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Issue 17 : Performance Issue

An Interview with Tom Quaadman

tom quaadman
Center for Capital Markets Competitiveness

Tom Quaadman is the vice president of the U.S. Chamber Center for Capital Markets Competitiveness. The Center advocates legal and regulatory policies for the U.S. capital markets to advance the protection of investors, promote capital formation, and ensure U.S. leadership in the financial markets. Tom develops and executes strategic policies to implement a global corporate financial reporting system, address ongoing attempts of minority shareholder abuse of the proxy system, communicate the benefits of efficient American capital markets, and promote an innovation economy and the long-term interests of all investors.

Prior to joining the Chamber, Tom was chief of staff to Congressman Vito John Fossella Jr. (R-NY) from 1997 to 2008. In that capacity, he helped establish the Republican Policy Committee Task Force on Capital Markets, Economic, and Information Security to develop a legislative program on economic competitiveness.

Tom graduated cum laude from New York Law School and is a graduate of the College of Staten Island. He is a member of the New York and Connecticut state bars. Tom and his wife, Tara, and their children, Creighton and Alexandra, reside in Alexandria, Virginia.

Tom, tell us about the U.S. Chamber of Commerce and your role there. What are the main goals you and the Chamber want to accomplish?

Tom Quaadman: : The Chamber is the largest trade association in the world, and we represent every type of business and industry. The Chamber, throughout its 102-year history, has worked on many issues of importance to the business community. In 2007, the Chamber established the Center for Capital Markets Competitiveness (CCMC) to advocate for financial regulatory reform and focus on issues related to capital formation, corporate governance, financial reporting, and risk management. While the 2008 financial crisis and the subsequent response broadened the number of issues we work on, the core mission remains the same.

My job is to help craft policy positions for the Chamber in these areas, develop strategies to implement them, and advance these positions before domestic and international policy makers.

Serving 3 million businesses must be tough. Many of them probably have competing interests. How does the Chamber handle this and serve all of its members?

Tom Quaadman: While there are issues with competing interests, there are fundamental issues that are common to private businesses in a free enterprise system. Businesses must have efficient capital markets in order to operate and grow. Businesses must also have access to opportunity in order to developinto larger businesses, and through reasonable risk taking, also have the right to fail. Through that lens, there is more that unites than divides the business community. That is the sweet spot that allows us to be a vocal and effective advocate for our members.

"That we all live in a global economy is not a cliché. It’s a reality."

One of your big goals is to help develop policies to implement a global corporate financial reporting system. Tell us why this is so important and what progress you’ve made.

Tom Quaadman: That we all live in a global economy is not a cliché. It’s a reality. We have multi-national businesses that operate in dozens of countries and Main Street businesses in the United States that export overseas or rely on foreign companies as suppliers. While many of our financial firms operate overseas, European and Asian banks are important players in the United States and provide liquidity for American businesses.

As a result, trade has exploded and capital is no longer hemmed in by borders. Consequently, cross-border coordination and cooperation between regulators is integral for such a system to work. Additionally, common financial reporting languages are important for investors and businesses in this global environment. We were on a path toward achieving such a system, but the 2008 financial crisis and other bumps in the road have either made for uneven progress or for accounting convergence to stall.

Ultimately, the marketplace will help to drive progress, and with the deepest capital markets, the United States will remain the key player in such efforts.

In your bio, it states that you’re responsible for, among other things, addressing ongoing attempts of minority shareholder abuse of the proxy system. We’ve seen the impact of shareholders grow over the last several years. Why is this an important issue? What should be done to fix this?

Tom Quaadman: The public company model, as developed in the United States, has been the greatest wealth and job creator in world history. Yet since the burst of the tech bubble, we have seen a steady and consistent decline in the number of public companies in the United States. When entrepreneurs such as Michael Dell say that they will never again operate a public company, then you know we have real trouble.

The question is “why?”

As always, there are several answers. The SEC has been unwilling or unable to modernize corporate disclosures and delivery systems to meet the needs of a 21st-century marketplace. Financial stability initiatives, such as Dodd-Frank and Basel III, have reduced the role of market making, which is critical to public company capital formation. And we have also seen the corporate governance systems used to advance political goals and agendas unrelated to corporate management and growth. The Manhattan Institute recently found that union-sponsored shareholder proposals and contested director elections are concentrated in industries with ongoing labor organizing campaigns.

This tyranny of the minority incentivizes investors to put their money where they can get a solid return without the hassle. Unfortunately, when decisions like that are made, investors, workers, and businesses lose out.

We have a chance to make sure that the corporate governance system is a fair one that represents the interests of a corporation and the majority of its shareholders on a long-term basis. However, if we do not achieve this goal, we will all be hit with the economic cost. Clear rules of the road that are fairly enforced are an important part of that solution.

In a blog post in June of 2014, you raised concerns regarding proxy advisors, particularly their conflicts of interests. The Chamber also released a best practices report for proxy advisory firms in 2013. In your post, you mention the possibility of the SEC regulating these firms. What kind of regulation do you think is necessary?

Tom Quaadman: The guidance released by the SEC in June 2014 was an important first step in creating oversight over proxy advice. Many firms use proxy advisory firms as one set of data to use in determining how to vote their shares. However, academic studies have also demonstrated that the two advisory firms that dominate the field hold significant sway over a substantial portion of shareholder votes and develop voting policies and recommendations with little or no transparency or process.

What are the best practices for companies in dealing with proxy advisors?

Tom Quaadman: The SEC guidance is a start to addressing some of the flaws in the system by requiring disclosure of conflicts of interest and ensuring that advice correlates with the economic interests of clients. This past January, the Chamber released a white paper on how business should interact with proxy advisory firms under the new SEC oversight regime. The white paper can be found on our website.

You previously worked as chief of staff for a congressman, where you helped pass the Investors Capital Markets Fee Relief Act. What was it like serving in Congress and dealing with this issue? What were the challenges you faced in getting this passed while working for the government?

Tom Quaadman: During the 10+ years I had the pleasure of working on Capitol Hill, I learned a great many lessons. However, the biggest lesson I learned was that you have to work with people on both sides of the aisle if you want to get something done. The Investors Capital Markets Fee Relief Act was an example of how bi-partisanship can get a seemingly difficult issue over the finish line. You can only get things done if you are willing to communicate and try to bridge philosophical differences through consensus building.

"Young businesses— rather than small businesses in general—represent the most reliable, consistent source of job creation."

How has that experience helped you with your position at the Chamber?

Tom Quaadman: Many of the issues that I work on have traditionally been non-partisan. However, recently, we have witnessed a willingness to sacrifice the public good on the altar of political gamesmanship. We may have been able to get away with that in the past when the United States was the unquestioned economic king of the global hill, but that position is increasingly being threatened, and we have to compete. We must recognize that and act accordingly.

We’re starting to see the Presidential race ramp up with more people joining the race. What impact do you see the upcoming elections having on corporations? Are there issues that will likely be a hot topic? What effect will this have on any legislation that is trying to be passed?

Tom Quaadman: The Chamber gets involved in House and Senate elections, but not the presidential. Nonetheless, elections have consequences. Since 2008, the long-term economic growth rates are turning downwards for the first time, imperiling the standard of living for future generations. New research shows that the country’s rate of new business creation has dropped by more than 30 percent during the recession and has been excruciatingly slow to bounce back. The consensus among economists is that young businesses—rather than small businesses in general—represent the most reliable, consistent source of job creation. Small business, historically, creates about two-thirds of our nation’s net new jobs. Small firms employ almost half of the private sector workforce, and they make up about half of our nonfarm gross domestic product. They are a major source of both innovation and economic stability, not to mention opportunity for upward mobility.

So we need to have an honest debate on how to encourage growth and job creation. We need to push for an agenda that builds upon the JOBS Act to spur IPOs, understand the cumulative impacts of regulations to address areas of over-reach, and finally, streamline our New-Deal era regulatory system so that businesses have clear and understandable rules of the road in a 21st-century economy.

Any final thoughts you would like to share with our readers?

Tom Quaadman: It is critical for business leaders to pay attention to issues that can impact their businesses and advocate for their interests before the ink is dry on a law or regulation. Too often, political interests seek to increase their power base or push agendas unrelated to the overall economic well-being. As a result of the Dodd-Frank Act, we have provisions that allow a new entity, the Financial Stability Oversight Council, to have the power of life or death over businesses, and the Federal Reserve to become the largest life insurance regulator. Additionally, we have new disclosures, such as pay-ratio or conflict minerals that may make people feel good, but provide no useful information to investors and increase the clutter that turns investors away from public companies. Those are just four issues in a 2,000-page bill.

Staying on the sidelines won’t make things better, and the next several years will determine if we can get things back on track. Not easy to do, but as the old saying goes, you have to be in it in order to win it.

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