The Motely Fool’s Testimony on Corporate Governance and Shareholder Empowerment

By Motley Fool Staff, Motley Fool, April 21, 2010

// Today at 10 a.m., Rep. Paul Kanjorski, D.-Pa., chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises, held a hearing on Corporate Governance and Shareholder Empowerment dealing with many of the same issues discussed in our coverage of a proposed Shareholder Bill of Rights. What follows is the official written testimony The Motley Fool submitted to the subcommittee.

Testimony From Tom Gardner, CEO of The Motley Fool Holdings, Inc., Before the U.S. House Financial Services Subcommittee on Capital Markets, Insurance, and Government- Sponsored Enterprises, April 21, 2010

Mr. Chairman and members of the Subcommittee, I want to thank you for the opportunity to offer testimony for the public record. 

The Motley Fool has a long history of advocacy on behalf of the 63 million American shareholders of public companies. We are a private corporation based in Alexandria, Va., just across the Potomac River from Washington. But we note that we are not an industry or consumer advocacy group, nor are we a political action committee. In fact, we have engaged in legislative or regulatory debate only under two conditions. The first is when we have been asked to provide our expertise, including our service on the Securities and Exchange Commission’s Committee to Improve Financial Regulation, or our testimony on the need for greater transparency in mutual fund fees and on the collapse of Enron.

The second is when we have believed the rights of individual investors are at stake, as we did when we publicly pushed for the passage of Regulation Fair Disclosure in 2000.   Arthur Levitt, then the Chairman of the SEC, publicly credited The Motley Fool with helping ensure the passage of Regulation FD, marking one of our company’s proudest moments.

The Motley Fool views poor corporate governance — regardless of its source — as a drag upon our collective prosperity. There is a natural, inevitable tension between the interests of company managements and their outside shareholders. Our interest lies in promoting regulatory and legal regimes that both allow and incent boards of directors to assure that company managements make decisions that optimize the benefit to their shareholders, the owners of their businesses.

We believe that shareholders will benefit most where there is a healthy balance of power between shareholders and management, overseen by the boards. At present, executives at American public corporations can all too often alter this balance of power to their benefit, and to the detriment of long-term shareholders, through their influence over the constitution of corporate boards of directors. Often, management has virtually no checks on its practical ability to appoint the board which then oversees it, which we believe falls woefully short of the ideals of checks and balances upon which our country was founded, and upon which the corporate entity relies. Aspects of this legislation [H.R. 2861] promise to restore some of that balance.

We’d like to address four prevalent corporate governance practices that we feel have failed to serve the long-term individual investor….(continue reading)

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