socialized medicine in government was taking over. now the senior citizens are very satisfied with medicare except for one exception. that is prescription drugs. they are still a doughnut hole. i will talk about that later. you could say why do not include everybody under medicare? the problem we have is the majority of people still get health care through private insurers and if all we did was take the uninsured and put them in medicare the cost would be so high that you cannot pay for it because medicare is a pretty expensive program. part of what you want to try to do is actually change how the delivery system in medicare works to make it a little bit more efficient. we want to squeeze out some of the ways. . .

[applause] >> id may be that over time, what we look at is, who is eligible for medicare, and are there ways to weekend -- where we can include people who do not currently qualified? but right now, what we have proposed is, instead of using medicare as the model, use the kind of model that the health insurance that the members of congress have, which is not a bad deal. and basically, and set it up --

there is something that is called a health insurance exchange. if you did not have health insurance right now, what you could do is go to this exchange, a select a plan that you thought was best, which is what members of congress do, and then you get a subsidy to help you pay your premiums. and because you are part of a big pool of customers, you, then, will have leverage and negotiating power with the insurance companies to drive down those cost so that you can afford health care and it is high quality. and we will make sure that the insurance companies have to abide by the rules that i just talked about. they cannot prohibit you from running because of a pre- existing condition. if you lose your job, you can still keep your health insurance. all those things to keep you -- to give you more security. all those things will not replace the private insurance system, but i want to make sure that the folks who do not have access to it because they do not work for a good company like

kroger, or they work for a small business that wants to give health insurance, but cannot afford it, that they are able to get the same deal. the young lady right here. you can just pass the microphone down. it is hard to get through the aisle. >> is this a plan that you are willing to put your family on? >> yes, i mean, as i said, this is a plan that is similar to what i had when i was a member of congress. the federal employees benefit plan, the way it basically works is that you have a menu of options. you can choose the plan that you think is best. and then, you pay your premium cured as a member of congress, i was making more than a lot of people are, so i did not need a

subsidy. we would have to provide some help to people so they could afford the premiums. but the idea that you have got a big pool that gives you leverage and insurance companies have to compete for you, that makes sense. i also think one of the choices that you should be able to choose from is what is called a public auction. this has got a lot of people riled up. when you hear people talking about us wanting to create a government-run health system, all they're really talking about is what we have proposed, to have an option that is not for profit, set up by the government, and can keep administrative costs low and can keep insurance companies honest. if insurance companies to start a jacking up their rates really high, then you could go in to the public option and goes private insurers would start losing a lot of people.

they would have to compete for you. i think that is a good idea. some people disagree with me. but in terms of quality of care, yes, action would sign up. i've got to admit, in the interest of full disclosure, as çpresident, i've got this doctr who follows me everywhere. [laughter] seriously, and an ambulance. i do not want to pretend like i do not have super grouper care. -- super kept duperduper care, o not think that last after i leave. [laughter] the gentleman right here. >> hello, mr. president critic i would like to welcome you to bristol, the birthplace of country music. it is an honor to have you. [applause] >> i think the last time i was here, wasn't jimmy johnson here? i'm trying to remember.

i mean, he came backstage to talk to me. anyway, and a little bit about racing. go ahead. is it still working? there you go. >> i have been fortunate to work for a company for 36 years that does have health care. but the last two contract that my union has negotiated, we settle health care business first. if there is anything left, we get a little ways. if we do not, we do not. what would you propose, or how could you think we could force and other companies to be as responsible? when i go to the emergency room on how to pay three times the cost because other companies are carrying the same burden that kroger is carrying and all the cost is not just passed onto us? >> you make a terrific point. let me talk about this for just a second. one of the reasons that a lot of americans are not sure whether we should reform the health care system is they have got health insurance right now and they are thinking, you know what, as long

as i have got it, i just do not want to see any changes to it. what they do not realize is that the costs are going up for their employers at such a high rate that they are not getting raises, higher wages or higher incomes because the money is going to health care. if you are collectively bargaining as a member of the union, then you realize that, because you are in the negotiations. and the employer puts it in front of you and he says, look, what can i do, our health care costs went up 20%. here's my margins, here is my profit. i do not have enough money to give bigger raises. but a lot of people do not realize that. this is one of the reasons, by the way, that wages and incomes have been flat for everybody except the top, wealthiest americans over the past 10 years, even before this recession hit. people were not getting raises,

not getting higher wages and incomes partly because a lot of that is being gobbled up by health care. if we can control health care costs, that will free up more money for higher wages, higher salaries. but you are right, the part of controlling costs is making sure we are not paying for other folks who do not have health insurance to because their employers are not doing the right thing. [applause] now, that is very important. i will not name any names, but i think is fair to say that some of carter'kroger's competitors are not providing the same level of health care. a lot of those folks are on medicaid, which you pay out of your taxpayer dollars. or the jews do not have health insurance -- or the just do not have health insurance and they

show up at the emergency rooms to get care. they jacked up everyone else's insurance premiums to help cover their costs. one way or another, we are paying for other companies not providing health insurance. here is what we have said. " we have said is, small businesses, look, and mom and pop shop, they have got three or four employees. we want to make it easier for them. they can join this exchange that we just talked about. we will provide them with tax credits of they can provide health insurance for their employees. but if there are companies of a certain size that are making a certain profit and they are still not providing health insurance to their employees, then what we're going to do is say, either you pay or you play. if you are providing health insurance, that is great and we're going to help you. but if you're not providing health insurance, then you need to pony up a bit of money to

help pay for the fact that someone somewhere is one to be taking care of your employees' health care. i think that is only fair and we can level the playing field between kroger and some of its competitors. all right? [applause] çthe young lady right here. >> thank you, mr. president. my name is charlotte, from bristol tennessee. i have a mother that will soon be 90 years old and it is obvious i am a senior, too. rumor has it that if we get this new health care system in that we will not get the care and the doctors that we have now, that virtually all american citizens will just be put out to pasture. please tell me that is not so. >> it is not so. [applause]

nothing burns me up more than hearing some of these scare tactics directed at seniors. seniors are vulnerable and they get worried about some of this stuff and they get some crazy fire in the mail -- flyer in the mail and it scared that they might lose their care. the be the clear, medicare -- let me be absolutely clear, medicare is in place and as long as i'm there and even after i'm gone, medicare will continue to be in place. we are not going to mess with medicare. the only thing, as i said, that we want to do is to try to make medicare a bit more efficient because the problem is that medicare is running out of money for the same reason that health care systems generally are having problems, the costs are going up faster than the amount of revenue that is coming in.

if we do not do anything, then medicare is going to be in the red in about eight years. think about that, only eight years from now on medicare is going to be in the red. what we have said is, let's make it more efficient, let's work with hospitals and doctors to figure out -- instead of taking 5 tests if your mom has something that she needs to check out with the doctor, instead of her having to take a trip to the doctor, he takes a test, calls her later, and says, this is what i think is wrong with you, referring you to a specialist. she is not going to take another trip to another doctor. because they did not send the other test forward, she has got to take another test. why not just make one visit, have the doctors shot at that one does it, take that one test, diagnose her right there. that is what really good health care systems do, but not enough of them are doing it. at a lot of them do not have computers that can send the test results electronically so they do not have to take multiple

tests. there are -- there is a whole range of things we can do to make dot system more efficient. -- to make the system more efficient. that is number one. the second thing is how much she uses prescription drugs. we pay 70 percent more, we as americans, pay 70% more than any country on earth. think about that. 77% more than canada, then -- then france, mexico. why is that? the drug companies will tell you is because we invent a lot of these drugs and we put a lot of money into research and development. that might be true for about one-third of the difference. the other third has to do with the fact that they mark up a lot, they pay for all of those tv ads. they do not give discounts of the same rights and we do not negotiate with them when they passed the medicare prescription drug plan. they did not negotiate with the drug companies for the cheap

afoot -- cheapest available price. what we have said is, let's negotiate. if the taxpayers are paying all this money to drug companies, the least they can do is give taxpayers a good deal under medicare. to their credit, the pharmaceutical companies have already agreed to put up $80 billion -- they have put it on the table. they said, will help you close the so-called donna haldoughnutt is causing a lot of seniors a lot of grief. i do not know if ever one knows what that is, but after you had a certain level of prescription drugs out of medicare, suddenly, you stop getting help out of the medicare plan until you spend several thousands of dollars. a lot of seniors cannot afford it. they end up cutting their medications in half, which is not as effective, or they do not take their medications at all if they cannot afford that month. that is not good.

and it works are to be more expensive because they are not taking their medications, they may end up in the emergency room and we will all have to pay more anyway. but just tell your mom, nobody is messing with her doctor, and it is messing with your medicare. and people should not believe all this stuff they hear. she said, i do not want government-run health care, i do not want your socialist planned. and do not touch my medicare. [laughter] and i had to ride back to her, man, medicare is a government program. but do not worry, i'm not going to touch it. but sometimes, folks get startup without necessarily having all the facts available to them. all right, the gentleman right here. >> mr. president, you have

already just finished covering one of the things i was going to talk about, and that is, the drug manufacturers charging us a much more. the other thing, there have only been a couple of states, texas being one of them, that have passed toward reform. -- tort reform. and i think one of the reasons that medical practice is going up some is because of the malpractice insurance. i think if we have some really good laws governing tort reform, that should help, too. >> i appreciate the comment. i'm in favor of figuring out ways to lower malpractice insurance for doctors. because in some cases, it is way too high, especially for ob/gyn 's, a neurologist, there are some specialties were they have to pay to under $50,000 per year for interest.

it does not make sense. in a rural communities, in committees where the cost of living is lower, it means that you just do not get a lot of people going into those communities that are ob/gyn's and a neurologist because their interest cannot support it. it is a problem. i have to tell you, i asked a bunch of health care expert about this. is the reason that costs are going up because of malpractice -- high malpractice costs, and what they called defensive medicine? you know, doctors are doing 5 tests because they might -- they are worried they might get sued if they do not do those tests. it turns out -- the evidence, at least is that is a very small reason in the factor of wyda costs are going up. they look at these other states with caps, and it turns out their health care costs are

going up just as fast. there was an article just recently that the single place where costs are going up fastest, where per person care is highest in the country is actually in texas. what you find out is that, more than anything, it has to do with how we are reimbursing doctors, how we are reimbursing hospitals. are we asking for high-quality care rather than just more care? the problem is right now, we have got a system called fee- for-service. you basically pay -- if a doctor is reimbursed for each time he takes out a tonsil, but he is not reimbursed for providing counseling for a child to change their diet because maybe they have got an allergy, then over time system wide, even if each individual doctor

is doing their best, system wide, you will see more people getting their tonsils taken out because there is an economic imperative moving in that direction. hospitals -- let me ask a question. some of you guys have cars that you love and everyone to know what it breaks down. if you do not do your own work on it, you take it into the shop. they fix it. let's say that three weeks later, the exact same thing is broken. your transmission is messed up again if you went back to -- it is messed up again. if you went back to the car shop, you would expect that they would not charge you to fix what you thought you r.d. paid for. but that is not the way it works in medicine. a hospital -- what you thought you already paid for. that is not what the way it works in medicine. a hospital takes you and fixes

you up and three weeks later you are back again and they can do it all over again. we are going to try to lure the readmission rate, try to get it right the first time. those things turne august out to be the biggest costs. ç-- those things turn out to be the biggest costs. that is not the main driver of cost, it turns out, in the system. it is a young lady's turn. here you go, right here. and then i will come back around. i know this group feels ignored here. >> thank you so much for being here, president obama. it means so much to all of us. >> thank you. >> i have medicare and a good supplement and i'm just happy as i can be. i never pay a cent for medical

care. but i think medical care is a human right that everybody in this world deserves. [applause] i wish, as i think you do -- >> i appreciate that. >> that we had single payer, like all other developed nations. i am so glad that you are going to insist upon a government auctiooption and we are trustint you will -- hold tight to that. >> thank you, and i do want to emphasize -- you know, i have been talking a lot about costly because cost is important. if medical care does get more and more expensive, then no matter, even if we decide to cover everybody under medicare, for example, sooner or later we would run out of money and we would be back restarted. we have got to control costs.

-- back where we started. we've got to control costs during but i do not want to lose sight of the personal aspect of this. i get letters every day. we get about 40,000 letters, i think, a day. i mean, we get a lot of letters and e-mail. my correspondent office, they choose to attend for me to read each day. -- they choose 10 for me to read each day. i would say half of them have to do with health care. you read some of these letters and it is heartbreaking. you have got parents who have got adult children who contract cancer, but the children are unemployed or do not have health insurance. so, the parents who were saving for their retirement, suddenly, they have got to bring all of their retirement savings to help keep their child alive. you have got people who had a small business and at a certain

point just had to give up their business because they could not afford the health care premiums as a self-employed person. they had to give up their dream. people who are bankrupt. there was a woman in wisconsin who i met, she is 36 years old, had a double mastectomy, now the cancel has traveled to the bone. she has got two kids. she never and have jobs with health insurance and they are still $50,000 in debt because of the care. she is fighting for her life, but she is worrying if she passes away, all she is leaving to our kids is hundreds of thousands of dollars worth of medical bills. that does not make sense. we are the wealthiest country on earth. and for us to be the only advanced nation where everybody

cannot count on basic health care is shameful. we have been talking about it for 45 years, 50 years. my attitude is that america is the greatest nation on earth. we can solve this problem, but we have got to put our minds to it and we have got to overcome all the fear tactics and misinformation that is out there. and just go ahead and fix it. [applause] a denman stern. roger. >> thank you, mr. president. we just finished the 10th round in briza county and i tried to get you down there. >> the 10th annual? >> ram, that is, rural, medical.

>> oh, that is right. you guys do outstanding work and people are able to get care because of the great volunteer efforts. >> exactly. >> i feel like if you could have made it to rounçramn and thesee that have questions about whether we need health care or not, this would answer those questions. the following question, why can't people just get on medicare now? >> that is the same question that this tournament just asked. as i said before, well, there are some people who proposed in the past medicare for all. that is essentially a cinder -- single payer plan. at a lot of countries have single payer plans. i have to tell you that

politically, it would have been difficult and very destructive because what would have happened is a lot of companies who are currently providing care, their attitude would have been, you know what, if i can get government to pay for this instead of me, let me just drop coverage. so a lot of people who currently would have had coverage would find their coverage dropped. they would have to sign up for medicare and pretty soon, you've got everybody on medicare, but we do not have the tax base to pay for everyone being on medicare. so, what we're trying to do is to build on the employer based system that we already have. that has some disadvantages. i will not lie to you. but it is the system that people are accustomed to. if people are nervous, i tell them, you will not have to change your health care and you do not have to be part of a government plan.

then imagine how nervous they would be if i said, we will open up medicare to everybody. then we would really -- i think, people would worry that they would lose their doctor, they would lose their plan. but i still think the notion of having a public option that people can sign up for voluntarily is something that needs to be part of overall health care reform. the un will be right next to him. -- the young lady right next to him. i've just been alerted that, unfortunately, this is the last question. >> i am an independent pharmacist from big stone. my question is, with this new health plan and opening up all of this access to physicians, which is wonderful, with that, there will be new prescriptions for patients and how will they have access to the medications they need to treat those

medicines? will it turn out to be as bad as it has been for some many of my patients? they have great coverage for three months and no coverage for the rest of the year because they cannot afford the out of pocket to meet the catastrophic. >> first, i am glad to know there are still some independent pharmacists out here. it used to be the pharmacist was one of the most trusted members of the health care system. increasingly, it is harder and harder to be an independent pharmacist because of the big firms corporations that are out there. -- pharmacy operations that are out there. i think any plan that we have had strep prescription drugs as part of it because that is a bigger and bigger part of health care today. the deal that we need to strike with the drug companies is, look, you are now going to have a bunch of new consumers.

you've got to cut a better deal for those customers. so that they are not three months or six months into the year suddenly having used up their entire benefits. they cannot afford out of pocket costs and they just suffer until they can get back and the new year starts. that is going to be a battle with the drug companies. as i said, to their credit, they have been willing to negotiate. but let's face it, they like making a profit and the prescription drug plan as currently stock -- currently constituted has been very profitable for them. there will be some tough negotiations. but what i want to do is make sure that i am negotiating on behalf of your patients, your customers. they need help. one thing that you raised, as we are increasing access, not only

are we going to have to make sure that drugs are affordable, we have also got to make sure that there are enough doctors out there, especially in rural communities. that is one of the reasons why we have said let's make sure the reimbursement system that we have under medicare and these other plans reimburses family physicians, primary care physicians, people who are doing regular checkups, helping prevent illnesses ahead of time. they are the lifeline for health care, especially in rural communities and we have got to make sure that we are encouraging more and more people to go into that clot -- i practice. i also want to provide scholarships to medical students to go into these kinds of practices as well. everybody, you guys have been terrific. i had a wonderful visit and i apologize to any customers who were trying to shop while we were doing our town hall meeting. [laughter] but i really enjoyed your time.

i hope you got the information you need. please, spread the word to your friends and neighbors because, as i said before, there's a lot of misinformation out there. if you have health care, you'll be able to keep it. but we're quantified to make sure that health care inflation goes down. that you have better access, better quality, we cover people who currently do not have it, we make sure that insurance companies are treating you fairly. i think that is a good deal and we can get it done with your support. thank you very much, everybody. [applause] ♪ [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] ♪

♪ [band plays] >> the house energy and commerce committee continues its markup of health care legislation tomorrow. you can watch that proceedings in their entirety on c-span3 and also at our website, c-span gorda -- at our website, c- span.org.

live coverage begins at 10:00 a.m. eastern. up next on c-span, a senate hearing on corporate governance and corporate boards of directors. then homeland security secretary, janet nepalitano discusses local law enforcement and counter-terrorism efforts. and richard holbrooke talks to reporters about his recent visit to afghanistan and pakistan. >> we are talking about health care tomorrow morning on "washington journal." our guests are david lightman, tom harkin and congressman nathan deal, on the energy and commerce committee that will be working on legislation this week. plus, congressman orol pomeroy, part of the blue dogs, a group

of fiscally conservative democrats. >> george with assigned the declaration of independence. he was also murdered. q&a sunday, author bruce chetworth on "i am murdered" the killing that shocked a nation. that is at 8:00 p.m. eastern and pacific. >> a senate hearing today that the makeup of corporate boards. the witnesses included an official from the securities and exchange commission, as well as advocates from corporate and shareholder interests. this is about two hours. >> let me call the hearing to order and welcome our witnesses, thank you, ladies and gentlemen. we expect that the ranking member will arrive momentarily. today's hearing will focus on

corporate board rooms and try to help us better understand the misaligned incentives that wall street executives would take harmful risks with the life savings and retirement income of so many people. this subcommittee has held several hearings in recent months to focus on? in our financial regulatory system, including the market for over-the-counter derivatives, hedge funds, andç providencprie investment pools. we also examined the authority they had, such as our hearing in march that uncovered effective risk-management systems at major institutions. but although regulators played a critical role in policing the markets, there will always struggle to keep up with evolving and cutting edge industry. today's hearing will examine how we can better and our shareholders to hold corporate boards accountable for their actions and make sure that executive pay and other incentives are used to help companies better focus on long- term performance goals over day-

to-day profits. in this latter regard, this is a timely hearing based on the action yesterday in the house financial services committee. wall street executives who pursued reckless products and activities they did not understand, brought our financial system to this crisis. many of the boards that were supposed to look out for shareholders' interests failed at their most basic of jobs. this hearing will help determine where the corporate governance said -- corporate governance structure is strong, where it needs improvement and where the federal government to play a role in this effort. i will ask the witness is what the financial crisis has revealed about current laws and regulations surrounding corporate governance, including executive compensation, board composition, election of directors, and other rules and risk-management. in particular, we will discuss proposals to improve the quality of the boards by increasing shareholder input into board membership and requiring the election of and the majority for the -- majority voting for each board. we will also discuss

shareholder endorsement of the executive compensation. we need to find ways to help public companies align their pot -- their compensation practices with long-term shareholder value and for financial institutions to put overall safety and soundness firmly. we also need to make sure the committee members towho play key roles are appropriate. other key roles require other companies to create risk management committees on the boards and separate these -- the ceo and chairman positions to make sure that the ceo was held accountable by the board and an independent chair. i hope the board will allow these proposals and take the needed steps to allow the interest of shareholders. i welcome today's witnesses and look forward to the testimony. let me recognize the senator. >> thank you, mr. chairman. times are a little bit late. -- i am sorry i am a little bit late.

this is a very important topic for us. but a hard one to deal with. while we may be able to make some reforms that would promote good, long-term performance irresponsible behavior, we will not, i say, be able to prevent bad decisions or failures. after all, we cannot legislate good judgment or ethics. and we already have the ultimate form of accountability through bankrupt -- through bankruptcy. in general, pay should promote good, long-term performance and shareholders must share in the game, not just executives and traders. boards must be more involved -- i say that again, board must be more involved. and be an effective check on management.

proxy assessed must benefit the majority of stockholders and encourage long-term values. if we are not careful, those changes could have the exact opposite effect by in powering a minority of shareholders -- by comparing a minority of shareholders to strip the company a value and encourage risky behavior in short-term profits. while we are right to be outraged at what has gone on in the financial sector, we must be careful that efforts to rein in wall street's behavior do not put handcuffs on other businesses that have different needs and challenges. corporate law for the first 230 + years of this country has been handled pretty well at the state level and if we're willing to

change that, we should be sure of what we're doing. i am sure looking forward to hearing what our panel has to say. thank you. >> thank you, very much, senator. senator corcoran? you have any opening statement? >> as always, i prefer to litton -- listen to the witnesses and ask questions. but thank you for all been here. ç>> senator schumer has taken a leadership role on this issue of corporate governance. it was senator schumer's suggestion that we hold this hearing, want to recognize him for any comment that he might have. >> thank you, senator reid. let me profess might gratitude to you for holding this hearing and for a ranking member on in being here as well a-- and for the ranking member being here on such an important subject.

you introduce the said -- the bill of rights but senator cantwell earlier this year. the bill was supported by consumer groups, labor unions, and just yesterday the house financial services committee passed a say on page bill similar to the say on pay we have in the shareholder bill of rights. i'm glad to say congress is moving forward on this process and today's hearing is an opportunity to explore these issues in more detail. in the last year or more, we have talked a great deal about the failures of government oversight and regulation in the system. but our dynamic economy and capital markets also depend on internal oversight by vigilant boards to ensure that management is touring in the right direction. unfortunately, there are far too many cases recently were boards of directors, not just regulators, were asleep -- were asleep at the wheel. or were implicit in practices that were harmful for our

economy and should capital markets. risk-taking that they did not understand and was not checked by their boards. compensation packages that were awarded short-term actions, but not long-term thinking. there were not undone by their boards. fundamentally, too many boards neglected their most important job, prioritizing the long-term health of their firms and shareholders and carefully overseeing management. in other words, there was widespread failure of corporate governance that has proven disastrous not just for individual businesses, but for the economy as a whole. and there are many in this room on both sides of the aisle to say that the government cannot get involved in the details of what a company does. and that is right. that is our free-market system. but the place that they are so -- that there is supposed to be a check is in the board of directors. when over the years, into the companies -- there are many companies that have good boards and many companies that already have implemented many, if not

all, the reforms in our bill. but in too many companies, the board's did not do the job and the damage -- what of the board of aig had checked some of its actions, what if the board of bear stearns had checked some of its actions? the taxpayers probably would have saved hundreds of billions of dollars. it affects all of us, not just the and journals of the company. senator kent will introduce our builill and it makes shareholdes accountable. it goes a long way to make sure that this does not happen again. as everyone knows there are six key components in our bill. i'm not going to read them. several elements of the bill have already been put in place by corporations, and that is important to remember. for many corporations, these are already best practices. well-run companies do not fear the shareholders because they

recognize that boards, management and shareholders share the same interest, long- term growth and profitability. the greatest damage appeared -- occurs not when boards are to active, but when they are not active enough. i think the shareholder bill of rights will go a long way to ensuring that companies are responsive to the shareholders' interest. i thank you and congratulate you, chairman reed, for putting together an excellent panel. i look forward to hearing the testimony of the witnesses, and ask that my entire statement be put in the record. courts without objection, all statements will be put in the record. >> mr. chairman, this is an unusual request, i do not know what those six elements are. and i think, since it sounds like -- >> since you ask. >> since this hearing has a lot to do with the fact that the bill is being introduced, it might be good for all of us to know what those six are. >> me i read them? >> asselin.

this is unusual >> usually, you do not need encouragement. [laughter] >> for the record, no, i usually do not like to hear any opening comments, but in this case, yes. >> well, thank you. i was going to say, similar to what jack reed said, this is the first time that someone has asked chuck schumer to say more on the subject and he has said. [laughter] here they are. first, we requireç all public " -- public companies hold an advisory note on cheryl compensation and obtain shareholder approval for golden parachutes. second, we answered the sec to issue rules allowing long-term shareholders with a significant stakes in the company to have access to the company's proxy form if they want to nominate directors to the board. if you are going to try to keep the board on this, you ought to have access to proxy spirit is now almost next to impossible for people to get. third, require a majority of the

vote in uncontested elections to remain on the board. it makes no sense for board members to be reelected if the majority of shareholders casting ballots voted against them. fourth, it eliminates a staggered board, which eliminates board members from the consequences of their decisions by requiring all directors to face election annually. fifth, requires public companies to split the jobs of ceo and chairman of the board and requires the chairman to be an independent director. that one has gotten the most push back from the corporate world. that surprised me, but that is the facts. and six, it requires that public companies create a separate risk committee requiring all independent directors to assess the risk that the company is undertaking. thank you, mr. chairman and senator. >> we have been joined by senator warner. you have any open -- opening comments? >> have i missed testimony already? >> no, you have not.

>> i am anxiously awaiting testimony. >> our first witness is ms. meredith be crossed, the director of the division of corporate finance at the u.s. securities and exchange commission. prior to join the staff in 2009, ms. cross was a partner at cutler, pickering, hale and dorr in washington d.c. where she consult with clients on a full range of issues faced by public and private companies, raising and financial reporting. prior to returning there, she worked at the sec from 1990 to 1998 in various capacities, including chief counsel and deputy director of the division she now leads. our next witness is professor john coates. he is the hogan jr. professor at harvard law school. he joined the faculty in 1997 after practicing at the new york law firm wachtell lipton trud.

he is a member of the advisor committee and in york stock exchange and he has suffered numerous articles on corporate securities and financial institutions. and for seven years he co- authored the leading annual survey of development financial institution, m & a. our next witness is miss ann youerger. she joined in joscelyn in 1996 as the director of the council's research service before being named executive director in january 2005. her prior experiences include work of the investor responsibility research center and wachovia bank. our next witness is mr. john j. castellani. he is the president of the business roundtable and chief executive offices of the u.s. companies. he joined the business roundtable in may, 2001, and has led the group's efforts on public policy issues.

prior to becoming president of the business roundtable, mr. castellani was executive vice president [unintelligible] our next witness is mr. j. w. barrett. he is a professor at jersey school of law. he has written extensively on topics and prior to joining the faculty mason law school, he was an associate in the essence -- sec enforcement defense practice group in washington d.c.. he also served as a law clerk for vice chancellor john noble of the delaware court of chancellery.

our final result -- witness is richard ferlauto at the american federation of state county and municipal employees where he is responsible for representing public employee interest and public retirement and benefit systems. mr. ferlauto is also the chairman of shareholders.org, a nonprofit gerald orla and education organization. prior to that, he was the managing directorç of a company that provides proxy by three services. -- proxy advisory services. i appreciate all of your appearances here today and let me recognize mr. cross. >> good afternoon, chairman reed, ranking member and members of the subcommittee. my name is meredith cross and i am with the sec. i just rejoined the sec staff in

june of this year after 10 years of private practice here in washington. i worked as easy for most of the 1990's and i'm delighted to be back at the agency at this critical time in the regulation of the financial markets. i am pleased to testify on behalf of the commission today on the topic of of corporate governance and agencies on going effort to make sure investors have the information they need to make informed voting and investment decisions. corporate governance is essential to investor confidence in the markets and cannot exist without transparency. that is, time and distance -- and complete disclosure of material and information. it responded to the market crisis and erosion of investor confidence, the commission has the identified and taken steps in the past months in a number of significant areas for the commission believes enhanced disclosure standards and other rule changes may help to address the concerns of the investing public. two months ago, the commission voted to approve proposals designed to help shareholders more effectively exercise their

state right to nominate directors. under the proposals, shareholders who otherwise have the right to nominate directors at a shareholder meeting would under certain to -- certain conditions be able to include a limited number of nominees in the proxy that are sent to all shareholders whose votes are being solicited. share holders also would have an expanded ability to include company proxy materials, cheryl addresses and other important topics. in addition, to enhance the disclosure that is provided to shareholders a key document in shareholders decisions on the election of directors. under the proposals, shareholders would receive expanded information about the qualifications of directors and director candidates, the board's leadership structure, and roll and mismanagement, and potential conflicts of interest consultation consultants. in addition, disclosure concerning the companies bought -- compensation policies and whether they create incentives

for employees to act in a way that creates risks that are not aligned with the company's objectives. the proposal would also include the reporting of the annual stock option weren't -- awards to the company directors and require quicker reporting a shareholder vote results. the commission also recently proposed amendments to the proxy rules to clarify the requirements consistent with the emergency economic stabilization act of 2009 for a say on pay vote of public companies that have received and not repaid financial assistance under the tarp and improved changes to the nyse rules to improve -- to approve brokers on as they have received specific voting instructions from their customers. finally, the commission has asked the staff to undertake this year a comprehensive review of other potential improvements to the proxy voting system and shareholder to indications rules. the communication -- the commission looks forward to hearing from the public and

carefully reviewing all views over the coming months. thank you for inviting me to appear before you today and for the subcommittee's support a that a nation -- of the committee's efforts of this important time. we will remain vigilant to strong disclosure and best practices and stand ready to lend whatever assistance began to what is going on outside the agency on these important topics. we'll be happy to answer any questions you have. >> thank you very much. professor coats? >> thank you, senator reid. and the rest of the members of the committee who are here. i appreciate the argentine to talk about corporate governance. good corporate governance is an essential foundation to economic growth. this cannot be more -- this could not be a more important time for the congress to be focusing on it. there are large number of reforms, 6 and senator schirmers bill alone, and many others that we could talk about.

i'm happy to talk about a few that you have questions about or want to explore. but before we talk about specifics, let me make two general remarks. that i think should be kept in mind in thinking about any particular reform. first, and it maybe a little controversy all, i think is fair to say that the academic perspective in corporate covenants would view of financial firms different than other types of corporations. not in a straightforward way that you might think, that isço say, shareholders of financial firms want financial firms to take risk and they want them to take more risk than may be appropriate from the perspective of the taxpayer. that is because many of the large financial institutions are, as we have learned, too big, too complex to fail. from the shareholder's perspective, if things go well with the risk that the company's stake, they are in the upswing

and if things go badly, then in the end, it is the taxpayer who helps defray the cost to the shareholder. as a result of that, i do not think that it would be a good idea to give shareholders considerably more power in the governance of large financial institutions. if anything, financial regulators should be given more authority to check the power of the shareholders, at least on particular issues. compensation being one of them. the compensation structures and incentives that shareholders -- even if the boards are doing exactly the right thing for shareholders -- venture augurs what of large banks are not the ones that -- that shareholders want of large banks are not the ones that are going to be the safest for the american public. that is the first general remark. second, across the border on this, i think is fair to say that academic, scientific research is generally quite weak. it is evolving. there's almost no non-sproat --

there's almost no non-trivial issue here. that cautions against passing rules that are fixed, mandatory, or hard to change over time. instead, it cautions for giving shareholders the ability to adopt rules for their own companies, facilitating collective action by them. and that is an import role but i think regulation can play. shareholders of public companies are dispersed, cannot easily act on their own, and often faced entrenched board tomorrow -- unwilling to make changes when they are -- who are unwilling to make changes when they are, in fact, best for the company. weakside to the evidence is also not a reason to do nothing. what i'd -- week scientific evidence is also not a reason to do nothing. what i just said, they have a hard time acting for themselves, and the other general concern is the corporate governance in the last 10-20 years has not

performed terribly well in a large number of companies. there is need for change and a need for carefully considered moderate reforms of the kind that can be revised overtime as learning on this subject rose. let me say quickly, the evidence that we do have, the say and say, is a good idea. i have to expand beyond that. i would say, for large companies, splitting ceo from chairman has some evidence behind that is a a a good thing. smaller companies, i'm not so sure that the evidence is there. but as long as the sec has given authority to tailor any legislation in this area, that would be a good thing to pursue. the staggered board, the evidence, if anything, runs against supporting that. there is an option on the one hand a fully condensable corporate -- a contest of all corporate structure there are elected every year and they're essentially the insiders have complete control, as in the case

of google, which is a reasonably successful company. in between, the boards have proved to be the type that investors and new ipos have been willing to put their money behind and to ban them across the board is not supportive of the evidence, at this point. frankly, there is new evidence. that is a reason to proceed, but cautiously. to proceed through the sec and i think the sec already has adequate authority to pursue this topic, but the one thing that congress probably could clarify is exactly what the authority in this area is and i think that would be a good thing. with that, thank you. >> thank you, professor coats. mr. yerger? >> thank you for the opportunity to address the council. by way of introduction, council members are responsible for safeguarding assets used to fund a retirement of millions of individuals dropped united states. there capitalists.

they are responsible for an aggregate portfolio north of somewhere $3 trillion in assets. they have a commitment to the domestic market, on average, investing about 60% of their portfolios in stocks and bonds of u.s. public companies. . .

far too many boards approved a programs that motivated excessive risk and a huge awards for short-term results. corporate governance rules also failed by denying shareholders the most basic right to hold or directors accountable. first, congress should mandate majority boating's -- buddy. -- of voting. the director is elected even if the majority of shares are withheld from the nominee. the corporate law community is taking baby steps and some companies have to take new steps to adopt majority betting. but while many have, plurality betting still dominates at small and medium sized companies.

-- plurality of voting still dominates at small and medium- sized companies. congress must legislate this basic share holder right. second, congress should palm great roles allowing nominees to be on a proxy card. this would substantially contribute to the help of our u.s. government modeled by making boards more responsive to shareholders and more thoughtful about who they nominate and more vigilant about oversight. the council commence the sec for the leadership on this important reform but unfortunately the sec may face a costly -- unnecessarily costly. the council recommends congressional loss.

you should support the-- a companies should motivate and attract the highest executives. their reward go for broke, short-term performance that can hurt the company's long term. the council believes that pay issues are best addressed by requiring companies to provide full disclosure, making sure that directors can be held accountable, giving shareholders oversight of executive pay, and requiring revealing of this bridget as cotton gained. we stipulate that these are not routine. fourth, congress should mandate that all corporate boards be chaired by an independent director. we believe separating this

provides a better balance of power between ceo and board and take strong leadership. in closing, empirical evidence from around the globe supports these reforms. the experiences in other countries and where applicable here in united states are powerful evidence that they are not harmful to the markets. these measures do not reward short-term. they are tools to enable owners to think and act over the long term. we thank you for your consideration of these issues. >> good afternoon. members of the committee, i am the president of the business roundtable. this is round table is at the forefront of efforts to improve corporate governance. we have been issuing press practice statements in this area for more than three decades. all the best practice statements are driven by one principle --

to further the u.s. company's ability to increase shareholder value that improve the well- being of all americans. at the outset, i must respectfully take issue with the premise that the most significant cause of the current and a crisis was problems in corporate governance. the financial crisis likely stem from a variety of complex factors, including failures to the regulatory system, a real estate bubble, as well as failures in risk-management. recently established inquiry commissions are to starting their work. any attempt to make policy in response to the reported causes would seem premature. in fact, to do so could exacerbate factors that may have contributed to the crisis such as the emphasis on short-term gains at the expense of long- term sustainable growth. moreover the problem of giving rise to the and enterprises

occurred to a specific hour -- area of companies. it is applicable all 12,000 publicly traded companies, that does not make much sense. this approach fails to consider a number of factors that iraq would like to spend the remainder of my time discussing. first, there has been a sweeping transformation in corporate governance practices in the past six years. many of them have been proactively adopted by companies. for example, the average board increased 69% in 2003 to 78% in 2008. that same group companies that have a separate chairman in the board increased from 30% to 46% in 2008. many companies have appointed an independent lead or presiding directors who also presides over executive diskette -- executive sessions.

companies have adopted majority voting, more than 7% of the s&p 500 have done so and many companies have moved to the annual election of directors. second, applying the single one size fits all too corporate governance regardless of other circumstances simply will not work. while there is a multitude of guidance about best practices in corporate governance, each company must periodically assess the practices that will best enable it to operate most effectively to create long-term shareholder value. in this regard we share the concern recently expressed by the new in tears me -- the new jersey investment counsel in a letter to chairmanship europe that it is "troubled by the proliferation of rigid prescriptive responses which are costly, time-consuming, and unresponsive to individual facts surrounding industries, and which may correlate all randomly

to the creator -- a creation of shareholder value." third, for more than 200 years corporate state law has been the bedrock on which the modern business has been created and thrived. it remains most appropriate for corporate governance. in large part this stems from the flexibility from its enabling nature and its responsiveness in adjusting to current developments. the amendments to delaware and other state laws of the past years have facilitated majority voting and the very recent amendments in delaware law to facilitate proxy access and proxy reimbursement bylaws are an example of this responsive ness and flexibility. fourth, to the extent that shareholders desired change in the corporate governance, many avenues are available to make their views known and for companies to respond. for example, shareholders may seek have the proposals included

in stock -- in a company proxy statements. many companies have responded to these proposals by adopting significant corporate governance changes, including majority voting for directors, a special meeting called by shareholders, and the elimination of supermajority requirements. some companies have implemented an advisory vote on compensation in response to shareholder proposals. shareholders also engage in with told campaigned against particular directors and further they can engage in proxy contest to elect their director nominees to the company's board. finally, the sec has an important role in seen the shareholders receive the disclosure that they need to make informed decisions. they had issued a number of corporate governance-related proposals that we think are inane -- are aimed at improving disclosure about director experience, oversight and risk- management, executive compensation, and potential

conflicts of interest with compensation consultants. the roundtable generally supports this. another controversial sec proposal seeks to amend proxy rules to permit shareholders to nominate directors. we have serious concerns that this proposal, sharing them with the sec in our columns. but we believe that the adoption of this proposal could promote short-termism, and lead to the election of special interest directors, increase the use of proxy advisory services, and highlight butter integrity problems in the system. let me emphasize the roundtable's commitment to effective governance practices and enabling jobs and economic growth. we must be careful that in his zeal to address our current financial crisis, we do not adopt a one-size-fits-all approach to it and undermine the stability of the boards of

directors and paste companies under even greater pressure for short-term performance. we must be cautious that we do not jeopardize the ad -- the engine of american wealth and prosperity. >> ranking member ponding, distinguished members of the committee, i appreciate the opportunity to testify. i teach corporate law at george mason law school. i am a senior scholar with a working group and i also run a corporate federalism issue, a network of scholars dedicated to studying the intersection of corporate governance. i will begin by addressing proxy access and executive compensation rules under consideration. neither of these addressed the present financial crisis, and both may result in significant unintended consequences. then i will close with a list of factors that did contribute to the present financial crisis. i am concerned that some of the corporate governance proposals recently advanced impedes

shareholder voice in corporate elections. does it because they leave no room for investors to design corporate governance structure is appropriate for their particular circumstances and particular companies. rather than expanding shareholder choice, a proxy reform before this committee actually stand in the way of stair hall -- a shareholder choice. most importantly, they do not permit a majority of shareholders to reject the approach. the director of the united brotherhood of carpenters said it best. up in what we think less is more, fewer votes and less often would allow us to put more resources toward intelligent analysis pratt the brotherhood of carpenters and oppose the current proposal out of concern about cost. the proposals issued today ignored their concerns as well as the concerns of many other investors. consider why you might limit shareholders from choosing an alternative means of shareholder access. it can only be because of a majority of shareholders that

many companies might reject the federal approach if given the opportunity. they share the same goals. public pension funds run by state of special funds and union pension funds are among the most vocal proponents of the proposals before this committee. there are many examples where they had used their power toward their own special interest. main street investors deserve the right to determine whether they want the politics of unions and state pension funds to take place in their 401(k). they also envision more disclosure about compensation consultants. that would be incomplete without mentioning conflicts faced by proxy advisory firms, an issue that the current proposal spirit -- failed to address. also note that there is no issue -- evidence that executive compensation plan to roll in the current crisis. if it were to blame, we would see significant difference

between compensation policies that as companies that recently returned their tarp money and those who needed additional capital. we did not. the proposals also seek to undermine and take legislative credit for efforts currently under way at the state level and in negotiations between investors and boards. this is true in proxy access, a subject of recent rulemaking at the state level, and it is true for the federal proposals on boards which are already voting in independent chairman. we've run this experiment before. the act passed in 2002 was a shift in corporate governance is designed to prevent poor corporate governance. between 2002 and 2008, the managerial decisions late into the current crisis were in full swing. this suggests that corporate governance reform at federal level does a poor job of preventing prices. and yet the financial crisis of

2008 must have a cause. i commend this committee's determination to uncovered. but i challenge whether corporate governance is the culprit. let me suggest six alternative factors for this committee to investigate. the moral hazard problems created by the prospect of government bailout. the market distortions caught by subsidizing the housing market for fannie mae, freddie mac, and federal tax policy. regulatory failure by the banking regulating and the sec and setting appropriate risk- based capital requirements for investment in banks. short-term thinking on wall street bid by institutional fixation on firms making and meeting quarterly earnings predictions. but that you're up credit rating agencies to provide meaningful analysis calls by an oligopoly in the credit rating market supported by regulations. excessive writedowns in asset

values under mark to market accounting, demanded by accounting firms to refuse to sign off on balance sheets out of concern about exposure to excessive litigation risks. corporate governance is the foundation of american capital markets. shifting that foundations requires deliberation and the respective role of states and federal governments. it could have devastating affects for capital markets. thank you for the opportunity to testify and i looked toward answering your questions. >> that you very much, mr. professor. >> turn the microphone on. good afternoon, chairman read in many in -- members of the committee. i am the director of corporate governance and pension investment for the public employee union. we have long-term abiding interest in the help of the capital markets. our members are invested for public pension systems with assets over $1 trillion. they depend on those assets for

long-term retirement security. does public pension systems have time horizons of 20-30 years in which they need to pay out our member benefits so that we are the -- we are a long time, long- term investor with those types of time horizons. i might also mention that we worked with aig overprice iraq because we understand that the board did not do the rest disclosure that we thought was necessary. i am also chairman of shareholders.org, designed to give voice to retell shareholders to buy opportunities to communicate regulators, policy makers, and companies in which they are investing. i'm here to urge your focus on corporate governance. we believe that that reform is essential to good performing

capital markets. in fact, we could avoided some of the $11 trillion in asset loss that was faced and dealt dearly by our members and certainly by the u.s. household. a curtain -- according to a recent public opinion survey by opinion research corp., conducted for shareowners, investors want to see congress take strong action to fix financial markets and to clean up wall street. such action is essential in order for you to rebuild confidence in the markets. capital markets will not work without investors. investors will not come back if they do not have confidence that the markets are running appropriately. support for such action is strong across all age and educational background and a

political affiliation. 34% and investors that we surveyed use the term angry to describe their views. the number one reason of loss of investor confidence in the market, we found, were overpaid ceos and unresponsive management and boards, at 81%. 61% of investors said that strong federal action would help restore their confidence in the fairness of the markets. when we carry them about policy preferences, the survey found that four out of five american investors agreed that shareholders should be permitted to be actively involved in ceo pay, 82% agreed that shareholders should have the ability to nominate and elect directors, and 87% of investors will lose their retirement savings to fraud and abuse should have the right to go recalling that money. fully consistent with these

findings, we think that the committee should focus on fixing corporate governance. u.s. focus on the directors and the responsibility between asset owners and their agents, directors on corporate boards, the most critical change being creation of a proxy access rights so that shareholders, particularly long-term shareholder, the most patient capital in the market, so that they can nominate candidates for election to boards. we are very encouraged that the sec is in the process of rulemaking on this issue. we also believe that this is such an important right that it should not become a political football for a future commission. there needs to be long-term consistency and securities laws, and the exchange act is the appropriate place to clearly codified the authority that the commission has to require disclosure of nominees running

for board seats. proxy access is fundamental to free and fair election for directors. second, shareholders should have the right to say on page, and a vote on the appropriateness of ceo compensation. we are excited that we saw the vote in the house the other day. we expect to see a full but this week and we think it is absolutely essential that broker votes not be included in the total. i changed to 452, excluding brokerage votes, would be a tremendous enhancement on the senate side. i can make other comments, but let me wrong about -- let me say that i thank you for the ability to testify today appeared rebuilding investor confidence in the market depends on what the policy makers that expand investor rights and authorizes the sec to strengthen his advocacy role on behalf of all

americans and their financial security. i would be happy to answer any questions. >> thank you very much. let's do a six minute initial round with the intention of doing a second round. so we can quickly get to ask a question. the extraordinarily fortunate victor testimony, collectively and individually, has and has this debate significantly. what the issues here that had been alerted to by the professor and others? the interactions in this sick -- sec and the state, primarily in delaware, says they have 72% of public corporations. can you comment on this? i think i noted in your proposed rules that they are subject to the state corporate law. >> at that is correct. under the access proposal, you have a right of access to

include nominates and not as easy-file proxy only if you have a state law right to nominate directors. we start with the state law, and then we enables shareholders to exercise their state law rights through the federal proxy rules. >> that raises the issue -- says the proxy rules are several wells and are not required by any states, i do not think, i think this is a principal issue between whether or not there should be the ability of the sec to require these rules, even at the state does not. is that something that you cannot do now under present law or you choose not to do? >> that is a question. under state law now, the recent changes in delaware include an ability for shareholders to vote to require proxy access.

we have authority under our current rolls, under the 34 act, to also require companies to include nominees in their proxy statement. and we believe these to coexist. the way we have done our proposal ensures that shareholders would have immediate access to the proxy to nominate their holders. that is part of our requirement. that is still but under state law to have -- they could still vote under state law to have relax standards so that more shareholders to do so. >> professor, your comments? >> mr. chairman, i would only offer that the sec proposal does include reticence to state law. but the sec proposal says that you can adopt a bylaw that would describe how proxy access would

work, only if it complies with the sec mandate. it is very clear on that. it runs roughshod over state corporation law determining election rights. it is expressly -- you might find reference and to state laws but the references made clear that the sec determines how proxy access is going to work. you can certainly make up your own rules, only if they comply completely with the sec rules on this essentially state corporate law matter. >> if there are state corporate laws, i think you recognize that the proxy process is a result primarily a federal law. the oilers the proxy process, sure. he was intended about issues of disclosure. i would offer up " from justice powell, no principle of corporate law is more firmly established in a state's authority to regulate domestic corporations, including the voting rights of shareholders.

justice powell, at least, is with me on that one. >> you agree with all of his opinions? >> no, i would not say that. [laughter] but i like that one. >> you described -- you might comment on this issue, professor copes. -- coats. >> as i said in my opening remarks, if congress were not to act, the sec did adopt proxy access, someone will challenge the authority to do so. precisely along bowlines that the professor suggested. i think the challenge with lloyd because the proposal is about communication. and allows shareholders to exercise rights that they clearly do have under state law. the sec proposal would allow, contrary to what was suggested earlier, any state to change his

lot and then the sec rules would not override that state decision. the proposal the way that i read it and i court would read it would not affect conflict with state law on this issue. >> let me follow up on one of the points she made in a statement. -- you made in your statement. there is a general assumption that shareholder participation was described with the enhanced performance of the company. he's a just and certain situations, financial institutions, that it that half of but worse impact. there seem to be three or four different decisions year. you can page said its, or you can reinvest and increase shareholder value, and the shareholders would be interested in dividends and maybe also long-term value, but less involved in compensation.

that is a pilot to the question -- -- a prelude to the question. >> there is longstanding economic theory of about which there is a fair amount of evidence to suggest that a company's capital structure has conflicts between the shareholders entitled to all of sight beyond that its payments that the creditors are entitled to, and the creditors. because it insures -- a bank is fundamentally a creditor of a large banking institution. there is in fact going to be on many occasions a conflict of interest between shareholder interest in the interest of the taxpayer with the respect of insured depositary institutions. that is the fundamental conflict. to the extent that proposals go toward increasing shareholder power, that simply makes the bank regulators job at the

behest of shareholders and boards were seeking to maximize share value, even if it is long term, so any effort in this area i submit should be accompanied by clear authority for the banking regulators to at least moderate the way that these things play out for banking institutions. >> thank you. my time is expired. we will do a second round. >> thank you, mr. chairman. professor, if we're going to make proxy access easier for shareholders, what restrictions would you recommend to make sure that the ss benefit, a majority of shareholders, and the long-term value of the company does not just benefit small groups of investors and lead to short-term profits? >> center bunning, the best

route to make that assessment is the shareholders themselves. i would lead to the shareholders to determine how proxy access should work. in delaware and other codes, which forms the basis for other states, they are on the right track. when commissioner has offered a proposal to the sec to help buttress this development. it would permit access for shareholder election bylaws to the corporate. instead of saying that this is how the election should work, which said its shareholders should put forward by law to determine how the election should work. rather than choosing -- that people got to choose that way. >> you're not suggesting they go back to a constitutional convention. >> in at that, eradication of

bylaws is like a constitutional convention for shareholders. that is an apt analogy. >> in your written testimony, you raise an interesting idea. rather than forcing a structure on all companies, is suggested and opt-out abovote for shareholders for some governance proposals. that idea could be applied to proxy access and advisory both procedures, instead of government deciding what rules will be. i want to know what each of you think of that approach, of a mandatory opt in or opt out vote every few years to decide certain matters. the start with you, professor coates, since you seem to express this idea.

i like to hear your comments on it. >> thank you. obviously i like my idea. >> i hope so. >> to explain -- i do not think of it as necessary to prevent imposing government regulation. i don't think that is the intent of any of the proposals currently being debated. i think it would be a good idea to preserve flexibility in what sorts of corporate governance structure is companies are either required or induced to adopt. one to way to achieve that is to let shareholders -- get this is meant to be in the interest of shareholders, then we have shareholders every five years given the option of rejecting a particular idea on the ground that is too expensive, too cumbersome, or simply not after their company. i think that is a reasonable approach. the key point would be popped out. shareholders on their own, despite that 20 or 30 years

organizations like the once led by miss yeager, a part-time getting people responsive. they spent 20 years since posse access has been proposed by institutional shareholders, and only now has it been taken seriously. i disagree with the business roundtable suggestion that portrait generally responsive to shareholder desires. start with a good role. >> thank you, sir. it is an interesting idea of and i think with respect to our proxy access proposal, but one that we have on the table right now, we include request for comment in our proposal about whether or not you should be able to opt out and have the shareholders choose a different access mechanism. we very much look forward to receiving comments on that. this is a proposal. >> how much more time to we have? >> on the proposal?

dollars know, to make suggestions or to comment. >> the comment period runs to august 6373 >> thank you very much. miss yeager? >> i have a couple of observations. i am not all lawyers to come that this would that differ perspective. >> i am happy to hear that. >> the board of directors is the cornerstone of the corporate governance models. we need to elect and remove directors. the fact is that we do not have those tools here in the united states. and that is why we advocate majority voting and access to proxy. we think these are two principal role did they run all companies that all times. in terms of an opt-out idea, i don't see how it would be relevant to majority voting. i believe fundamentally it's a director is not in support of the majority of votes, but director should not stand on the board. a quick point on access. >> i only have 35 seconds.

i have another question. this is for professor coates. another professor raised up interesting problem before this subcommittee. with derivatives, the voting rights of shares cannot be separated from the economic rights of the shares, setting of the situation with a person voting has no interest in the long-term health of the company. what can and should be done about that? take a shot at it, both of you. that is all right. >> the issue is a serious one. it has affected a number of companies in the past in a recent years. during the financial turmoil, because it allows of short-term speculators who have distinctly different interests.

>> bacon had a negative interest. >> exactly. if the sec is given time to address the issue adequately, they already understand that this is a significant problems. there are no simple fixes that is, just like most problems. >> you have not made a suggestion. >> disclosure should start. that is where i would start. all this cluster of hedge fund positions. >> disclosure -- sunlight is the best disinfectant. that is part of the reason why i am opposed to the fcc's current proposal on proxy access through legislation. it goes beyond the central mission of full disclosure. >> thank you. senator schumer. >> i thank you for your testimony. how like to make two comments, you can comment in writing

because i do not have a lot of time. professor, let the shareholders decide as miss yeager points out. shareholders do not decided yet. saying that we leave that up to the shareholders, whatever happens, happens. in to many instances they do not have the ability to decide. our rules will let them decide. whatever they say is what they want? not under these rules. you can respond in writing. to prof. coates, because they would be bailed out, they can have a different structure. as the shareholders of citigroup or a ided that they have done quite well because they let this go to far and were bailed out. buzz companies, by the time they are bailed out, their shares are worth very little. i do not think that they would have a different structure and i

would argue that the recent history was under kutcher argument even further. -- would undercut your argument even further. because you might be brought out allies should take risks and that is fine for the shareholders? they're going to be wary of risk over the next five years. shares went way down. you can respond in writing to that one. i don't think that recent history bears out that hypothesis. ms. cross, the sec has proposed say on pay for tarp recipients but not other companies. if it is a good idea when that government is a shareholder, why is and 80 -- what is it a good idea for all shareholders? >> german shapira says that she supports it for all public companies -- chairman shapiro

says she supports a for all public committee. i can speak for the commission. we stand ready to implement it if the congress enacts it. >> good. mr. castellano, i think that that is proposal -- i think that a significant do you know that some of the proposals in a shareholder bill of rights are being adopted by your member companies and becomes an emerging consensus in best practices on corporate governance. what are you so afraid of? yet this is the trend anyway, if this is the right thing to do, what is wrong with pushing those -- i had a discussion with one of your members and i will not reveal who it is. he said and named his predecessor. we are not legislating for you. you are a good ceo. whether you are say how -- but

what about to predecessor? so, question. doesn't the shareholder bill of rights create a competitive advantage for the companies that follow the best practices? what is the roundtable, most of the comply with overwhelmingly with some of our proposals, and many comply with just about all of our proposals, why are they going so far for the allied air companies for new laws are needed most? >> many of the roundtable companies have adopted the pact -- a practice is in your proposal. >> you psyched out with pride. >-- you cite back with pride. >> those who have had made that best direction for their company. the issue that you cited in the separation of the chairman and chief executive officer, in some

instances is it makes very good sense. particularly where it is a transition event. but in other circumstances, boards feel that it makes best sense to have both together but to protect against the downside, having of reciting director. the question is why require it? >> i cannot stay for a second round. 1/2 ask you another question. the one that got the most kickback and that i am open to listening to change on or proposals on is the ceo and the independent director. he noted that 75% of your member organizations, 7% of s&p 500 companies adopted majority voting and roughly half of but 500 s&p 500 now hold annual direct -- director elections. but he said the one-size-fits-

all approach will not work. give us a good reason that a director who gets only one vote and annual meeting should be allowed to continue as a director. >> i can give you any good reason why any director who does not receive the majority vote of the shareholders should be seated unless it jeopardize the ability of that company to be able to operate and that board to operate. many companies to adopt a majority voting put in a safeguard for companies such that if they require that particular director -- the only directorate that has the financial expertise that is required and the audit committee with a directive that would have the compensation expertise and -- it that would force the company to be in noncompliance -- beyond >> take away that exception. any others? >> not as long as the board can function.

>> legally i would offer that the earlier to succeed a quorum might lead to legal circumstances. it could be an event of default under the company's litigation. >> i am sure that we could deal with that reform in the interim until there was another election. my time is expired. >> to the center for new york, i appreciate you offering something to look at. i do want to observe the staggered board issue. it has not been universally said and we have a body on the other side of the capital but doesn't have staggered boards. sometimes things come out of there pretty hot. but the 90% tax on the aig bonuses. there is merit on that and i hope you might consider that met the evolving.

i wanted to say one thing to professors coates. to say that the same people in a at today at the same people would encourage the risk is not a good assumption. those people sold out high and a possible wet behind -- i don't think you can make that assessment -- and those that were left behind, i don't think you can make that assessment. we talked off -- carl ichan on the fun. he is someone who grows -- cares a great deal about corporate governance. he is written about this and i would not rely our conversation. the whole issue of where companies are incorporated seems to be an issue that may be even bigger than anything like out today. i wonder if a couple of you might respond to that.

obviously cos inc. states they give them many protections and keep shareholders from being able to make huge changes. i wonder professors, if you might both responded that. and anyone else who might have something to say. >> i am aware that mr. ichan hired a lawyer to write the n.c. -- north dakota business at. i am a bit biased. i think delaware is a very at effective place for regulating corporate governance dealing with the intelligence of their law clerks. but i would also offer that to some extent, some of what is behind some of this effort is short-term. it got us into this problem in the first place. cash out on dividends rather than investing in r&d, it can be

very effective in the long-term growth. some time hedge funds strips companies answer -- that could survive of their assets. >> you're saying that you like some activism on behalf of shareholders but not too much. >> absolutely. i'm suspicion of his motives but some of his activism i am in favor of. >> it has been true for a long time that shareholders cannot force the reincorporation from one state to another. they need the board to go along with it. it has to be a joint decision. there is relatively movement -- a little movement between states once the initial state of corporation has been chosen. before they go public, that is the critical point. the fact did delaware has a 70% share of the market reflects well on delaware.

that is a reasonably healthy sign that delaware is being responsive as best it can to balancing the interest of both shareholders and managers who have to run them. one thing i would know about delaware and as permissiveness is that it only passed that enabling legislation in the past year. it did in response to the threat of federal intervention coming from this body. i don't think that you should think about delaware acting on its own to help shareholders. i think you should think about all were acting in relationship to this body and things that you do which very much impacted. >> mr. castellano, i served on several public company boards. certainly not of the size of a i.t. or some of the other companies we have had troubles with. i don't that there is any question that boards in many cases -- not all, and years i am sure is not in this way -- into

a social thing. you are on the board because the ceo of this company and the ceo of that company is on the board. it is a status thing in many cases. the ceo in many cases helps select to those board members are. most of the times they had their run fish to fry. they have companies that they are busy with. complex financial institutions, there is no way -- like no possible way -- that most possible for members really understand some of the risks that are taking place. with a limited number of board meetings, even if they are on the audit committee, it is very difficult to do. some of these things need to be addressed by governance issues that we might address here. hopefully not too many. some of them need to be addressed internally at the company. i know you advocated that in the office. but that issue of the culture,

of the weight boards in many cases -- i wonder if you might have a comment there. and then after that, i am familiar with the company a makes investments in large companies. one of the rules that they have is that they don't allow the ceo of them sell to actually serve on the board. the report to the board, the iraq the meeting, but they don't allow them to serve on the board. i would love to you to respond to both of those inquiries. >> i thank you for your first question period which were flooding might be had been -- i had been the spirits that you served on. it doesn't reflect a tremendous changes that have occurred in the boardrooms over the last years. we now see boards of directors in the case of business roundtable companies, at least 80% independent. the directors are independent of the company management. indeed the government's committees are the nominating

committee's by requirement of the listing standards in the sec, made up entirely of independent directors. the nomination of board members -- respect -- prospective board members is that control by the chief executive officer. and then thirdly, i would point out particularly the amount of time that is involved in the amount of expertise that is a ball. it is not only the specific requirement of the expertise in the standards and the sec requirements, but in deeds the boards themselves are demanding and the shareholders are demanding, not only greater expertise in specific areas but a tremendous increase in the amount of time. for example, i was recently talking to the chair of the audit committee of a large u.s. company. back chair spent 800 hours, his time, as the chair of an audit

committee of the last year because of some very complex financial issues. the board members are spending more and more time. i would submit to you, sir, that things are different than when you served on the board. and in terms of the boards being able to have the ceo is a member of the board, the ceo as the member of the board and chairman is a very important nexus between the governments of a corporation and the management of the corporation. we have found and experience has shown over a long period of time that if you separate governments for management, you get precisely the kinds of problems that this committee is trying to avoid. adding the ceo on the board is a very important nexus, in many cases. companies' imports believe that having the ceo as chairman of the board is also very important. my point would be what i have

said in my testimony. that is up to every company to decide and the board of directors represent in their shareholders to decide, rather than to be prescriptive. it is not always right but it is right for the company that makes the right decisions. they should be allowed to make that decision. >> sentiment does. >> thank you for your testimony. most of what i've understand, most of you said that you support the sec's may 20 role to allow certain shareholders to include their nominees on proxy. did you think that goes far enough? or is it too far? is this sufficient but is there something more that should be done? does that imply what we want to

see? >> i think it is inappropriate -- an appropriate use of rulemaking which is purely disclosure-based, very important. leads up to the state the creation of rights in terms of the nomination of directors. empower shareholders to be informed through shareholder communications about the fact that those elections are indeed occurring and then both to the proxy materials on that right. i think that is a good balance. in addition, something we have not talked about, the rule goes further and it empowers shareholders to make binding bylaw amendments to improve the shareholder rights for the election of directors, so that the disclosure right -- it is a tiered system that they have and the disclosure rule right now,

and becomes a floor of disclosure. and at the state labevel, based on shareholder proposal, to read that in an interesting way. i talked about share owners interested in retell shareholders. they can never hope to get 1%. but in the u.k., you might be able to get 100 shareholders, each owning $5,000 worth together, who might be an appropriate group to create different types of rights. there is flexibility which i think it's quite welcome.

it's keeping the lion share. the proposal strikes a balance in limiting the ability of special interest in high-tech corporate balance. how often that his committee's attention. >> i was not one of the majority. i just wanna make sure. our secure -- our concern is that what the sec is proposing does preempt what is traditionally done in the states. quite frankly, we think that there is symmetry in the argument that says if we trust the shareholders to elect the board of directors, which we do implicitly, then we ought to trust the shareholders to set threshold at which shareholders can nominate the four directors.

-- those candidates. >> we think that this of course right that should be better life. the states have failed investors are too long, delaware and particular. it's important for the sec to take action on this important reform. >> in practice, the corporation serves multiple masters. as the shareholders, it has corporate management, the public in general, and there are many cases for what is best in corporate management that may not be the best for shareholders. there are also case that what is best for shareholders is not what is best for the general public or the financial institution as a whole. how do we reckon not -- cannot reconcile those things? >> it is a very interesting question that has been discussed -- i am the oldest on the panel so i can say it is been discussed for at least most of my corporate career.

>> no one is objecting. you created compromise already. >> it was particularly unimportant topic in the 1980's when there was a lot of activity related to hostile takeovers. to whom is supported directors and management responsible? the answer was stakeholders, ultimately. they all had a legitimate position in the decision. i would think it is fair to say in the 1990's and the early part of this decade, that balance with more to the shareholders. what happened is that the nature of the shareholders has changed very considerably. the average holding period of a new york stock exchange-listed company is about 7.5 months. you're really dealing with share

maintenance and traders as much if not more than shareholders. i think what we are all discussing here and all have a perspective on is going forward, what is the correct balance between those who have a very short-term interest in very quick gain out of a company, and they wanted to some of the things that have been discussed here? you get access and small rights -- in rights to small percentages of shareholders, you know how they will lack. we on 5% and we want you to leverage the company, buy back the shares, it gives a 20% jump, and we are out of here quickly. as opposed to other shareholders to think that what about you. -- that they want about you. i don't think anyone knows the right answer but that is the question that is at the crux of what we should be looking at.

>> interesting a month, this is where the business roundtable and some members of your critics agree. it is how to empower long term as some -- long-termism said that the best interests of the company to achieve long terms shareholder value is achieved. the way that you do that in terms of long-termism is getting into the dna of the board. how does the board become most effective? by being the first, by being able to absorb many different points of view, by being able to evaluate its help and make sure that is focused on long-term, strategic implementation, and that ceo pay and sentence are aligned with the strategic vision? when we see a company that fails, we see of failure in all of those areas.

which is bad for the shareholders, the employees, and that for management. and for all other stakeholders in the process. we want proxy access to fix the boards because they cannot sell to evaluate, they are not the person not to share the interest of these stakeholders which ultimately they need in order to achieve long-term shareholder value. .

>> we are a small player. our pension system has got less

than $1 billion. we are concerned about the retirement security of our members and our members depend on wall functioning markets and boards to achieve eliovalue. they want a market that will succeed, we are not speaking and active on the part necessarily of what is donon our portfolio. >> i have never had a billion dollars under management so i see you as a big player. what if some institution out

there, let's say that you decided that you think that the worst possible course of action for a company is to be pro trade. there are some that very openly espoused that theory, that trade cost jobs and hurt americans. and >> presumably all of the owners would assert their

choices based on their self- interest. they would not be able to achieve victory. >> i am trying to be direct about this. i have 100 shares, you have a billion dollars worth of shares, i am pro trade, let's say. >> there are mutual funds looking to sell business.

some are looking kindly against embassy. -- some are looking kindly towards the ceo because this is in the best interest of the business. those of the kinds of things that are difficult. >> there is a lot of ways to be self interested. what impact does this have and your company if there is ease of entry here? >> one of the things that we are concerned about is that it would politicize the board. the board is legally required to represent all shareholders. each member of the board represents all shareholders.

there are constituencies in the shareholders. people want short-term gains. we had at a shareholder that owns $2,600 haworth of the company and wanted us to get out of the nuclear shipbuilding business and every year they would have that on the proxy. the point is that dissentient first cost the shareholders' money because that is to taste for the proxy process -- who pays for the proxy process. boards operate best when there is a consensus. when there is agreement on the direction of the company and who should implement that direction.

who does not mean that there's not discussion or questioning or dissension but when they make a decision, companies operate best when you don't second-guess. there is reason to second-guess the direction the company is going. >> i am out of time but i want to offer one other thought on the other approach. i was on a panel in this room and as i started my questioning, i said that i'm going to warn you, i am a former governor. it astounds me how we have this philosophy here that all the best solutions are here in washington with a federal approach. this really does impact stakes

in a very significant way. that in itself is a very profound issue. yet, we jump right in the middle of it with this new approach that cast aside 50 state corporate laws. i will share with you that when i started as governor many years ago, i decided that i wanted to be a state that attracted business to my state. we needed jobs in nebraska, we needed economic growth. i decided i was going to take on the delaware to try to make that happen. delaware had a good start. in this hearing, we have a very profound impact on the history of corporate governance in this

nation and a just don't think we should do that lightly. i think you would have 50 governors in those seats back there ready to come to the table to chew on us about that because it has a very significant consequences for the states where the jobs do exist, where they are created, or hopefully the businesses grow, expand and create economic affinity for the people out there who then pay the taxes that allow us to come out here and do the social programs that we love to do. i think that this is really an important philosophical issue and that is my little sermon had the end of the question iing. >> what is the status on majority voting on delaware law? >> it is not the defaults standard but the laws to

accommodate majority voting so companies can adopted voluntarily. under the sec's proposal, that not affect the law. >> we don't have a proposal but if there were more people running and there were pieces, you would vote to corral the votinplurality voting. -- plurality the voting. under the present arrangement, the directors control access to most companies to the proxy.

they decide to in most companies will get on as an issue and what will not. the current practice, unless we do something, will leave the directors with critical control of the process and on both sides of this argument, we're talking about empowering shareholders. >> i am a scientist and engineer and not a lawyer. >> ithe directors do not have control access to the proxy for all issues. in fact, the sec controls. companies get proposals to

related to social issues, governance issues, economic issues, labor issues, environmental issues, but i don't think that is what you're talking about what you are talking about is the access for the purpose of nominating directors. any group of shareholders has an ability if they can afford it and it is an expensive proposition to nominate directors and run and competition to the directors who are nominated, that is how we do takeovers and that is how the company's make changes. we have by majority vote to come by and large, directors who are elected to represent all shareholders. those directors are by and large

directed every year and dow. the shareholders can remove this by majority voting. how does it best operate? does it let the directors make decisions about who should be on the board or prison in the shareholders, who should manage the company? or, do we subject to them to a reelection challenge every year and turn them into corporate politicians. did they have to be more concerned because the nominee was directed because they did

not want us to be in the nuclear shipbuilding business or they did not want us to do business in that particular part of the world or they wanted our product lines to change? what our concern is that boards should be free to do and responsible for doing what the shareholders want them to do and that is to be good stewards. >> whathe sec has discussed thin terms of social issues. there is a group of directors that essentially nominates the nominating committee and then

they are chosen for their support of the status quo. in many times from the vote is not elected by a majority. there are many times were less than a majority even votes. most shareholders are reflecting on dividends, share value, what they think the company should be doing.

>> good boards communicate well with shareholders and this is something that we do now. some people come in to discuss this and we listen to them. we want to convince investors that we are a good company to invest in. we listen to investors. sometimes in these discussions you are talking about individual investors. we have to be responsive to our largest investors. the desires of individuals come through intermediaries and the message is very different than what some of the things you're

describing. >> this conversation could go on at length but i will stop and recognize senator bunning. >> thank you very much. there is been a lot of discussion on giving shareholders vote on the packages but little information on details. what should we vote on and how often should we vote? >> one thing i would drop out is that there is a big difference in say on pay and say in severance packages. i think it is a mistake to lump them together. the big difference is that severance packages are used to facilitate the efficient mergers and acquisitions.

sometimes when a good mergers deal, the ceo of the target has to go. >> that is in my question. i would differentiate say on pay and severance. one of the details is how often would you approve say on pay. some groups prefer a look every three years. >> by the time the second your camera on coming to the company would be in chapter 11. >> perhaps but what they propose is that the pay packages are negotiated over longer terms. you don't is rarely read approved the pay package every year, sometimes there five or 10 years. i suggest you leave open to boards and shareholders to determine what they want.

>> you think they should be left open to the board's. >> i worry about the effects of one-size-fits-all and a think we have seen this in britain with their say on pay rules. >> you think the negotiations on golden parachutes should be different completely. >> they should be, sometimes you have to do them very quickly, not enough time to get approval for the package. >> would you like to comment? >> this is advisory votes on me. -- only. the u.k., australia, the netherlands have done this. the evidence suggests that it almost never has a bad effect on companies. almost all the time shareholders

approved the pay packages presented. there are a few all liars that get their packages voted down and the result is a better alignment of shareholder and management interests. -- there are a few outsiderlier. >> as states responding to concerns about corporate governance issues with changes to their own lawns, is there really in need to federalize business law?

>> i would agree. we have not time to see the effect on state changes. after delaware facilitated majority voting, we saw an increase in majority voting for 20% of the s&p 500 to 50%. delaware just amended its code in march and they are about to change the model business code. there has not been on a lot of time to see the by loslaws. >> i believe that the problem here are the problem companies and that is why i think these issues should defederalized. >> they are at the trough every time they have a problem whether they are a finance company or an insurance company or an automobile company.

if you think they are too big to fail, then the federal government is backstop. do you have some other suggestions that we might not have to be the backstop? >> regarding what specifically? >> about the law's being changed in the states on corporate governance. >> we have had plenty of experience and there are many companies, most small companies have not adopted it. we think this should defederalize. i believe that proxy access to defederalize. when council members invest in domestic companies, they are not doing a portfolio of delaware companies or nebraska companies, they are looking at u.s. companies. these are basic rights that we should be giving to any company.

>> the fact that i lived in kentucky, you want me to come in and say the federal government should make the rules for every company in kentucky. >> regarding access and majority voting, yes, sir. >> another approach this is that you give shareholders the power to decide what state to incorporate in. >> they do have the power. >> no, they don't. one way to do this is to give them the right of every four or five years rather than opting in and opting out of a variety of laws, they have a right to decide whether the charter of a

state is appropriate for them and they will have shareholders to decide on iran. >> you as a billion dollar investor would say that to the shareholders after the fact? >> i agree that there should be more that should be a greater factor when ipo's are made. there's not enough focus on the process. there will be something very interesting for the sec to look at for perhaps new rule making. if you are talking about in power in the states, one thing you might consider is giving them real power and competition amongst delaware, nebraska. -- if you're talking about

empowering the states. you can make state corporation real and let them compete. the only way that you can do this is to give shareholders real power to make a decision about what laws are most of corporate to them. >> it won't sell, we cannot sell it. we would have 50 governors up here every day trying to tell us to mind our own business. thank you. >> thank you all for your testimony. and you can change the corporate domicile at any time you wish.

could thshareholders are given e ability to influence things. i hope that this is something that we will understand. i am not sure if i understand enough to support it. i want to say to you that i think that you were dead on in your opening comments, here you are talking about lots of things but what has driven this is moral hazard and what happened andgse'swith gse's. credit rating agencies that did not do what everyone thought they were doing. i hope we don't go overboard with what we do here because it

is many other factors that have created this. i think that boards are the final governance issue. if you have good boards that actually understand the risks, especially at financial institutions. we might actually look at differentiating things that have to do with large companies, financial companies, that offer system it risks, we might look at this differently. senator schuman is close to our chairman. knowing how things work around here, he may refer to him on some of these issues. he laid out six things. my sense is that the shareholders stay on pay issues was not a particularly controversial.

>> why do it every year? >> maybe there is a size issue. i am not necessarily covagreeing with you. >> we believe it should be up to every board of directors and every company to decide what is best for them. >> is anyone else disagree? >> on behalf of the sec, i am not expressing views. my my silence, i am not commenting. >> we are believers and one- size-fits-all on this issue. >> i hope that this stays in place and is not eliminated. the majority voting issue did

not seem to be a big issue to anyone. >> most of our members have majorities. >> this is the one issue that we have not touched on. since we have pretty good impact from you in these other areas, what are your thoughts? >> senator, i think that -- i don't know. the fundamental issue is whether or not a board of directors should regularly and thoroughly analyze the risks that face the company is not one in which there is any argument. that is one of the fundamental purposes of a board of directors. what senator schumer prescribes is not a portrait and this is that you create a separate committee to do that. some companies choose to do it

within separate committees but other companies think it is better done with in its audit committee because its greatest risk might be in its financial structures. some companies do it because of the nature of the products in different committees because the greater risks might be the products or the markets in which they served as opposed to financial risk. our suggestion is that it is done but don't specify that you create another committee, particularly where we already have the risk of being so prescriptive to how many committees and what kind of committees and boards should have that we run the risk of being the best that government compliance and the worst that government implementation. >> is anyone that strongly disagrees with the position he just fourth put forthput forth?

questions to be some very explicit disclosure about who is responsible for risk -- >> there needs to be some very explicit disclosure about who was responsible for risk, how they will review risks. >> he would moderate the bill in that way and specify that doesn't have to have a separate committee but to that function has to take place? >> cfiuif we could give sharehos the ability to raise to the top, i asked the question earlier,

how do you feel about shareholders say that you will not be domiciled in every state that you are in but you will be in texas? >> if the majority of the shareholders want to change the logo to pink and make me stand on one leg, i do that. this is what the majority of shareholders want. this is not a decision that is based on the ability of ease a change of control. one of the reasons why delaware his very attractive to corporations is that delaware has an infrastructure that is very efficient in adjudicating on issues between companies and shareholders and shareholders and shareholders require annual

meetings and whenever they need to be adjudicated. delaware is very very good. they have 10 judges and a couple of hundred staff people that make decisions quickly. it is not just the structure of along that is attractive but it is the ability of the state to implement this law when issues are in contention. >> by you are selling delaware, i am sure that the chambers like that. >> in new jersey is good, ohio is good. >> my guess is that some of those are not that you just mentioned.

giving the shareholders the ability do that -- by law, you have no problem with that? >> yeah, i would. why prescribe for all shareholders something that they are the have the right to do? >> is anyone strongly disagree? >> currently shareholders do not have the right to force a reincorporation over the objection of the board. i think for once i am on the management side of this. i do not think that that would be a good idea to introduce, it would be more powerful and more destructive on behalf of shareholders than anything that the sec is proposing. >> you think that is a really bad idea? >> well, i think it would be a

good thing. >> i associate myself with those remarks. i cannot imagine what the benefit would be compared to the cost of disruption. >> i think that is true. i think in moderata moderate fos discussing access. you should also great competition amongst the states. >> this is not an issue we have endorsed. i think this is a complex issue that i would be very surprised to the corporate community would support. >> i would also offer that the changes could introduced from time to time.

>> while i asked a number of questions, i will give the same disclosure to the sec, none of them necessarily represent my point you. this is just the best way to understand what a very diverse panel of six people think about an issue and i very much appreciate all of your input today and i hope that if we do anything on corporate governance, i hope that it is modest and we realize that at the end of the day, many factors led to the failures that we have had today, much of which was generated out of this body and those who came before. i hope that we don't create another type of problem by over legislating how the private sector governs itself.

thank you for your testimony. >> thank you. i want to thank all of the witnesses. this has been a very insightful panel. thank you for the time and effort you have put into this. it is quite obvious from the testimony and response to questions. the complete written testimony will become part of the record and we are happy to include supporting documentation. we ask that when this is response to any written questions that are set within two weeks and note that the record will close after six weeks. with that, i thank you and i thank my colleagues. the hearing is adjourned. c-span[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009]

>> up next,, security secretary janet napolitano discusses the role of law enforcement and counter-terrorism efforts. the u.s. special envoy talks reporters about his recent visit to pakistan and afghanistan. later, the senate banking committee holds a hearing on corporate governance and corporate boards of directors. >> we are talking about health care tomorrow on "washington journal." we're joined by david light man, senator tom harkin, nathan deal. also we will be talking to one of the members of the blue dog

democrats. >> on c-span radio, here 1960 eighth her phone calls from lbj. >> now, remarks on counter- terrorism from gen napolitano. she talks about the obama administration's efforts to engage the public at large and work with local law enforcement.

>> please turn off your cellphone, blackberries and all the other wireless devices you have to avoid interference. i would like to remind everyone that this meeting is on the record. janet napolitano is charged with helping people deal with disasters.

she has led the federal response to this one will and to the obama administration efforts to contain drug cartel violence. she has also begun the task of bringing an initiative water and effectiveness to an agency widely described as a bureaucratic zoo. homeland security combined 22 separate agencies, customs, immigration, the transportation, security in administration and the federal emergency management as well as the coast guard a secret service. she was a two term governor of arizona and she served as her state's attorney general before that and as its u.s. attorney. she is an avid hiker and an accomplished mountain climber. please join me in welcoming the secretary of homeland security.

[applause] >> good morning and thank you. i want to thank the council for hosting us. as a council member myself, it is good to be back here from the last time i was here with the governor haley barbour. in the department of homeland security, seeing somewhat of a large government department so we are undergoing efficiency review looking for ways to make sure that we spend every penny that we get wisely.

i thought that we will bring our dues here today the. the topics we are discussing are with us and our the challenge of a 21st century network. it is important that the council be apprised of what the department of common security is doing to meet those challenges. president obama has been very forceful about seeing the threat of terrorism and all of its complexity and bringing all of our resources not just the

federal government to bear against violent extremism. today, i will speak about the urgent need to refocus our counter terror approached and to make a shared endeavor. to make it more layered, network, and resilienct. to make sure that as a country, as a nation, we are at the point where we are in a constant and not a state of fear. the challenge is not is using federal power to protect the country but also in lifting a much broader response to the threats that terrorism poses. a wise approach to keeping america secure should be rooted in the values that if myelination. values like resilience, shared responsibility, if any of what is right.

these are the values that led us to fight and win two world wars that war on this flight and if dark days after the safed of a limited tax. we must embrace them again. -- and the dark days after the september 11th attacks. it starts at the american people, from there it extends to local law-enforcement, from there to the federal government, finally out beyond our shores. america's international allies can and do serve as partners in a collective fight against terrorism. in the last four weeks, i have traveled nearly 30,000 miles from islamabad to seattle in gauging partners in all of these levels.

we face a common thread and it requires a collective response. we must face the threat in a highly networked world. this world takes on many forms. the network that fires are critical infrastructure and facilitates commerce is now a target and is vulnerable to attack. we need to think about how to protect our values and security in a world where the tools for creating violence and chaos are as easy to find as purchasing music online. we also live in a mobile world with complex information. we cannot forget that the 911

attackers conceived of their plants in the philippines, plant in malaysia and germany, and recruited from yemen and saudi arabia, trained in pakistan and afghanistan. that is why our network must be built to leverage forced multipliers. the cooperation of our allies, the full powers of the federal government, the vigilance of the police on the beat and the. three sources of millions of our own citizens. -- and the untapped resources of millions of our own citizens. the department of homeland security was created in response to the 91the 9/11 attacks.

i met yesterday to discuss progress made since the release of the 9/11 report. there is progress towards a more secure homeland and it does not belong to one political party. much is also changed in the past six months since i became the third secretary of homeland security after my distinguished predecessors. let me give you a sense today of how i see the threat environment we are in >> dark about what we're doing to counter it -- we are in and talk about what we're doing to counter it. while the tariff threat is ever changing, it is critical to reiterate that the threat remains. the consensus view of the intelligence community is that the tariff threat is persistent

and evolving. in my role, this is something that i discussed with the president and the rest of the security team on a regular basis. we are constantly looking for ways to better share information up and down the response letter i just described, from individuals and communities to law enforcement, to the federal level. the broader context is that we have invested in our border and port security and we have reorganized the federal government to focus better on the threat of terrorism. at the same time, there have been continued attacks against our allies and interests. americans continue to be targeted in terror attacks. just two weeks ago, american

hotels with the target of bombings in jakarta that killed 8 people and injured six americans. six americans were thosamong those killed in mumbai. three were among those killed on the marriott hotel in islamabad. if 9/11 happened in a web 1.0 world, terrorists are in 2.0 now. more than just hardware, we need new thinking0. when we add a prominent computer hacker to our counsel, it helps us to understand our own weaknesses that could be

exploited by our adversaries. the threats we face are asymmetrical. terrorism has become privatized violence, it does not rely on links to an army or sovereign state. we often hear that this is what our globalized era looks like but what is most salient about today's environment is such it is also network and in a networked world, information moves everywhere all the time. in that world, everyone who was part of the network, meaning all of us, can enjoy the tremendous benefits but almost lost the ready and willing to learn about and help address the vulnerabilities that come with these benefits. the team we could on the field is to be bigger, better network and better trained. what are the implications for this world for the department of

homeland security? it means that we must continue to take on all had his approach to prepared this. it means to prepare for natural disasters as well as terrorist attacks. we need to comprehend and participate in the range of francfranthreats. given our responsibilities for enforcing our immigration laws and protecting our ports of entry, we are keenly aware that illegal immigration is not only a matter of sovereignty but could pose a national security threat as well.

potential terrorists could use a variety of ways to enter the country illegally, fake documents, visa overstays make this so. dh shares information about homegrown threatas abroad. last, but not least, we are spending considerable attention on the cyberworld. we retained the lead role in protecting the government's civilian sites while working closely with the private-sector but this range of threads shows is that while the shock and pain and images of 9/11 stay with us, the terror threat is even more decentralized, network to an adaptived and adaptive.

the terrorists in mumbai may use of cable phones, gps and even live television. we cannot hermetically sealed off our country from the rest of the world. for us to be the best in the world that we do, we have to multiplied the effect of our forces and at the same time promoting a global environment that is inhospitable to violent action ia extremismextremasism. the president has said there's more that unites us than divides us with the arab world. we want to build stronger relationships with arab, muslim american as well as south asian communities.

we want to share information with leaders in a timely manner and also become more culturally attuned to issues that members from these communities often face. what is the right response and what we doing? as i mentioned earlier, there are four layers and the place to start is the work of engaging the american people in our collective effort. i am often asked if complacency is a threat in the west. i believe the short answer is yes. i think a better question is this -- has the u.s. government done everything it can to educate engagand engage the american people. for too long we have treated the public as a liability to be

protected rather than an asset in our collective security. this approach has allowed confusion, anxiety, and fear to link her. let me stress this is no small matter. this is a first order issue for us. the consequences of living in a state of fear rather than in a state of compared this is enormous. we might be better prepared as a nation and we were on 9/11 but we are nowhere near as prepared as we need to be. there are aspects of countering the tariff threat that are inherently governmental. this marked government is one that knows what it does best and helps others as well. -- the smart government is one that knows what it does best. we want to take a closer look at how we can support and inform our greatest asset, individual citizens. you are the ones to know if something is not right in your

community, such as a suspicious package. three years ago, it was a store cloak that told authorities -- store clerk that told stories about men looking to duplicate dvd's. lasthis led to the arrest of some extremists that are planning to attack a base in new jersey. there was someone who is not properly screened. a passenger noticed this and spoke up and is prevented a gun from getting on board. there are simple ways for you as individuals and community and business leaders to engage.

we can become 1st presenters and responders. you can use ready.gov for information. you can get free training on basic disaster response. we need to find new ways to work with the private-sector to become more resilient to disasters of all kinds. a key piece is to secure the nation's critical infrastructure. this might sound just like a challenge for the government but the fact of the matter is a 5% of our infrastructure is owned by the private sector. -- 5085% of our infrastructure s owned by the private sector.

we must be more effective at defining our critical assets and providing for private-sector and their leaders with the knowledge and technical assistance to help them secure these assets. since 2003, dhs has issued more than $28 billion in grants to how secure critical infrastructure at the state and local level it has to be more than dollars, it is the active engagement of employers that work with us to identify resources and plan for ways to secure them. i recently appointed a task force to review our existing color-coded threat system. that was the systeor