Policy and Legal

Policy and Legal

NAM Sues SEC to Maintain Proxy Firm Oversight

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The NAM is stepping up to protect a hard-won victory on an issue critical to public company governance—oversight of proxy advisory firms.

The background: Proxy firms advise institutional investors (like retirement fund managers) on how to vote on the policies of the companies they invest in. The problem is that the two main proxy firms—ISS and Glass Lewis—have generally operated without any oversight, and as a result, their work has relied on questionable methodologies and ignored conflicts of interest. These issues have often caused problems for manufacturers and their shareholders given the power these firms wield.

  • Last year, following years of advocacy by the NAM, the Securities and Exchange Commission finalized a rule that provides targeted oversight of these firms. The rule requires that proxy firms disclose conflicts of interest and create procedures to give companies a chance to respond to their recommendations.

The problem: Following the change in presidential administrations, the SEC announced that it is taking steps to revise or rescind the rule that was finalized last year. On top of that, it has suspended enforcement of the rule during the review process and plans to prevent many provisions from going into effect as planned on Dec. 1.

Our move: The NAM is filing suit against the SEC for refusing to enforce the rule without going through the official process to change or replace it, as required under the Administrative Procedure Act. Agencies cannot set aside regulations they happen to disagree with, and the NAM is contending that the SEC has acted unlawfully by effectively rescinding the rule without inviting public comment on its impact on market participants, including manufacturers. Of course, the NAM also intends to fight any effort to revise or rescind the rule under normal procedures, but that comes later.

The stakes: If the NAM wins the suit, the SEC will have to leave the rule on the books until it comes up with substitute regulations through notice-and-comment rulemaking, and proxy firms will have to comply with the basic safeguards required under the rule.

The last word: “The SEC’s rule on proxy advisory firms was a victory for manufacturers, but also for accountability and transparency,” said NAM Senior Vice President and General Counsel Linda Kelly. “The NAM intends to stand up for this rule, to hold the SEC to its responsibilities and to ensure that manufacturers on the public market and manufacturing workers with retirement savings are protected from proxy firms’ outsized influence.”

Press Releases

Manufacturers Fight SEC’s About-Face on Proxy Advisory Rule

Washington, D.C. – The National Association of Manufacturers filed a complaint in federal court against the Securities and Exchange Commission for its nonenforcement of the lawfully adopted 2020 final rule on proxy advisory firms—unregulated third parties with outsized influence on shareholder votes and manufacturers’ corporate governance policies.

“The SEC is changing course, attempting to suspend a commonsense rule that enhances transparency into the work of proxy advisory firms without any opportunity for public comment by the NAM or anyone else,” said NAM President and CEO Jay Timmons. “When the SEC finalized this reasonable, light-touch regulation, manufacturers strongly supported these necessary reforms because they protect the interests of manufacturing workers, retirees and everyday investors. The NAM Legal Center is filing suit to protect manufacturers from this unlawful about-face and to ensure that this rule stays on the books.”

Background:

The NAM has long advocated increased oversight of proxy advisory firms—little-known, unregulated entities that exert enormous influence over publicly traded manufacturers. These firms have significant conflicts of interest and issue error-filled, one-size-fits-all proxy voting recommendations that can impact the direction of a business and the value of investors’ shares. In July 2020, the SEC issued final regulations limiting proxy firms’ outsized influence, a move Timmons called a “long-sought, major win for the industry and millions of manufacturing workers.”

In October 2020, the NAM filed a motion to intervene in ISS v. SEC (ISS’s attempt to overturn the rule), followed by a motion for summary judgment outlining why the SEC’s lawful, reasonable and minimally invasive rule must be upheld. In June 2021, the SEC announced it was reviewing the rule and suspending enforcement thereof, at which point NAM Senior Vice President and General Counsel Linda Kelly made clear that the NAM would fight “any efforts to bypass the required notice-and-comment process to keep this lawfully issued rule on ice indefinitely.”

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs more than 12.4 million men and women, contributes $2.52 trillion to the U.S. economy annually and has the largest economic multiplier of any major sector and accounts for 58% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.

Press Releases

Manufacturers: China Is Not Following Through on Important Commitments Made in the 2020 U.S.–China “Phase One” Agreement

Washington, D.C. –  Following remarks today by U.S. Trade Representative Katherine Tai, National Association of Manufacturers President and CEO Jay Timmons released this statement:

“China is not following through on important commitments made in the 2020 U.S.–China ‘Phase One’ agreement, and it also remains a hub of bad behaviors—from intellectual property theft to market-distorting industrial subsidies—that harm manufacturers and their employees here in the United States. Manufacturers agree with Ambassador Tai that we need a new, holistic and pragmatic approach to our relationship with China. We are pleased that the Biden administration’s approach reflects key priorities for manufacturers in the U.S., including holding China accountable on the ‘Phase One’ deal, allowing manufacturers to seek tariff relief, stepping up direct U.S. engagement with Chinese officials and working with our allies to ensure that the U.S. shapes the global rules for trade. We look forward to working with USTR on robust measures to ensure quick action in each of these areas to hold China accountable and to strengthen manufacturers and manufacturing workers in America.”

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs more than 12.4 million men and women, contributes $2.52 trillion to the U.S. economy annually and has the largest economic multiplier of any major sector and accounts for 58% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.

Press Releases

Manufacturers Counting on Congress to Vote for Historic Infrastructure Investment

Washington, D.C. – In advance of tomorrow’s scheduled vote in the U.S. House of Representatives on the Infrastructure Investment and Jobs Act, National Association of Manufacturers President and CEO Jay Timmons released this statement:

“Congress faces a critical vote tomorrow on historic, bipartisan infrastructure investment. Our lawmakers have an opportunity to demonstrate they can continue to work together to accomplish bold initiatives that make America stronger. One thing is certain: it is impossible to claim to be ‘for the worker’ and for the middle class while actively derailing generational investments to the infrastructure these people use every day. The more than 12 million men and women of manufacturing are counting on lawmakers to send this vital legislation to President Biden’s desk now.”

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs more than 12.3 million men and women, contributes $2.35 trillion to the U.S. economy annually and has the largest economic multiplier of any major sector and accounts for 58% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.

Policy and Legal

Manufacturer Presses Congress on Workforce Development

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Manufacturers are working hard to create apprenticeship and workforce development programs that can help strengthen our industry, close the skills gap and prepare new workers for exciting, fulfilling careers.

Last week, Leah Curry, president of Toyota Motor Manufacturing, Indiana, urged Congress to take up these priorities when she testified to the Senate Subcommittee on Employment and Workforce Safety. Curry is also an honoree of The Manufacturing Institute’s 2013 STEP Ahead Awards, which recognizes outstanding women leaders in the industry, and a longstanding member of the MI Board of Advisors.

In her remarks, Curry drew on her own experiences to illustrate how apprenticeship programs can help prepare workers to take on a new career. Here are some of the highlights.

Delivering early exposure: “I came across the idea of pursuing technology as a career by chance after already embarking on a serious course of post‐secondary studies. If I was exposed to technical or STEM programs before college, I would have landed on my pathway much [sooner]. Since 2010, Toyota has provided $3.5 million to 184 K–12 schools in Indiana and across the country to implement Project Lead the Way programs that provide students with more STEM education and career pathways.”

Emphasizing hands-on experience: “Combining classroom learning with on‐the‐job experiences is a powerful way to learn, particularly in manufacturing. In states where Toyota operates manufacturing plants, Toyota has collaborated with local community colleges to develop the highly successful advanced manufacturing technician (or AMT) program.”

  • “Nationally about 400 employers pool talent from 32 chapters in 12 states in what is known collectively as the Federation for Advanced Manufacturing Education or FAME USA. FAME USA is now led by The Manufacturing Institute, and it is quickly becoming America’s premier homegrown manufacturing education network.”

Promoting diversity: “We cannot overstate the importance of intentionality around bringing historically underrepresented people into STEM careers. Toyota is collaborating with the National Alliance for Partnerships in Equity on its ‘Make the Future’ program, which provides tools to help educators, counselors, administrators and recruiters increase the participation and persistence of women and other historically underrepresented student groups in education paths that prepare them for advanced manufacturing careers.”

The path forward: In her testimony, Curry emphasized two critical policy recommendations.

  • Combine education and training: First, Curry urged Congress to consider workforce development policies in combination with education policies. “If education policies are not flexible enough to allow students to explore various pathways,” said Curry, “students may ultimately bypass even the best workforce development opportunities.”
  • Reauthorize WIOA: Second, she called for reauthorization of the Workforce Innovation and Opportunity Act. “In doing so, the committee should continue to allow for greater private-sector participation in the workforce system,” said Curry. “The FAME USA system proves that employers want to and can drive workforce development to new heights.”

Learn more: Click here to find out more about the FAME USA program, founded by Toyota and now operated by the MI.

Policy and Legal

NAM Fights to Preserve Interest Deductibility

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The NAM is pushing back against scheduled and proposed tax changes that would limit tax deductions for interest on business loans and make it more difficult for manufacturers to invest in growth.

Why it matters: Debt financing is critical to the manufacturing industry because it allows businesses of all sizes to invest in equipment and facilities. These investments spur job growth and help manufacturers compete in a global marketplace. Reducing or limiting manufacturers’ ability to deduct interest will make borrowing more expensive, making it more difficult for manufacturers to support America’s economic recovery and invest in future growth.

The provisions: There are three proposed tax changes, including one that is set to take effect at the end of this year and two put forward by the House Ways and Means Committee that have been proposed to help pay for the Build Back Better agenda.

  • A new EBIT standard: The 2017 tax reform law limited the business interest deduction to 30 percent of earnings before interest, tax, depreciation and amortization. Starting in 2022, the deduction will be further limited to 30 percent of earnings before interest and tax. Excluding depreciation and amortization would reduce the amount of interest businesses can deduct, making it more expensive for manufacturers to finance capital equipment purchases. The NAM is leading the Coalition for America’s Interest to oppose the change, and we’re championing a bipartisan bill that would preserve the EBITDA standard.
  • New interest deductibility limitation: The House Ways and Means Committee’s budget reconciliation bill includes a new limitation on the deductibility of interest. The bill would impose a worldwide leverage test, disallowing interest deductions on top of the scheduled EBIT change. In fact, companies impacted by both this provision and the EBIT change would be forced to abide by whichever standard was the most limiting. This change would make the United States an outlier compared to other industrialized countries.
  • New carry-forward restrictions: Manufacturers are currently allowed to carry forward unused interest deductions into future years, ensuring that they can deduct interest over time. The House bill would cap carry-forwards at five years, which could permanently deny some interest deductions and ultimately result in a net tax increase for many businesses.

Speaking out: All told, limiting interest deductibility makes it more expensive for manufacturers to invest in growth, which is why the NAM has vocally opposed these changes.

“These scheduled and proposed changes to interest deductibility would disproportionately impact companies in the manufacturing sector,” NAM Vice President, Tax and Domestic Economic Policy Chris Netram wrote in a letter to Congress. “Following tax reform’s passage in 2017, manufacturing capital spending grew by 4.5% and 5.7% in 2018 and 2019—but limiting the deductibility of interest would threaten the sector’s progress and harm manufacturers’ ability to invest for the future.”

Policy and Legal

The NAM Talks to the Fed

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Manufacturing is the engine of U.S. economic growth. That’s why, when the Federal Reserve Board hosted a virtual Fed Listens event to discuss the economic recovery from the COVID-19 pandemic, it asked NAM Chief Economist Chad Moutray to share his perspective.

In his remarks, Moutray gave an overview of activity in the manufacturing sector and laid out his expectations for the road ahead. Here are some of the highlights.

A positive outlook: “Manufacturers are experiencing very strong demand as the U.S. and global economy recovers from the steep declines in activity seen last year at the beginning of COVID-19,” said Moutray. “Indeed, the most recent NAM Manufacturers’ Outlook Survey found that 87.5% of respondents were positive about their company’s outlook, which—while down from the three-year high seen in June—remained a healthy figure.”

Concerns on the horizon: “At the same time, manufacturing leaders cited rising raw material costs as their top concern for the third straight quarter, followed closely by challenges with attracting and retaining enough workers, with supply chain disruptions, and with logistics and transportation issues,” said Moutray. “Interestingly, 81.5% of those completing the survey said that workforce shortages were the biggest downside risk to their economic forecast, closely followed by supply chain disruptions, increased cost pressures and the continued spread of COVID-19, including the delta variant.”

Supply chain struggles: “While manufacturing growth remains solid, supply chain bottlenecks are significant, holding back even stronger expansions in the sector,” said Moutray. “Manufacturers continue to cite the backlog of cargo at the ports, the shortage of truck drivers and soaring shipping costs as significant impediments. In a just-in-time production environment, this poses a serious challenge to production and capacity—and the shortage of workers is not helping either.”

A look ahead: “These supply chain and logistics issues are likely to extend into at least the first half of 2022, at least based on my conversations with manufacturing executives,” said Moutray. “While pricing pressures are likely to stabilize as we move into 2022—assisted by a more-favorable base comparison—it is also clear that some costs will remain elevated relative to pre-pandemic levels, and core inflation might run hotter than we had become accustomed to.”

Dive Deeper: Read more about the economic outlook in the NAM’s 2021 3rd Quarter Manufacturers’ Outlook Survey.

Policy and Legal

How Tax Reform Helped a Manufacturer Expand

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INX International, a global manufacturer of high-performance printing inks and coatings, has a strong and growing presence in the U.S. thanks to tax reform.

The company’s success has been made possible in part by tax reform’s lower corporate tax rate and a foreign-derived intangible income (FDII) deduction, which encourages companies to develop and keep intellectual property in the U.S. by providing a lower tax rate for foreign sales based on U.S. IP. These reforms have helped manufacturers like INX invest in their U.S.-based facilities and employees—and INX has done exactly that.

Manufacturers wanted: From 2017 to today, the company has hired 89 people—a 7% increase in personnel. And even with the significant increase in workers, INX has been able to use its tax savings to pay good wages and benefits for all its employees.

  • “We have not had one year since 2017 without raises or an increase in benefits,” said INX Vice President of Tax and Finance David Rossi. “That’s because the company has been doing pretty well—reaping the benefits from the economy and tax reform.”

Facilities expanded: INX has also worked to build new production capabilities, financed in part by the 2017 changes to the tax code.

  • “The FDII deduction gave us $1.1 million in 2020 alone,” said Rossi. “That’s two-thirds of a solid equipment buildout for a new location. That number is significant to us.”

IP kept local: Provisions like the FDII deduction have made it possible for INX to keep their intellectual property in the United States, rather than moving critical production to facilities in other countries where labor and production costs might be lower.

  • “We’re brick-and-mortar manufacturing in the U.S., and we keep our IP here; we keep our R&D here,” said Rossi. “Our ideas are here. Everything is developed here in the United States and kept in the United States.”

Continued benefits: The highly competitive labor market means that INX is also using its tax reform savings to attract and retain workers—making stability and certainty around these tax rules even more important.

  • “We have dramatically increased starting wages, due to competition for manufacturing workers,” said INX CEO John Hrdlick. “Employees hired last year are also getting an increase. We’re offering incentives for referrals for new positions and spending a fair amount of money to recruit and keep people and stay ahead of our competition. If we weren’t in a strong position now, we wouldn’t be able to do that.”

The road ahead: The team at INX is concerned about what might happen if tax reform were to be rolled back and their tax burden were to increase. Especially with ongoing shortages of labor and materials—and with delays in shipping and freight transport—higher taxes would make it more difficult to continue the kinds of investments they have made.

  • “Right now, any savings get invested into our people and our operations,” said INX Chief Financial Officer Bryce Kristo. “Any loss will negatively affect that.”
  • “If there’s change, you’re talking about smaller facilities, less expansion or no expansion at all,” said Rossi.

The last word: “We are in a very competitive industry and an important industry,” said Hrdlick. “We’re almost a $500 million company, but given the high competitiveness, we are in single-digit operating income. All these proposed tax increases will pull some of that away. Everything we get, we invest in our people—and if that number is dramatically impacted, that’s going to be a problem for us.”

Policy and Legal

The NAM Looks Ahead

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As Congress reconvenes this fall, the NAM will continue to make sure manufacturers’ priorities are front and center, driving the legislative conversation and shaping America’s future. We spoke with the NAM’s policy leaders to get a sense of the agenda going forward and discussed two bills in particular that are on manufacturers’ radar.

Bipartisan infrastructure reform: The $1.2 trillion investment would fund roads and bridges, as well as upgrades of the electric power grid and energy infrastructure, passenger and freight rail, public transit, airports, water systems, broadband and other critical priorities. Many of the bill’s investments were also initially highlighted in the NAM’s Building to Win framework—the NAM’s plan to invest in America’s infrastructure. The NAM will continue to work with Congress and President Biden to help move this bill across the finish line and ensure we can build the world-class infrastructure manufacturers deserve.

  • “It’s critical that this moves forward,” said NAM Senior Vice President of Policy and Government Relations Aric Newhouse. “The bipartisan infrastructure reform bill would create transformative change—and every day that passes without it is a lost opportunity for manufacturers.”
  • “We are using our influence to call on Congress to finalize this bill and move it to the president’s desk,” added NAM Vice President of Infrastructure, Innovation and Human Resources Policy Robyn Boerstling. “We also intend to stay engaged after it’s signed into law. This is a significant federal investment, with a lot of new programs and opportunities—and the NAM will be here to help steer our members through the implementation process.”

Reconciliation: Democrats are considering a multitrillion-dollar reconciliation bill that would supplement the bipartisan infrastructure reform bill with additional priorities in areas like health care, climate change and labor rules. As this bill moves ahead, the NAM is focused on preventing changes in corporate taxes, individual taxes, estate taxes and international tax policy that could harm manufacturers; blocking policies that could damage the employer–employee relationship; and standing up against efforts to stifle innovation in the pharmaceutical sector.

  • Taxes: The bill proposes more than $2 trillion in tax increases that could hit every segment of the manufacturing economy. Proposed changes could affect big corporations through corporate taxes; globally engaged firms through changes to the Global Intangible Low-Taxed Income (GILTI) provision, the Base Erosion and Anti-Abuse Tax (BEAT) and a more limited incentive to locate intellectual property in the U.S.; family-owned businesses through estate tax reforms and increases to the capital gains rate; and small and medium manufacturers through changes to the tax system for pass-through entities. The bill would also make it harder to finance new equipment purchases through new limitations on the deductibility of interest on business loans.
  • “These changes would affect every manufacturer, increasing the burden on corporations and pass-through entities,” said NAM Vice President of Tax and Domestic Economic Policy Chris Netram. “And we intend to stand up for our members, so that big and small manufacturers alike can compete, invest and grow here in the United States and around the world.”
  • Pharmaceutical innovation: The reconciliation bill also contains provisions that would introduce price controls on certain medicines and harm the capacity to innovate by making it more difficult for pharmaceutical companies to invest in research and development, potentially hampering the creation of new medications and treatments. The NAM is fighting against these provisions to ensure that pharmaceutical companies are able to robustly invest in lifesaving cures.
  •  “Congress must take the long view on innovation,” said Newhouse. “If we take steps that harm pharmaceutical companies’ ability to innovate today, fewer lifesaving drugs will be available in the future. We think that’s a mistake.”
  • Labor: In addition, the reconciliation bill in its current form seeks to impose some of the provisions of the Protecting the Right to Organize Act, or PRO Act. The bill, which previously passed the House in 2020, has the potential to reshape the relationship between employers and employees. The NAM will work to ensure these changes are not included.
  • “The PRO Act is so broad and so sweeping in terms of its changes to the employee–employer environment that it comes at the expense of the manufacturing sector,” said Boerstling.
  • “We’re going to do everything we can to keep this out of reconciliation because we believe the existing employee–employer relationship is working,” said Newhouse. “Now is not the time to blow it up with antiquated approaches to labor policy.”

The bottom line: This fall promises to be a busy time for policymakers in Washington, and the NAM intends to keep them focused on the needs and priorities of manufacturers across the country.

Press Releases

Manufacturers React to Recovery-Stunting Tax Hike Proposal

Newhouse: “There’s no getting past the fact that this tax plan adds up to fewer jobs for American workers.”

Washington, D.C. – Following the release of the House Ways and Means Committee’s plan to increase taxes on manufacturers through the budget reconciliation legislation, National Association of Manufacturers Senior Vice President of Policy and Government Relations Aric Newhouse made this statement:

“There’s no getting past the fact that this tax plan adds up to fewer jobs for American workers. We know from experience that competitive tax rates spur job creation, higher wages and investment in communities. That’s exactly what we saw after the 2017 Tax Cuts and Jobs Act as manufacturers kept their promises. 2018 was the best year for manufacturing job creation in more than two decades. We also know from rigorous economic analysis that reverting to archaic tax policies has the opposite effect. A study of proposed tax increases—including a 25% corporate rate—found that America would lose 1 million jobs in just the first two years.

“Building a strong economy takes more than wishful thinking; it requires a competitive business environment. Manufacturers are committed to rebuilding our economy and sustaining our recovery—even amid the surge of COVID-19 cases. If lawmakers share that commitment, then they would rethink tax proposals like this. Few policies would stall our recovery faster. Now is not the time to pursue policies in Washington that will hurt the families and communities of manufacturers in America.”

Study: Negative Consequences of 25% Tax Rate on Manufacturers:

(Source: Dynamic Estimates of The Macroeconomic Effects of Tax Rate Increases and Other Tax Policy Changes)

  • 1 million jobs and $107 billion in GDP lost in first two years
  • 500,000 jobs lost on average each year over the next decade

Manufacturers on Increasing the Tax Burden:

(Source: NAM’s Q3 Manufacturers’ Outlook Survey)

  • Nearly 94% of manufacturers said that higher taxes would be harmful to their businesses.
  • Roughly 90% of respondents said that their company would find it more difficult to expand their workforce, invest in new equipment or expand facilities if the tax burden on income from manufacturing activities increased.
  • Nearly 91% said that higher taxes would also make it more difficult to raise employee wages.

Manufacturing growth following the enactment of 2017 tax reform:

  • In 2018, manufacturers added 263,000 new jobs. That was the best year for job creation in manufacturing in 21 years. (U.S. Bureau of Labor Statistics)
  • In 2018, manufacturing wages increased 3% and continued going up—by 2.8% in 2019 and 3% in 2020. Those were the fastest rates of annual growth since 2003. (U.S. Bureau of Labor Statistics)
  • Manufacturing capital spending grew 4.5% and 5.7% in 2018 and 2019, respectively. (U.S. Census Bureau)
  • Overall, manufacturing production grew 2.7% in 2018, with December 2018 being the best month for manufacturing output since May 2008. (Federal Reserve Board)

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs more than 12.3 million men and women, contributes $2.35 trillion to the U.S. economy annually and has the largest economic multiplier of any major sector and accounts for 58% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org

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