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House Financial Services Subcommittee Hearing on Capital Markets and Worker Protections During COVID-19

House Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets 

“Promoting Economic Recovery: Examining Capital Markets and Worker Protections in the COVID-19 Era”

Tuesday, July 14, 2020

Witnesses

  • The Honorable Dr. William Spriggs, Chief Economist, AFL-CIO; Professor of Economics, Howard University
  • Anne Simpson, Director of Board Governance and Strategy, California Public Employees’ Retirement System
  • Camille Busette, PhD, Senior Fellow and Director of the Race, Prosperity and Inclusion Initiative, The Brookings Institution
  • Neil Bradley, Executive Vice President and Chief Policy Officer, Chamber of Commerce of the United States of America

Opening Statements                   

Chairman Brad Sherman (D-Calif.)

In his opening statement, Sherman focused on the current business and corporate governance practices that have been adopted in light of the COVID-19 pandemic. Sherman criticized the amount of corporate stock buybacks over the last three years and pointed out these funds could have provided much needed relief for those currently unemployed. He stated that while the CARES Act provided the Federal Reserve some guidance on how to allocate funds, it is clear in his view that the money was not to be used for stock buybacks. Sherman also emphasized the importance of providing paid sick leave.

Ranking Member Bill Huizenga (R-Mich.)

In his opening statement, Huizenga discussed the overall movement of the capital markets throughout the COVID-19 pandemic. He highlighted the early episodes of market volatility but stated that the Securities and Exchange Commission (SEC) has been closely monitoring the performance of the markets. Huizenga emphasized the importance of focusing on policies and reforms dedicated to enhancing growth. He stated that policy should help create an environment conducive to entrepreneurship and innovation as well as remove unnecessary obstacles created by regulation. Huizenga concluded that the strength of the markets is vital to long term economic growth and that easing current regulations will help the United States compete on a global stage.

Chairwoman Maxine Waters (D-Calif.)
Waters discussed the importance of an equitable recovery as the nation emerges from this public health crisis. She criticized companies that received federal aid for not protecting front-line workers while at the same time continuing to pay executives. She continued that many measures passed by Congress in response to this public health crisis, such as provisions related to unemployment insurance and eviction or foreclosure moratoriums, are expiring. Waters concluded that without extensions of these programs, American workers will continue to face increased hardship.

Testimony

The Honorable Dr. William Spriggs, Chief Economist, AFL-CIO; Professor of Economics, Howard University

In his testimony, Spriggs stated that people are beginning to hoard their money due to the concern that they will run out of cash. Spriggs explained the threats and challenges facing workers, commenting on the safety of their working conditions and sick leave policies. He said that most workers feel as if they will be fired if they comment on health and safety violations. Spriggs concluded that Congress needs to work on ensuring that workers are safe, specifically requesting that Congress pursue legislation related to sick leave.

Anne Simpson, Director of Board Governance and Strategy, California Public Employees’ Retirement System (CALPERS)

In her testimony, Simpson explained that CALPERS manages around $4 billion in global assets and is the largest defined pension fund in the United States. She noted that as CALPERS manages retirement funds, it is a long-term investor. Simpson highlighted the types of capital (natural, physical, and human) that she views as necessary for long-term investing. She then provided recommendations for human capital disclosures, specifically highlighting the need for disclosures that grant increased insight into the stability of the work force, the safety of the work force, the average hours of training per employee per year, race, gender, ethnicity, as well as standardized measures of employee satisfaction. Simpson concluded that reporting has not kept pace with the changing economy and needs to be better so that investors can more correctly assess risk.

Camille Busette, PhD, Senior Fellow and Director of the Race, Prosperity and Inclusion Initiative, The Brookings Institution

In her testimony, Busette spoke about the importance of positioning the United States for an equitable and robust recovery. She stated that the COVID-19 pandemic has triggered the deepest economic downturn since World War II, adding that the hardships are not being felt equally as minorities and low-wage workers have experienced the most challenging economic conditions. Busette pushed for crafting policies that address the particular characteristics of the current recession and emphasized that the impact these policies have on minorities should be analyzed. She concluded by highlighting the need to close the racial wealth gap, improve opportunities for low-wage workers, and raise the federal minimum wage.

Neil Bradley, Executive Vice President and Chief Policy Officer, Chamber of Commerce of the United States of America 

In his testimony, Bradley stated that this crisis has been the deepest and swiftest economic contraction on record. He explained that the nation has faced many challenges during the past decades including asset bubbles, market failures and terrorism, but this pandemic, in terms of economic contraction, is among the most challenging. Bradley emphasized the need for a more level playing field and added that the Chamber is trying to help craft a more equal economic system. Bradley also discussed the fact that Americans are responding to this crisis by creating new businesses and job opportunities, saying that these new businesses need better access to capital above all else. Bradley concluded that all relevant parties need to work together to provide increased capital for entrepreneurs in order to help mitigate the jobs lost during the pandemic.

Question & Answer

Capital Markets Regulation

Rep. Ann Wagner (R-Mo.) began by criticizing the legislation attached to this hearing and asserting that excessive regulation would unnecessarily increase costs for real investors as well as small businesses. Bradley agreed that burdensome regulation will inevitably stifle the growth of small businesses and reinforced the need to adapt the current model of providing equity to small businesses in order to better serve the needs of all companies. Rep. Bryan Steil (R-Wis.) reiterated the urgency for pro-growth policy and pushed back on policies calling for increased regulation on already strained businesses.

Reps. Jim Himes (D-Conn.) and Juan Vargas (D-Calif.) both noted that the banking system is well capitalized and that the reforms embodied in Dodd-Frank are responsible for the strength of the system throughout this pandemic.

Stock Buybacks

Waters criticized companies for engaging in stock buybacks throughout the COVID-19 pandemic, especially those companies that received federal support. Rep. French Hill (R-Ark.) criticized efforts to limit any individual company’s capital allocation, including stock buybacks.

Rep. Sean Casten (D-Ill.) summarized H.R. 6339, his legislation to “temporarily ban stock buybacks until the impact of COVID-19 on the American financial system has ended” and criticized the Tax Cuts and Jobs Act for contributing to the 2018 increase in stock buybacks.

Disclosures

Reps. Carolyn Maloney (D-NY), Vargas and Sherman asked about the importance of human capital management disclosures as well as ESG disclosures. Simpson summarized CALPERS’ investment strategy and the need for reliable, consistent, timely, verified information regarding human capital management performance. She continued that climate risks serve as critical considerations when making portfolio decisions. Sherman noted that there is significant work to be done in terms of defining the terms on both the balance sheet and income statement. Maloney specifically spoke in support of the Workforce Investment Disclosure Act and the need for detailed information on human capital management policies

Sherman also inquired as to the benefit of requiring companies to disclose what “tax-haven” countries they operate in as well as which countries they have the bulk of their employment in. Spriggs concurred and agreed that such a policy would be both helpful and timely.

Steil criticized the imposition of additional reporting requirements, highlighting those related to ESG considerations, without any regard to materiality. In response, Bradley concurred that many of the disclosure requirements outlined in the legislation attached to this hearing are intangible, and thus extremely difficult to accurately measure and report.

COVID-19 Relief

Huizenga asked the witnesses for their recommendations as Congress crafts the next round of COVID-related legislation, taking the opportunity to highlight the Patriot Bonus Tax Credit Act. Bradley stated that blanket extensions of all the provisions put forth in the CARES Act is not the best path forward and recommended that Congress act in a more “surgical” manner. He also recommended the targeting of unemployment benefits much closer to what any given individual actually earned from working.

Stivers discussed the importance of improving the ability of small businesses to access capital, especially so given the challenges that small businesses are facing due to COVID-19. Bradley agreed that this should be a priority in the next round of COVID-related legislation and praised Stivers and Sherman for their work on this front.

Unemployment

Reps. David Scott (D-Ga.), Greg Meeks (D-N.Y.), Katie Porter (D-Calif.), Alexandria Ocasio-Cortez (D-N.Y.), Waters and Maloney highlighted the disproportionate economic impact of COVID-19 on women and minorities. Busette offered two recommendations to address these unemployment inequities as well as the racial wealth gap: 1) ensuring that the Federal Reserve is charged with reducing the black unemployment rate, and 2) increasing financing for minority- and women-owned small businesses.

For more information on this hearing, please click here.