Carl Icahn: Let Proxy Advisers Do Their Work
This op-ed was originally published by The Wall Street Journal on November 18, 2019.
Over decades, my companies created hundreds of billions of dollars of value for shareholders by guiding boards and chief executives through the steps necessary to increase the value of their companies. Holding boards and CEOs accountable—and replacing them when necessary—improves the economy, makes companies more competitive, increases employment, and adds to shareholder value. Disasters like Enron, WorldCom and Tyco are much less likely when investors can subject CEOs and boards to scrutiny.
Activist strategies are fraught with challenges. Consequently, there are few consistently successful activist investors. Consider the following analogy: If an incumbent politician tapped public funds in a campaign against a challenger, the incumbent would rightly go to jail. In our corporate system, however, incumbent boards and CEOs can defend their lucrative positions with a virtually unlimited quantity of shareholders’ money. Activist investors, on the other hand, must use—and risk losing—their own capital. This makes it extremely difficult to remove CEOs and boards, no matter how terrible a job they’re doing.
To make matters worse, a new proposal by the Securities and Exchange Commission is now poised to make it even more difficult and expensive to practice activist investing. While I have the utmost respect for the laudable work that the SEC has done over many decades, I believe the current proposal—which would subject proxy advisory firms to onerous regulations—is a dangerous misstep that will have disastrous repercussions for the U.S. economy.
Investors cast tens of thousands of votes as owners of public companies in any given year. For help with that formidable task, many institutional investors pay proxy advisory firms like Institutional Shareholder Services or Glass Lewis for independent advice. These research organizations publish reports with voting recommendations. More often than not, they end up taking the side of incumbent boards and CEOs. But sometimes proxy advisers have the temerity to criticize incumbents. Now their freedom to criticize is under threat.
On Aug. 21, the SEC passed new guidance by a 3-2 vote that would make proxy advisers legally liable under securities laws. Before the new guidance, proxy advisory firms could effectively be sued only if they knowingly published false statements. Now any public company can claim any omission or fact in a proxy advisory report is “false” or “misleading,” a much lower litigation standard. This is akin to newspapers facing liability for publishing articles critical of an incumbent politician. Even worse, on Nov. 5 the SEC proposed a new rule that would require proxy advisory firms to give a preview of their reports to the very companies that are the subjects of those reports—this before investors can read the advice they purchased. This odd arrangement would allow corporations to interfere with advisers’ research—a recipe for disaster.
For the first time in modern history the SEC is making it harder to be a shareholder. That would be an unfortunate legacy in an administration that has prioritized reducing burdensome regulations. I implore the SEC to rethink this misguided proposal.
Mr. Icahn is chairman of Icahn Enterprises LP and CEO of Icahn Capital LP.