There's a lot of political inside baseball in the conversation. I didn't see the 60 Minutes story the panelist allude to but caught some of the subsequent press coverage. My readers seem to be bright well-read people so I thought this might be of interest and assume they also will have some grasp of the issues involved. If not, well, skip this post and come back tomorrow for a review of Ed Rendell's new book.
As always, this is not intended to be an exact transcript but more a general overview of the comments made. Interested readers are encouraged to watch the entire footage themselves to the nuance and details. Fashionistas take note -- one of the panelists is wearing a really eye-catching suit. My apologies in advance for any errors or misconceptions.
SS: First Street and
Women in Government relations invite people to talk about political
intelligence, print together panel to talk about it. Heather Podesta of Podesta+ Partners, a lobbyist
and expert, Pat Cave of Cypress Grove, a practitioner, Robert Walker of Wiley
Rein, a legal expert, and Michael Mayhew of Integrity Research Associations,
co-author of an industry analysis. We’ll
start with general questions.
SS: What is the history of political intelligence?
RW: Political
intelligence has always been with us. It
first came up legislatively in Louise Slaughter’s 2007 bill. People really became aware of it because of
the 60 Minutes story. Is poke to one of
the Hill’s senior ethics attorneys recently and he had never heard of PI until
the 60 Minutes story.
HP: I knew something
was up in 2004 and 2005 when working on the asbestos bill. People would stand in line to hold spots in
hearings not for lobbyists or lawyers or unions but for hedge funds. They didn’t care what the bill said, they
just wanted to be the first to know it.
MM: PI has been around
as long as there have been investors.
Back in the 1980s Ivan Boesky wanted to know if Standard Oil would take
over Gulf Corp. the 2004/2005 asbestos
bill. The number of firms collecting
information has been growing since the 1980s, not just lobbying firms but
analysis and research.
PC: Business has been
around a long time. In 2000 [missed name,
an undersecretary of the treasury] testified about ending a line of credit for
Fannie Mae and Freddie Mac. Markets
cared more about banks than policy research.
Mike deserves a lot of credit for coining the term in the 2006 report.
MM: First a
definition: 1) by deliverable, what
customer receives, and 2) what is collected.
Policy research, typically
central bank policy. Their deliverable
was a report. All those other guys, PI
firms, deliverable is something else, typically legislative process. The STOCK Act talked about registering PI
firms. Saying only those talking to
hedge funds, etc. doesn’t include firms doing reports. More process than deliverables. But there is a difference between creating an
analysis and passing along information.
Important to come to terms with that.
SS: Question for HP
and PC. What is the difference between
lobbying and PI?
PC: If fits in
lobbying and disclosure act it is lobbying.
If not, then something else.
Cypress Advising is not a lobbying firm, it does advising. Cypress Advocacy is a lobbying firm. The contracts are clear. Advisory doesn’t disclose non-public information. LDA is a law that has evolved. The letter and spirit of the LDA. The letter & spirit of insider trading
law.
HP: Attention paid to
the letter of the law not the spirit. In
DC 1 in 10 people is a lawyer. Can parse
words, difference without a
distinction. I think it should all be
disclosed. Every 3 months I have to fill
out disclosure forms and err on the side of over disclosing. Others feel differently.
SS: Who besides
markets and Wall Street are clients?
MM: Corporations have
been subscribing to policy research for decades, for various purposes.
SS: Question for
Robert Walker. What is the impetus
behind the STOCK Act now?
RW: An obvious locus
was the 60 Minutes piece late last year and alleged fact of insider trading by
members of Congress not illegal. Broad
political and cultural question – why did that story resonate with people? So many people wanted to believe that it was
true, even though existing law did cover Congress and staff. Now it has passed and one must accept
it. Even if previous laws did apply
there was confusion. Now it is clear
these laws apply to everyone.
MM: The original STOCK
Act that had PI and insider trading by congress. Insider trading passed. PI was what Rep. Slaughter was most
interested in. Asbestos hearings. Many people didn’t know what was
happening. Registry didn’t happen.
PC: Law that confirms
law. Brought about by media stories
coupled with real insider trading like Galleon.
Some companies selling access to Congress. What you now confirm is that members of
Congress have a duty, law reconfirmed.
HP: The law had a
chilling effect on the industry. We need
a compliance system. Yes, media
reports. But industry had gotten very
bold. Industry hearing directly from
politicians. Emails, $10K to sit with
Rep. So and So. Being first to know can
mean hundreds of thousands of dollars.
Waiting for GAO / CRS reports.
Not until another “gotcha” moment, then Grassley language will fly
through Congress and be signed within a month.
MM: HP is right there
is a chilling effect with some investor clients. General counsel and compliance officers
reacting, 2 reactions 1) there is an issue, we’ll fire all PI firms and 2)
tried to do my diligence. Most are
struggling, just as many of you are with issue around “what is material information”
when you start talking about Washington.
Many of those firms are trying to figure it out. Confused, concerned. Don’t exactly know what to do.
RW: If there is
another story, HP is right, the Grassley language will fly through. Definitions are extremely broad. Potential chilling effect huge, beyond what is merited. That’s why, without putting undue pressure on
folks at GAO, I think the GAO study is of immense importance because we may think
we know what PI is but that is a long step from regulatory language. That report will be of immense importance.
SS: A question from
the audience –
Q: The whole chilling
effect and Grassley. Where do you see
media fitting in?
PC: There’s a fine
line between what I do and what a journalist does. I’m a registered lobbyist. We should expand registration in a distinct
way from LDA, lobbyist, lobbying firms and clients. In PI that’s a great start. There will be a year-long conversation with GAO. You can register a PI form. Should also register media. If you market yourself as a PI provider or
policy research provider you do what we do.
The media broadly distributes, no so in PI space. You do see “Political Pro” and B-gov,
CQ. Appropriate way to distribute
information. If I talk with a policy
maker I’ve disclosed that I’m a lobbyist.
Media does provide the same content – think about a Bloomberg terminal. LDA has exceptions, such as income, and
percentage of time spent on this.
HP: When you enter
office is there an understanding that you are gathering general information or
information of specific interest?
PC: It’s obvious that
I’m going to sell information. Is there
a difference between a lobbyist and an investment manager? Probably.
When you sit with a staffer of policy maker they know not to share
non-public information. Improved
registry would help.
SS: Passing of information
in meetings
RW: Back to media. I agree that many newsgathering agencies have
PI component but very wary of including them in registration. That would have a big chilling effect, esp on
confidential “leaks.” That would be too
big a price to pay. Apart from STOCK Act
both House and Senate have rules on exchange of information but patchwork and
incomplete. STOCK Act confirming
existing law. Important achievement.
HP: I agree, there is
a difference between PI and reporting.
PI hears something and calls one person, one client, reporters broadly
disseminate information.
MM: I agree with
PAT. Journalists who distribute broadly,
but there is a growing number of companies providing information to asset
management industry. If give blanket
exemption supporting an unlevel playing field, what delivery, how and to whom?
PC: Not saying all
media should register. Look at how LDA
differentiates. If pay more than $5K
must register. Most media would quality
under that exemption.
SS: Where does PI
industry go from here?
PC: Gives emphasis to
compliance, need to do it to the spirit and now the letter of the law. The industry is still new. I would like the industry to get more mature.
RW: GAO should be
part of the conversation. If we inform
process, we’ll tell them the problem and they’ll address it. Industry should have concerns heard.
MM: Industry has to
deal with chilling effect with some clients.
How to professionalize business. How
to protect self and clients. This kind
of information will come in the door.
What will you do? It shouldn’t be
scary that you collect non-public information.
HP: We need to watch
how folks in the industry react.
Activist role that some short sellers are playing in DC. Short sellers going to government agencies
and driving actions for sole purpose of driving down stock prices. In terms of registration, I am a registered
lobbyist, I see people out and about who aren’t talking to the same people I
do.
Q: What is material
information?
RW: Material
information is something people want to know for investments. If a committee investigates a company and
public doesn’t know but a staffer leaks it, that is non-public
information. Legislation is a tough
case. Say tax legislation affection a
small industry of one company would have material effect. Key area for focusing on. What is material information in Congressional
context. If in doubt, leave it out.
MM: Problem with materiality
is you only now it after the fact. If one
piece of information will drive investors to invest it is probably material.
Q: Bothered by regulating
flow of information from democratic organizations, the asbestos bill didn’t go
anywhere.
HP: Why not disclose
it? A lot of people made a lot of money.
RW: Insider trading
prohibitions would apply if information provided for a benefit. If no benefit intended shouldn’t be chilled.
HP: There are real
benefits for disclosure. Abramoff activities
came to light when people started asking question about his astronomical lobbying
earning. Press started to unravel the
story.
PC: Disclose and registration
will not prevent information sharing. If
you operate in this business information comes to you. I wasn’t working the asbestos information. If you get source information from one source
it is usually wrong. Congress re-stated
their duty. The chilling effect is
surgical; it’s good. You
have to police yourself. If one
source bury it – usually wrong.
Q: How is an activist
investor different from a lobbyist? What
about a company making an investment decision, would the company register?
HP: Quite
extraordinary to see what happened to for-profit proprietary schools. Short sellers went to the Dept of Education
and asked for investigation. One went so
far as to go to homeless shelters and get homeless people to say they had been
approached by these schools. Short
seller, who had personal gain at hand, asked to testify and trashed the industry,
shouldn’t those folks file lobbying reports?
It will always be hard to have definitions and require people to
disclose.
PC: Hard to argue
against that, I agree. Corporations
probably should register. The Grassley
Amendment sweeps up so much. Most people
come to Washington DC because money or some sort of benefit at stake. The Grassley language can be perfected. Points to better enforcement of LDA. If you’re advocating for an investigation or
a policy change you’re lobbying.
SS: Thanks panelists.