COLUMN: Brokaw Act stands up to Wall Street raiders
This column orginally appeared in the Wausau Daily Herald, Appleton Post Crescent, Stevens Point Journal, and Fond du Lac Reporter on March 29, 2016.
By U.S. Senator Tammy Baldwin
About a year before I was elected to the United States Senate in 2012, Wisconsin workers who helped build a paper company had their lives turned upside down.
A wolf pack of hedge funds seized control of the legendary Wausau Paper company, expelled the company’s executives and demanded short-term returns and stock buybacks at the expense of the company’s long-term future. These hit-and-run hedge funds closed all its Wisconsin mills, including one in Brokaw that had operated for over 100 years — forcing job layoffs and causing the town to declare bankruptcy.
The mill began operations in 1899 and the village of Brokaw was incorporated four years later. For generations, family members worked at the mill. It was a lifeblood to the community and a source of “Made in Wisconsin” pride. All that ended in 2012.
Today, the laid-off workers have moved on as best they can and I can’t turn back the clock to undo the damage done to working families and a small town in Wisconsin. However, what I can do is fight to make sure this doesn’t happen again. I can respect people who worked hard and played by the rules by working in the Senate to pass reforms that can help ensure that no other small towns in America, like Brokaw, fall victim to activist hedge funds on Wall Street.
We cannot allow our economy to be hijacked by a small group of investors who seek only to enrich themselves at the expense of workers, taxpayers and communities. That is why I am working to even the playing field by updating Depression-era rules to address the financial abuses being carried out by activist hedge funds.
Out of respect for a Wisconsin work ethic that is second to none, I have introduced The Brokaw Act. My legislation takes on a game that is rigged in favor of predatory hedge funds who make short-sighted demands at companies to benefit themselves at the expense of a company’s long-term interests. The most common demands are for more debt, stock buybacks, reduced research and development, cost-cutting, layoffs and general reduction any investment in long-term growth.
What happened in Brokaw is one example of this larger problem that demands action. Activist hedge funds are a proponent of the dangerous short-term trend that has captivated Wall Street. The number of activist campaigns has risen annually by 60 percent since 2010, and there were 348 activist campaigns in 2014. Their assets under management have grown from $12 billion in 2003 to over $200 billion today. No company is too large to escape their threats and attacks. At a time when America desperately needs to invest in its future to raise incomes for working families, these hedge funds are advocating for the opposite — cutting investments in research, firing workers, slashing wages and shipping more production overseas. If we allow this trend to continue, American companies will cease to be leaders in innovation and future generations will inherit a weaker economy.
The Brokaw Act aims to rewrite the rules of our economy by increasing transparency and strengthening oversight of activist hedge funds who are abusing weak securities laws to gain large stakes in public companies. Congress has long recognized the potential for abuse when activist hedge funds form loose associations of wolf packs and tip allies to an impending disclosure. In fact, Wall Street reforms passed in 2010 explicitly gave the Securities and Exchange Commission the power to address this problem, yet the SEC has been unwilling to use this authority. My legislation brings more transparency to the marketplace by improving disclosure. It will also help protect businesses on Main Street by preventing predatory hedge funds from skirting the intent of the disclosure rules. In addition, my reform legislation requires disclosures of derivative activity so we can provide stronger oversight of activist hedge funds that are profiting off a bet against a company they are investing in.
I understand that the reforms I am pushing can’t fix the damage done in Marathon County and won’t replace what was the economic center of the community. I realize that some politicians simply see what happened to Wisconsin's working families as “creative destruction." There is also no doubt that this is an uphill climb when many members of Congress are afraid to take on this fight when they are influenced by campaign contributions from Wall Street hedge funds.
But for me, this fight is the right thing to do. It is time to stand up for our Main Street economy and rewrite the rules for Wall Street so we can build an economy that works for everyone, not just those at the top.
