arbitrary, and capricious, and more culture. Quartz seam open. To those arguments. And so, you know, to survive and this is yes. He sees Under as much pressure as ever It's is what what I think is is kind of happening or happened. And so so for CI members to kind of navigate through that, because so much, you know, a degree with what they do is, you know, the subject to that regulation is, is probably, you know, makes makes it even that much harder. For those asset owners to kind of try to anticipate what what's going to be next, you know, can they have a meeting with a company? Can they, you know what, what's the nature? They're fiduciary duty, you know, are they going to be forced to buy SpaceX? I don't know. They just don't know. Absolutely. There's all the First Amendment issues compelled, speech issues that are much more popular. Now, that's some judges seemed to take Much more seriously and challenging and SEC rule or other Federal rule. I think those are all Made that rule making more difficult and the fifth. You know, fifth reason that I've seen is that Fewer. There's fewer informal policies by organizations where They are important. There are fewer informal policies by organizations, that oppose Or do not consider. Suing the SEC, you know, first started this job that was quite common for organizations to not even consider. Suing the SEC including on Final rulemaking. But now many organizations. It's part of the rulemaking process. Or just to litigate the rules. Yeah, at this point I just have to do a shout out to my friend, Amanda Rose at Vanderbilt, who just published a paper specifically on this on how it's become much more common to sue the SEC. Yeah, I I think in many cases, litigation overturn an Essie's rule, it's just an accepted part of the SEC rule making process. So, if you're, if you're advocacy at the SEC through, you know, meetings with Commissioners and staff, you then send in a comment letter, you may Lobby, administrative officials or members of Congress. If all of that fails to, you know, prevent the issue of the final rule that you oppose. you know, the next step is you know, you hire a lawyer its many that this town that are ready willing and able to Represent you on the case? Yeah, and then you bring an action against the SEC to vacate a rule. And you're complaint. Includes. You know, many of the arguments. I just went through our Doll part. Oh, many complaints on an SEC rule. You have a lot more hooks that you had In the past. So you know, when you can buy All the factors that I mentioned. you know, even minor flaws it at sec's, rulemaking process can lead to Litigation Pursuit by willing plaintiffs and lawyers and the end result may be that final rules. I believe the end result is that final SEC rules. Are more likely than ever. To be stayed revised or entirely struck down by the federal courts. all right, well one last Quick subject before we have to wrap up, which is so Based on that perspective, going back. What can we expect? Kind of from the CII in the next couple years. You know what's, what are some of its priorities? What are what are what are we what have you been working on and what do you sort of see happening? well, when I match up the Securities Exchange commission's, priorities, for the next year, two with our membership approved policies and related public. Positions, I expect. that the priorities at CII will emphasize and the next year, or two will include, for example, you know, responding to secure polls rules issued in connection with Their agenda project on rationalization of disclosure requirements. That's a project as, you know, is intended to streamline disclosure requirements and it includes eliminate disclosure eliminate disclosure requirements. Let's be clear, I want to eliminate disclosure requirements. So we are already talked about the current proposal on semi-annual reporting. So as I, as I mentioned, we're, we're likely to weigh in on that, we did the first go around on that topic. And there's as I understand there's likely at least two two additional proposed rules related to regulation s k disclosures at our priority for the SEC. I understand that likely to be a single red guest. Okay, disclosure proposal related to items for old two on executive compensation of that. And then at least one other Proposal related to other SK just disclosure requirements. Oh, We're likely to to weigh in on all of those proposals. We've already, you know, submitted a letter in response to requests from the SEC on executive compensation and connection. With the router label, they held last year and we all know sent this letter to the SEC and response that their solicitation for comments on reg SK generally. Right. And we have, we have multiple membership approved policies that are relevant to issues that will be raised in those proposals. I highlight a few of them, but there are many. We have. Membership group policies have disclosure reasons behind auditor changes which is an a reg SK item. The board's role and strategy risk. Oversight a statement on stock sales by insiders disclosure voting results and related to our proposal, our policy of disclosure voting results. We have all so been supporting for many years Bipartisan legislation in Congress is entitled, The enhancing multi-class shared disclosures act, that bill passed the House of Representatives this Congress. And there is bipartisan support for a companion bill in the US Senate that bills about. It's designed to increase corporate transparency for investors by mandating that companies with multi-class stock structures. With unequal voting rights, clearly disclosed exactly who holds the voting power at the company. So we're continuing to support and do advocacy work on that. Other membership approved policies that are relevant desk disclosures. Or we have a policy on corpse of the executive pay transparency, executive compensation performance, space compensation that space our policy Talks about a related 2019 SEC, rulemaking petition that we submitted. That would require non gaap Financial measures presented in the compensation discussion analysis section of the proxy statement to be quantitatively reconciled. The US, gaap within the proxy statement itself were made accessible through a hyperlink in the proxy statement that's an improvement. To the cdna disclosures that we have advocated for quite some time and we're going to continue to Advocate that in connection with any regulation. Skate disclosure proposals We also plan to respond as I'm to. I mentioned, as I mentioned earlier to the SEC shareholder, proposal modernization project. Uh which is also a priority to men 1488. And I went through some of our our points on on that earlier. We have a number of membership approved policies in that space, including the recent amendment I referenced earlier in our discussion so we're going to be waiting in on all of that right. A couple of disclosures with respect to dual class and with respect to non Gap pain, metrics that we have been advocating for quite some time and we're going to continue to Advocate those improved disclosures and connection with the With the, the current priorities at the SEC. So, I think it would be fair to just to sort of characterize that as while there's a long-standing. Agenda of governance reforms that the CIA membership is interested in continuing to try to advocate for in the middle of it, the SEC and others. Keep on, bringing up all sorts of other changes things. That in fact may have been kind of settled. You know, like quarterly reporting. That continue to take away from your ability to kind of push. Some of that long-term agenda. So you just you you're kind of have to navigate between responding to a lot of the pressures of the you know day week month. But then continuing to as I said advocate for some of the longer-term interests related to better disclosure and better you know, board processes and so forth. Yeah transparency is an important part of transparency. Yeah and it's you know it's it's a high level concept that flows throughout all of our corporate governance, practices and policies. All right, cool. Well, I we have Really covered very thoroughly a lot of this stuff and I am really grateful and and edify it here as we kind of went along. And I don't know, I don't know how you feel but no, this is great. This is wonderful. So we should probably wrap up and let our followers move on to something else today. Jeff it is been a delight and a pleasure to kind of hear kind of what's going on and I hope you enjoyed it. Hope you enjoyed it as much as we did. I didn't thank you very much and again, I look forward to having you as my guests. Oh okay. Where's the corporate governance podcast? So that's so that's the deal is still on. Thank you. Thank goodness and we did it. All right, this is shareholder Primacy hosted by Anne Lipton and me Mike Levin. We have been with Jeff Mahoney general counsel for the Council of institutional investors. I am an independent activist investor and advisor room investors about their activist situations and is as always professor of law and the Lawrence wuth chair of business, life University of Colorado law school. As we said, Jeff is the general Council of the CIA. You can find me Mike at the activist investor.com. You can find Anne at lot, colorado.edu you can find Jeff Mahoney. On the homepage of the CII which is cii.org. Our podcast is produced and distributed by three foot media. Thanks for listening, we'll talk again soon. Around.