Statement of the Council of Institutional Investors in Response to the Report of the Committee on Capital Markets Regulation

WASHINGTON, Nov. 30 /PRNewswire/ -- The Council of Institutional Investors disagrees strongly with the Committee on Capital Markets Regulation's assertion that overzealous regulation is stifling U.S. competitiveness. We also believe that many of the panel's recommendations, if adopted, would undermine the effectiveness of market watchdogs and weaken critical investor protections.

However, we commend the committee for acknowledging the importance of shareowner rights and recognizing that the U.S. capital markets need to strengthen these rights. While we support the committee's recommendations in this area, we think that further steps should be taken to safeguard shareowner rights. Accordingly, we encourage the committee to:

  * Urge all corporate boards, not just those with classified voting
    structures, to obtain shareowner approval before adopting "poison pill"
    anti-takeover measures;
  * Encourage all states to change their corporation laws to require
    majority voting for directors; and
  * Call on the Securities and Exchange Commission to ensure that
    shareowners have some ability to nominate their own board candidates to
    be included on management proxy ballots.

The integrity and efficiency of the U.S. capital markets are vitally important to the Council of Institutional Investors. Our members have a significant, long-term commitment to the domestic marketplace. Council members and other investors shoulder the costs of legal and regulatory inefficiencies. But they also suffer when rules fail to protect investors. "We support efforts to address market inefficiencies, so long as they do not put investors at risk," says Ann Yerger, the Council's executive director.

The Council agrees that the SEC and the Public Company Accounting Oversight Board should ensure that Section 404 of the Sarbanes-Oxley Act is implemented in a way that is risk-based and cost-effective. We applaud their current efforts to achieve these goals. We are optimistic that the SEC and the PCAOB will fix the implementation problems with Section 404, and confident that there will be no need to exempt the smallest U.S. publicly traded companies.

While the committee raises legitimate questions about the level of regulation and litigation, we think it views these issues through far too narrow a prism, by focusing primarily on the market for initial public offerings. IPOs, while a key source of revenue for Wall Street investment bankers, are not the sole, nor the best, basis on which to judge the health of the U.S. economy or the appropriateness of U.S. rules and laws. And the committee's contention that fear of lawsuits and excessive regulation, particularly costs associated with Section 404, have driven the decline in IPO listings is off-base. The U.S. share of the IPO market peaked a decade ago, long before Sarbanes-Oxley and other post-Enron reforms. Several factors have contributed to the erosion of U.S. dominance of the global IPO market, including:

  * Privatization of state-owned enterprises in emerging markets (Not
    surprisingly, governments selling off such businesses often prefer a
    listing on their home exchanges);
  * High U.S. investment banking fees relative to underwriting fees on
    European exchanges; and
  * Growing globalization, which has increased the sophistication of
    emerging markets.

U.S. markets enjoy the lowest cost of capital. The amount of money raised by foreign companies in U.S. IPOs has grown since Sarbanes-Oxley was enacted in the wake of a shocking series of corporate scandals. In the first eight months of 2006, it hit $5.8 billion, the highest level since 2000. Rigorous U.S. investor protections are a boon, not a bust, for our capital markets.

The Council of Institutional Investors is a not-for-profit association of 140 public, union and corporate pension funds with assets exceeding $3 trillion. The Council works to educate members and the public about corporate governance, and to advocate for strong governance standards on issues ranging from executive compensation to the election of corporate directors.