about impending threats. the review was under way and i mentioned it only to say that if a bettor more effective system can be found, that will be used instead of the current color- coded one. . . .

it is only as good as their ability to understand the information. i took a lead role in creating our state first law enforcement infusion center. in a typical fusion center, an fbi agent might be sitting next to a state highway patrol officer who might be sitting next to emigration customs enforcement who might be next to an agent from the dea. they do not just share of the share databases and techniques. they share ideas and experiences.

they build networks. this ensures the local law- enforcement has better information necessary to protect our people, neighborhoods, and infrastructures. fusion centers are and will be a critical part of our nation's homeland security capabilities. i intend to make them a top priority for this department. we have now moved three dozen analysts out to the field. as we build the fusion centers, we need to move analytical capacity to the beltway of the country. i will take this out of the tears in context for a moment. if a law enforcement agency in -- reports of drug seizures, that is a database. it is a piece of intelligence.

a whole range of agencies pull together in these fusion centers and can analyze that to understand what it means, how it will affect a particular neighborhood, and whether it foretells something larger. in addition to the seven the current fusion centers, the department will be collaborating with the department of justice and the fbi in more than 100 joint task forces across the country. you see how we are creating the network. individuals, private sectors, and infusion centers. then we move on to the federal role. since 2001, the united states government has invested in reorganizing itself to counteract the threat of terrorism. the ages of is it plays a critical role here. we were given the -- d.h. yes obviously plays a critical role.

we were given the instructions. we have an obligation to clear that. we are not the fbi. we are not the cia. we need to work in close coordination with them and with all agencies to have part in this portfolio. the way we are doing that is taking information shared amongst the beltway and improving the sharing of information up and down the ladder. state, local, a tribal communities. the addition of the ability to share the job is the value added since the department of homeland security. we also supplied protection at our ports. cbp is handling security at 327 ports of entry. the coast toward is pulling 95. patrolling 95 miles of coastline.

-- patrolling 95 miles of coastline. their actions are given from data and actual information. as we improve intelligence sharing and that to their own departments, we also improved intelligence sharing with travel partners. next our international partners. at the white is look, -- at the widest level, we have many partners internationally that need to be created. i mention traveling 3,000 miles over the last few weeks. here is what that is really about. dhs with the department of justice is brokering agreements with their allies in europe and around the world to share information on air travel, to

gather critical by metric information so we know who is in our country to scan a bad pitch effectively while still facilitating legal trade. -- to scan the baggage effectively while still facilitating legal trade. together what the department of justice, we have now forced agreements to prevent and combat serious crime with 13 international partners. there is more to do on this. i want to give you a window into how important these partnerships are. let me show you one example of our new approach. our growing relationship with mexico is part of a broader effort. it is designed to interject the smuggling and narcotics and

weapons, but also designed to recognize our homeland interests in the united states and mexico and its relationship. we need to make sure that mexico and the crime there are broken up. this direct interactive approach with our international partner is a new approach. we think it is critical to dealing with things like cartel violence. it also helps us ensure that violence is not coming across our border or weaken mexico's ability to be a strong partner with the united states. we are going will beyond what we have done in the past. we are inspecting southbound train cargo, cars and trucks, and helping mexico create an effective customs operation on

the southwest border which previously did not exist. let me close by going back to something i said earlier about people. in the end, what we really do is about people. we are a nation of more than 300 million. more than that, we are a nation of families, communities, organizations, and cities, suburbs. within these groupings lies in extraordinary pool of talent. we face a network entity. we must meet it with a network response. the job of securing our nation against the threat of terrorism is a large one that may never be totally completed. we have a much larger chance of success of restrengthen our own networks by enlisting the talent and energy of our americans.

countering the terrorist threat is not just the effort of one agency. it is one element of society. no or is it a consequence of what happens. it requires a holistic approach on all levels with all tactics and all elements in society. we need to be the very best at what we do. that means engaging and in power and our citizens to be part of our collective effort, at an effort aimed at prevention and of resilient response. when i hear the phrase department of homeland security, i think of us as a hub of a very large wheel. it involves every single person. thank you all very much. [applause]

here is a check. >> thank you for a terrific and comprehensive look at the terrorism issue. it reminded me i have not sent in my check get rid of i will do -- check yet. i will do the right away. i want to give the members an opportunity to have at you, but i cannot resist asking a couple of questions myself. aretha franklin is one of many to note that every chain has a weak link. when you -- >> i thought you said -- >> and that too. as you seek to create this networks of not just officials

of but individuals, how would you you bring the less adept or committed into the network so that we have across the country the kind of powerful, and involves a citizenry that you are talking about. >> one of the things we need to do is communicate that unfortunately the terrorist threat is not just focused on new york city or washington, d.c. or other urban areas. if you look at the last couple of weeks, the rest have been made in places like minneapolis and north carolina. better education about the bre adth of the threat is important. even as we educate, we need to

add a lot of the separation i'm talking about has multiple uses. this is particularly in terms of response. if you'd know or have planned with your family what you would do if an attack were to occur, that planning obviously has uses should you have a tornado or hurricane or other natural disaster. education brawly, but connected with preparation and tools. how you respond, individual, family, and mass? >> you alluded to the undeniable fact that terrorism can emanate from all kinds of places around the world and that intelligence is very important.

the number of possible threats is infinite to how you zero in on the most important ones. the resistance of people, let's say at the cia, to share with the fbi and vice versa is legendary. how are you doing getting them to share with you? >> let's talk about that. there has been a legacy of not sharing in some respects. that is a luxury we can no longer afford. we have a director of national intelligence. it demeans the head of the fbi or cia -- it means the head of the fbi or cia we will be meeting tomorrow and regularly have luncheons, just ourselves,

to make sure that we are effectively committing -- communicating the sharing of information. i think the fact that i as secretary homeland security see a daily intel brief not just from members of the department of homeland security, but also from the cia briefer to help ensure that critical intelligence is being shared. we are very intent on exercising how we handle intel and how we respond. there is a national level under way. it will test some of the sharing capacity, whether things are not being shared in whether responses are being incorrectly calibrated. personal interaction, de facto

interaction on a daily basis, and exercise of the three major techniques to improve and intelligence sharing environment. >> one more and then i will go to the members. any learning's from the swine flu situation that turned up to be much less bad than people feared? >> first of all, wash your hands. [laughter] we have had over the summer a lot of work done on the h1n1 flu. we anticipate it will be coming back this fall. it focuses on the younger population than seasonal flu. we will not have a vaccine available before the school year starts. one of the things we are trying to repair and a network and a testing some of the ideas is

empowering individuals and it involves preparation. it could be a more severe form of the h1n1 as it mutates as it travels then we saw less spring. that was perhaps a direct one. one important thing i might add is the h1n1 -- during that out break, there was an executive order that designates the secretary of homeland security as the official. this was an event that crossed many different agencies in federal government. use in the department of homeland security -- in a way,

it was taking not the lead operational role. hhs has such an important role. to make sure things are perfectly coordinated and communicated with the american people. >> i would like to invite the audience to join. wait for the microphone. identify yourself. one question, no speeches. gentlemen right here. wait for the microphone. >> hello. i was very is merrick of your comments. i heard -- and miring of your comments. i heard you speak several times to our citizens. are you suggesting we need to train our people to be more alert and watch more carefully

of their schoolmates are workers or neighbors or families? >> i think there is an important role that we can play in educating even our very young. if you are in an airport and you see a package left with no one around, that sort of thing but though i also think that we can do a much better job on educating people on how to handle themselves so they can protect themselves also is something were to happen. do we have a plan in that way or how we actually work that angle? if you are getting the gist of what i am saying, which means we need to collect a culture of collective responsibility where

every individual understand his or her role which goes along my saying that the more we repair not -- prepare, the stronger we are in the west fear you have. >> -- stronger we are and the less fear you have. >> thank you for your remarks. he says some the about infrastructure. 85% is privately managed for the the question has to do -- manage. the question as to do with the private sector. the layoffs have direct implications of protecting the public. payphones in new york city pratt kelly do not exist. at 9-1-1 -- practically do not exist.

cell phones are highly compatible. how would you broker that? >> in that situation, what you'd do -- and we are doing -- you do not want to continue that anymore. what is your plan for how people can be communicating with each other in this type of disaster that may occur? the point here -- and really shows how technology has changed rapidly -- the more we work together, the more we can share ideas of how we do use different types of technology. i think we have to assume that payphones and not only obsolete in new york, but they are pretty

much obsolete across the country and are going the way of the record album. >> way back there by the post. >> i am bill. given what you have learned on the job over the past six months and the magnitude of the threats or abuses may have occurred in the previous administration, do you think that the laws governing domestic surveillance need to be changed? >> i think that to the extent the message was carried out. it is much an implication of operation as legal authority, more de facto than doesejour.

we have to be careful. as i discussed a culture of awareness, individual prepared this, and the ability to lead by suspicious activity, there is a careful balance. we do not want to greet it challenge a culture of everybody's buying on each other. -- we do not want to create a challengcolter everybody spyingh other. that is not what we want. that is something that we all need to be cognizant of. we are building into the things we are doing not only consultations about celebrities -- civil liberties, but we also look at privacy and protection

of personal privacy those and how those concepts can be incorporated. >> back there. >> we were delighted when you were appointed the secretary. we are disappointed with the expansion of enforcement mechanisms that continue the bushisms of the past in regard to immigration. we have a broken immigration system. it is doing anything but making us secure. racial profiling is still a big problem. we did not hear much about protection against racial profiling or the restoration of due process and fairness.

we would really like to hear what you are expanding enforcement without fixing a broken immigration system? >> we are expanding enforcement, but in the right way. we have visited the whole issue of work side enforcement to focus on employers. the program you reference, we was created during the clinton administration and allow state and local law-enforcement to have an understanding with the federal government to have some immigration authority, otherwise it is exclusively federal. we did that because the previous m.o. use really have no standard accountability -- we used really

had in a standard accountability. it did not allow us to prioritize. they said we will redo all of them. when we do that we will expand it to another committee. that will give us some authority to really focus on it. one, those who are already incarcerated so we do not have a system where somebody breaks a criminal law and is then released to the public and then i.c.e has to go out and find them. that is an extraordinary amount of resources. two, really looking for gangs and criminal fugitives. we are already focused on those trees.

-- on those communities. we are training officers on how to use it properly so that the people finish their sentences, the deportation process can be done completely. i started this was i would predict when i was a governor of arizona. -- i started this when i was the governor of arizona. it is a really effective way to make sure that those types of situations go into the removal process. you may disagree with that, but i think is the right way to target a strong enforcement status burda in the overall law, i agree with you. i believe we ought to look at the full package. i cannot do that by myself. congress has to do that.

when the president met with congressional leaders he said he would like to move something through by the end of this year or beginning of next year. i am heavily involved with those efforts as is your senator. we need to work together to really look at why bills have been passed in the past. we need many other things as well. i would very much respect your ideas in that regard. >> are right here, please. >> you began speaking about a developing rules against terrorism and fighting terrorism that are consistent with bodies. is there any problems with developing citizens to of the collective responsibility to report on one another? where is the balance between

accepting people in your community and being a private attorney general? >> that is what i was saying earlier about being sensitive. that is where application can come in. what is something that should be reported and what is not? there are materials in a variety aspect of help with that kind of education. -- aspects that help with that kind of education. >> right here. >> my question is on the same delicate civil liberties issue that you have party dealt into two -- delved into. every report on domestic terrorists suggest that they made their contacts and have their activities in their

mosques -- it was in the mosques where they meet in plant and work. -- met and planned and worked. what can be done about educating those societies and alerting those people to the risks their communities and others face? is that responsibility one which resides in your department? is it shared? what can you say about that particular focus when we know that so much happens in such a restricted area? >> a couple of things. the direct answer is that sort of activity is primarily for the fbi. but i think we have to be very careful about providing a

religious system, because we have to be careful of profiling individuals. that is why how you develop intelligence that is actionable needs to be very carefully done and not restricted or done in that religious environment for the. where we can help is we work with leaders in a variety of communities, not just education, but really community outreach. if they can see that there is something going gone that is aimed at violent extremism or extremists attack, the bill comfortable working with law enforcement in a bid -- they feel comfortable working with law enforcement in advance. we had to be very careful about the free exercise of religion and profiling them.

>> in the response -- [unintelligible] you lay that out as being one of the frameworks of the effective response a. did responses. -- you laid that out as being one of the frameworks of the effective responses. [unintelligible] it goes a great distance in making sure that the inspector actually is not just looking at bilateral share treaties, but

generally feels he needs to get information and share with other nations. appreciate your thoughts and how closely you work -- i would appreciate your thoughts on how closely you work with the state department. >> we worked very close with the state department in the international environment. when i travel internationally, i immediately link up with whatever embassy or consulate is where i am going so that we can go to things together. when i met with the president of pakistan, the ambassador wars with me. we want to show that -- the master was with me. we want to show that there together and have a common message. that is an area where we can in

helping create a law enforcement presence that would take the place of a military presence part securely in certain parts of the country. -- particularly in certain parts of the country. it lists to be used in conjunction with the federal government. it was to train a civilian law enforcement i want to talk a moment on this. our ability as a nation to work with other countries on having not to say law enforcement but justice system that are civilian in nature as opposed to military, i think is very important. that is one of the things that we are seeking with in the department of homeland security, particularly when you are talking about how you do set up

a port of entry. how do you run it? what does it look like? what type of technology should you employed? what kind of training needs to be -- do you need to have? what kind of supervision do you need to have? how do you prevent corruption? how do you create public trust that the people who are running ports are not simply on the goal and can be paid off? that transition from military to civilian is where our department is playing a key role. >> one or two more. >> thank you for coming here today and sharing such an address with all of us. thank you for doing what is

arguably washington's most challenging jobs. adding to that challenge, as we know with safety and making a home handicapped accessible, the best opportunity to put resilience in the system is the design for the start of phase. the president is engaged in commitment to our infrastructure. we are rebuilding their country. to what extent is your voice on the security resilience issues able to be a part of those important endeavors and can we get it right in the early phase in some of coming in later? >> absolutely we can get it right. let me give you an example of that. in the stimulus money, that which is coming to the department of homeland security

is being used for the purchase technology and air force, for example, that will increase security capacity. you have a job creation stimulus at the same time. another example which men of dsl evident is the money that went to the department of transportation -- that may not be as self evident is the money that went to the department of transportation. there are design features that can be incorporated that enhance safety and security at the get go rather than having to pick up the pieces at the end of an event for the. there is a close interaction between our department who

specialize in critical infrastructures like that in the department of transportation and what we should look like -- look at in those projects. >> on behalf of the council, i want to thank you for a very great talk. >> thank you yoall. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] >> we are talking of healthcare tomorrow morning on "washington journal fell " our guests are david lightman and congressman nathan deal.

they will be working on legislation this week. earl pomeroy is part of the blue dog collision. "washington journal" live every morning 7:00 a.m. eastern here on c-span. >> he signed the declaration of independence. he was also murdered. q. in a -- "q &a" sunday on c- span. >> how was c-span funded? >> publicly funded. >> donations? i have no idea. >> government? >> 3 the taxes. >> public funding. >> policies been funded? america's cable companies created c-span as a public service, a private business initiative, no government mandate, no government money.

>> after his recent trip to afghanistan and pakistan, richard holbrooke and reporters questions about the political situation there. topics include efforts to train afghan security forces and in the upcoming election. from the state department, this is 40 minutes. what we have richard holbrooke back from his trip from afghanistan. we thought it was the time to give you an update on the situation in both countries as we do with the current situation of pakistan and also head toward the elections in afghanistan. thank you for coming.

>> i will be happy to take for questions. just identify yourself, please. >> following the funding commitments that the u.s. responded. -- commitment of the afghan national -- you had a couple from germany. >> are you talking but nukes? >i did not go to europe to give more commitments. with the expansion of the armed services, it is obviously necessary my job in this trip was not to go around getting a commitment. >> it is a general question, how sustainable is the expansion of the nass and strategy?

where do you seize the main part of the funding to come from? >> sorry, i miss understood this. it is absolutely essential that over time afghanistan will assume responsibility for its own security and combat troops drawdown. through economic assistance, training, we will continue to do this. the current force levels of police and army are clearly going to have to increase. we are in the middle of a election -- we are in the middle of an election campaign. it has been in one form or another since this administration took office. it is a question of legitimacy. no one was certain when the state would take place.

people were talking about mass demonstration. we focus on helping the afghans to help save lives. our military forces and our allies picked up the ball and began working closely with the afghan government to ensure the best possible election in difficult circumstances. as a progress, we put in place some of our programs. we have continued to support extensive training of the army and police. it is apparent that the current global -- level of security forces in afghanistan and not going to be sufficient in the long run. after the election, this will be a subject we will look at in conjunction with the new government. we will see what the needs are. we will see how we can support them. forgive me if i'm not too specific. i do wish to draw your attention to a couple of facts which i did not think enough public attention.

japan has not given suspicion -- been given sufficient credit for dealing with the fatalities of the entire country. the exact amount my colleagues can be. the european forces are sending police to train this is not an e.u organization. it is a collection of six countries. that is a tremendously positive development the reorganization now taking place is going to seek to consolidate police training, which has been scattered in so many different places. to answer your question, this is a very high priority. once we pass the election, it will be even higher.

>> if i may ask a question of pakistan. >> i define yourself, even if i know you. >> onslaught, i heard that you are interested in visiting swat and they cannot arrange security for you. >> that is correct. >> does that tell you something about the status of security of swat? >> i want to bury -- to very frank with you. i knew i would not be able to go there. i wanted to establish the limits of what was possible. as in the view has traveled with the no, would like to go as far forward as we are allowed to. the military said they really would prefer me not to.

then we picked another refugee camp which was a good one and we got to weather out. -- and we got wheathered out. i hope it will be available for the press. i would recommend air come down here and talk. what he said is exactly true. -- what you said is exactly true. there are international workers there. it isn't like nobody can go in. if somebody went in with heavy security and tons of journalists, including some of my friends, that would have been a problem for them i do not want to become a burden on people.

>> can you talk of the complications of the troops in india? >> there were no complications. i had three or four people in india. all one of them was going to be out of the country. i think we were in the air. when do we find out, ashley? >> it was basically when he was in route to back. >> i'm going to go back in mid- august. within the limits of indian independence, they are looking forward to my comments. >> do you say a rift in between you and india because there were reports in india -- let >> i

just answer the question. if there is a rift between india, i've been going there since 07 years old. it was the first place in the world for me. i have a very special feeling for it. i did not see any rift. all but one of the four people i used to see were out to the country. i talked to them on the phone. bob blakey had some talks that were very helpful. there is no issue here. >> the main question was, he knew give. can you give a little highlights about how pakistan is doing as far as security is concerned? >> the trip to pakistan was very

valuable, as they all are. i talk to leadership of the civilians of the military. i was -- this is a country facing a staggering number of front page story problems at one time. the number one subject from afghanistan in the people was the energy crisis. while we were there, there were dismissed from the demonstrations of textile workers demonstrating electricity. -- there were demonstrations of textile workers demonstrating electricity brita . the president's asked one of the experts to go out ahead of me.

want to underscore a point. separate from our trip, ambassador eyes and very -- eisenberry have been traveling to afghanistan -- pakistan fairly regularly just to consult with the government, including the pakistani army about making sure that this time around the pakistanis are ready for them. they know where the military operations are happening. they can prepare for anyth

ing. it their military operations push people the other way in afghanistan. the military discussions are helping to harmonize this explosive the dangerous area. it is hard to imagine a more dangerous area on the face of the earth. it contains al qaeda, pakistani taliban, afghan taliban, refugees. it is extraordinary how difficult it is. we are spending a lot of time working on that. each trip we have deepened the relationships. we also announced the disbursement of $165 million worth of american aid. i want to caution you. some the journalist got confused about this on our trip. we did not announce $165 million

of new aid. we announce the disbursement of existing aid. z!7&xñ hel. >> a sum of bin laden -- osamal. bin laden. >> osama bin laden, we did not see him on this trip. what? i do not know if your question is. are we going to capture him? if i knew, i would not tell. >> if you could, i would like to expand on the first entry gate, talking of the need for more afghan national army. >> and police. >> and police, exactly. there has been pressure on congress. there is the need for more aid. i would like to get your take on

what you think the total number should be, what the u.s. is capable of supporting, and to come as somewhat on this talk about whether there should be more u.s. forces into afghanistan as well. >> i cannot give you an exact figure for several reasons. one, it is under review. two, there are various numbers coming out. 3, the afghan government has to be a central part of these discussions and they have elections coming up in a few weeks. on the second part of your question, we have to [unintelligible] the telegram. >> i was wondering if you could talk more about the drug trade in the effort to shift to more alternative livelihood. as you said what you were on nearly destroyed, it seems to tell them is getting more money from the drug funding than it is

from outside funding. do you see support among the afghan people for this new effort? >> use of their getting more from the drug companies? >> no, they are getting more from -- >> outside. right. one of the most interesting things i saw on the trip was the first tangible evidence that one of the most important policies of united states since january 20 was beginning to show results. as you know, because we announced it several times and finely got the support --we are phasing out crop eradication. the united states in forces are not going to go around the system of participating in the destruction of poppy field

anymore. the united states have wasted hundreds of millions of dollars doing this. the cost have been estimated at $44,000 a hekka to destroy the poppyseed. if the afghans wish -- he said he could destroy a poppy fields for 100 -- by dollar -- we are not going to get it. all we did was a in a poppy farmers who were poor farmers who were growing the best cash crop they could. we are driving people into the hands of the telegram. this flies in the face of a lot of conventional folks.

why was it wrong? in other countries, mexico, colombia, thailand, that was the purpose of our policy. here the purpose of the policies to strengthen the government and help seek the tally them. -- seek the taliban. the amount of mone we are denying the taliban was 0. they were getting everything they needed anyway. we did this. we started out. we said, no one called for revocation. we will increase our efforts and agriculture. we saw the first indication that might work in this trip. those indications came from the

british and american forces in helmont. they targeted this. they made addiction their goal. they went after drugs. using modern technologies, they loaded with a cold drug marketplace is which -- located drug marketplaces which have poppyseed and sell them. they destroyed them. cnn wrote a very good piece on this. it showed the copies. i do not know it was run in domestic healy, but it was shown around the world. -- i do not know if it was run domestically, but it was shown around the world. the puppies were blowing up and burning. -- being poppies were blowing up

and burning. in fact, it was counterproductive. and all the trips i made, this was the most gratifying. it is nice of theories and policies. the second thing is agriculture. interdiction seems to be working. agriculture. the most well-received change in american policy has been our domestic upgraded agriculture. i would simply note that both senators obama and clinton proposed things like this last year when they were campaigning. it was a pleasure to take something proposed during a campaign and see it converted into a reality on the ground. everywhere i went, the -- -- the

realizations was dawning that we would get hundreds of millions of dollars from the agricultural development teams in some of the provinces run by the national guard. i spent some time with the texas agricultural development. they are doing all these terrific projects. it is combined -- it is a combined integrator with the u.s. department of agriculture. that this is the beginning -- this is just the beginning of it getting rolling. forget the long answer. i see this all interconnected. getting rid of crop eradication, increasing interdiction which hurts the drug kingpins and be corrected, and addressing what' matters, te

agriculture. we exported pomegranates. we even exported wine, pistachios -- afghans are great farmers predict the need help. we are going to do an overall overhaul. we will go in october. we will be the group. we have incurred some of you to going with them -- incurred some of you to go with them. >> associated press of pakistan. you said that your country and other powers should deal with the issue of ibp dp's -

>> do you mean what i said yesterday in brussels? >> do you find the european powers committed to help pakistan at this critical hour?

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 journa 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. @@@@@@@ @ @ @ @ @ @ @ @ @ @ @ @ ' 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 toee 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@@@@@) 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 effor 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

i'm suspicion of his motives but some of his activism i am in delawa 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. .

r 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 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

come in to discuss this and we listen to the problem that we have is sometimes in these discussions, he talked about the individual investments, and we have to be responsible to the largest investors. the desires of the individuals come through the intermediary, and the fund managers, and this message is very different than what some of these things are that you are describing. >> i will stop this conversation, thank you. >> professor? there has been a lot of talk about giving shareholders the right to vote on pay packages.

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 that way and specify that doesn'

>> so, i will ask a question -- let's go back to this issue of the state thing again. which, the longer term advocates of shareholder rights have said, if we can get shareholders the ability to go to the top, as the senator was alluding to, i asked the same question earlier. how do you feel about shareholders being able to say that we will not be in the domiciled, you will be in the state of texas -- >> if they want to change this and made me stand on one leg, we will have to stand on one leg. this is not a decision, this is

not a decision that is based on what he is advocating, this is the greater change of control. one reason why delaware is very attractive to corporations is that they have an infrastructure, that is very efficient. 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. >> we are talking about health care this morning. the guests are david lightman, tom harkin of iowa and nathan deal of the energy and commerce committee. and earl pomeroy, a groua blue g democrat. "washington journal" is live

every day at 7:00 on c- span. we have bruce chadwith on the -- chadwick on the killing that shocked a nation. >> how is c-span funded? >> publicly funded. >> i do not know. >> they get their funding through the taxes. >> public funded -- public funding? >> america's cable companies created c-span as a public service. no government mandate, no government money. >> the center for disease control announced on wednesday that certain groups of people will have priority in receiving the vaccine for h1n1. they expect to have 120 million

doses ready by october. this briefing is about 40 minutes long. >> hello. first our apologies for starting late. we will have more on the acdi meeting. dr.? >> good afternoon. today the cdc convened in an urgent meeting that was scheduled outside of the usual meeting scheduled. there were asked to look at the targets and the second was about crime lord is that action -- the second was about prioritization. the committee include 16

members, who are doctors and scientists, with experts in public health, and there is a public representative as well. this is part of the long-term plan, this is part of the challenge. this is one part of the broader development of the production. the committee had a healthy discussion, they made two critical recommendations. they have the initial focus for the [unintelligible] they had a greater burden of complications and they will be very helpful for the purpose going forward. they include pregnant women,

household contact of children under six months of age, health care workers and emergency medical service personnel, children and young people between the age of six months through 24 years of age, and non elderly adults with high risk medical conditions that increase the risks of complications. this was defined by the 2009 virus. these are the recommendations that will help the local authorities go forward with their plans and efforts. the second question was about prioritization. if the populations for whom the vaccine is recommended is larger than the amount that we will have, whether we should make this a priority.

they said that in general, under most circumstances we should promote this in all the focus groups. and doing this for some of them before others would not benefit the public. we have learned that when we focus on this, sometimes we have more of this left at the end of the season. this probably does not make sense in this circumstance. we're forced to do this to deal with these target groups. we also build a scenario that could be necessary if the original supply is very limited order there is not enough supply and demand. we came up with who was first in line. there were five groups, but this

is much smaller. the small group will not be used under most circumstances but we will have this if we need it. this includes pregnant women, household contacts of children under six months, a subset of the health care services personnel who have direct contact with infectious substances, children between the ages of six months and four years of age, and children 5 through 18 years old, who have risk factors that put them at a greater risk of complications. this is much smaller than the first, but we believe that the states will go forward. this is just one part of a broad plan, preparing for the virus

and other viruses that will be coming to a place near you. it is very important to remember that the seasonal vaccine is recommended for many people, and that the recommendations really need to go forward. we should be offering this as soon as this is available. and there are other steps involved with the decision making. there are other committees, there is a public engagement effort that is going to live for public information to understand the value in the communities about this and the clinical trials that will be launched very soon, some of them have started in other parts of the world. this will tell us more about what has been developed. everybody wants to know how much of this we will have.

but the influenza vaccines -- the production can be unpredictable. we are expecting the vaccine in the fall. how much will be difficult to say, but we have a lot of planning assumptions that are part of the bronze. . a very important part of the planning has happened, the evidence based rock -- process led to recommendations for people with a high risk to be the focus of the efforts and this is a public health community, and a public sector. we really want to do this going forward to protect our communities. right now i believe that we should move two questions. >> do we have a question in the room? >> i am from the wall street

journal. i wanted to ask about this. this brought group includes 360 million people and we also learned that the number of doses expected to be available in october is probably between 120,000,100 60 million. this will not be enough to cover the group. how do you see this playing out? >> that is a great question. it is important to have this be different from the number of doses that we have and what we need. we actually recommended the vaccine or 83% of the country. a huge number of people. only reach 40% of the people.

we have 120 million doses and i think about 280 million people are recommended for the vaccine. it is clear that if we use this demand as the expectation, we may have plenty of vaccinations right away. but on the other hand there is an uncertainty with this particular virus. we do not know what the supply or demand will be at any given time. they took this under advice and talk about things they could plan for. they came up with the just in case prioritization. the idea for having two low doses, we are planning for people to use two doses of this. we will find out if this is the

case. >> can we take one from the operator? what is -- >> can you talk about the over 25, the 25-64 and over, and an unrelated question, the issue that never goes away. will there be enough available for everyone under age 5 who wants to take the vaccine. >> thank you for those questions. the 25-64 year-old population includes people with greater

risks for complications and this is one of the populations that we hope will be the focus of the efforts, initially. the committee also the liberated against others who are healthy, without these conditions and who presumably did not have other conditions like this, and for the unaffected 25-64 year-old group, the committee recommended that after the focus, they should be offered the vaccinations and it should be important to address the demand in the target groups, but that help the adults will also be offered to the vaccine. the other focus was people 65 years old and over. these people have a higher risk of complications and it is very important that these people get

their flu shot, and they're actually very good at getting this. the outbreak so far has. that population, so they were voted on last. the idea is that after the younger people have been addressed, if the global circumstances and the information permit, it may be offered at that time. but this was a sequential group. the target groups and then the 65 years old and over group. we want these people to know how important that this is, but so far the virus has been sparing those people the second question was about another drug and the government has prepared at the doses for this, with needles and

syringes and there is a nasal spray, that does not have the substance in this. that is for the children to use, all the way through adults age 40. this will be available for the people who want this kind of medication. another question? >> thank you. doctor, one question just to clarify. when you talk about this, there is a discussion about how many grams can be offered, can this change depending on the additional information? >> the planning was that this would contain 15 grams and we

would use this, the amount that the seasonal flu contained, for this, so this is 15 micrograms. the planning assumptions are reasonable, and the food and drug administration is likely to consider this a change to substitute one virus strain for this virus, in terms of the foreign relations. there will be trials looking at this in a lower dose, and they will also be looking at the micrograms to see if we can get more, but i think that this dosage --

>> let's go to the telephones. >> i have a question. thank you for taking my questions. how do you expect the vaccination to be delivered? can this be received at the same time? >> thank you. some of the studies carried out, will look at the simultaneous administration of the seasonal vaccination. we assume that the seasonal vaccine will be available, and we want to encourage people to offer that, to receive that if you are one of the people recommended to get this. there will be no overlap with this being offered. it is likely that they can be

given together. for the time being that we are expecting, they can likely be given at the same time. it was clear from the recommendations today, how important they see this, and this is the base from which we expand, if you look at the efforts. >> dr., the committee took this off of the table today, so all of the recommendations are part of the license formulation. can you talk about a way that we could consider this, and the options that are decided? >> these are the components that are included to increase the response, and there has been discussion at this could be

dosed differently, and that this may bring in the immune response, and may expand the immune response, if this changes. we believe that th especially if ts increases early this year. we do not want people not to be able to access the vaccination from lack of insurance, and we do not want the clinics to go very slo ianfficiently because of the insurance. this is intended, that the formula of the vaccinations will go forward, and that they will be directing this to the private sector. we know that this may not be enough.

>> are there any other questions? >> the next question comes from u.s. news and world report. >> i wanted to talk about the public education effort. first, how you plan to reassure the public, who may be concerned after reading about the vaccine that was given, and i want to ask if you are testing this with clinical trials? >> i will do the questions in reverse. there are plans for pregnancy, e overseeing this effort. good information and communication is very important, particularly for something like this. there is a lot of concern in the spring, very charged issues.

the death of a pregnant women was very tragic and also the population with questions about the vaccinations. we have a communication and education program, but there is only so much information that we can no bounce -- safety before these go into people because these are not given to millions of people. this is not really hundreds of thousands or millions of people. to find this an area that have been in 1976, it is only when this goes out in large numbers. it is important to have a monitoring system and we want to interpret this very quickly and find out if this is a coincidence or real, and take action. it is important to have good information and no about the

vaccinations and have good choices. another question? >> my question -- i would like to know how dangerous this viruses for pregnant women? >> pregnant women have been affected disproportionately. they have a greater risk of going to the hospital. we do believe that when influenza strikes pregnant women, bad things happen. we have had a number of deaths of pregnant women. it is important for pregnant women with respiratory ailments, to get early treatment.

anti-viral medication may be lifesaving. it is also important for them to get the seasonal vaccination, and when this is available, the pregnant women should get this. they are at a high risk of bad complications. >> i am from the new york times. i wonder if you could clarify something that was said during the briefing, is obesity a risk factor? or was this not? >> the information is incomplete right now, that to the best of -- as we look at the patterns of disease, people who have obesity and people who do not, there is not as big a difference. but when we look at people who are extremely obese, a bmi over

40, they had worst complications than others. it is important to see the majority of people who are morbidly obese had other risk factors so they were often likely to have diabetes or chronic diseases. if we look at the group that only had morbid obesity, this is different. and let me clarify. >> they would not be -- >> they would not be a target. the committee reviewed the information on the risk factors, that were happening for people with this virus and they found similar patterns for people with influenza. most of the people who are

getting the hospitalization really do have an existing issue. many of the people with obesity have problems that would put them on the grit -- on the list. >> do we have any more questions? we will go to the line. >> >> your line is open. >> i did not hear the information that was referred to, with the press conference about obesity. underlying medical conditions did not include obesity? and they would not be a target population, even though some of them seem to indicate that the orderly obese do not have any underlying conditions?

>> the recommendations of the committee today stressed to use the available list of risk factors, that they have traditionally used for this. i do think that these issues remain under discussion and new information should be used for this. i think it is good for people to have an open mind about this. i would think that most of the people would be covered in the indications, -- >> this is a case on the web site? >> these cases -- i will say that they are on the web site because i do not want to mess a copy of this. this may include chronic lung disease, this may be included, chronic liver disease, diabetes and medications, pregnancy, these are the underlying conditions and there is another

set of conditions that are contact related. this is the majority that i have listed. i think that we have a conversation in the room? >> the potential for confusion is through the roof, and i was wondering, are the people coming in and what are people told as they are coming in? only 15% of pregnant women are given the immunization, scanty is the word that he used about this. how do you even talk to the patients? what do you would bypass the doctors to say to get the right people? >> this is a -- this is a good question. i speak to people about this all the time. most of the people did not even recognize that they are at risk.

it is important for health care workers to have a great understanding. it is important that they get the vaccination, when this becomes available. they are the front-line. as a provider with an elderly person coming in to see me, i would recommend this right now and say that, from most of what we have seen so far, we are probably at a very low risk for this. that is the best information that we have. it is important to be offered this as soon as this is available and as the information is changing, we will be adjusting be advice. >> we will take one more question. >> the next question -- >> can you explain what this is

about six months that makes this contact? >> children under six months are not able to take a vaccination directly. they have a high risk of being hospitalized, and because they cannot be directly protected, the strategy is to protect people around them to keep them from spreading the virus. four other vaccinations -- four adults, we really want people around young children to be protected, so that the child under six months can be protected. this will be for the household contacts of these under six months, to protect the baby who would not otherwise be given a

vaccination. >> this concludes the briefing. thank you to all of you who came in. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] >> today on c-span, president of obama talks about health care in virginia, and then a discussion about health care policy on "washington journal." and then we have coverage of the united states house as they continue on the legislation for the health care bill. >> join