Regulatory and Legal Reform

The NAM urged the Supreme Court to allow a lawsuit against energy manufacturers to proceed in federal court instead of state court, arguing that they were operating as federal contractors at the time of the actions at issue.

Why it matters: Preserving federal officer removal jurisdiction—i.e., the requirement that suits against contractors operating on the government’s behalf take place in federal court—is a crucial protection for businesses that work with the government, the NAM argued in its amicus brief in Chevron U.S.A., Inc. et al. v. Plaquemines Parish, et al.

• Without the guarantee of federal court jurisdiction, federal contractors may be hesitant to take on work that is nationally important but unpopular in certain states.

The background: During World War II, several oil companies obtained federal contracts to refine oil along the Louisiana coast.

• Decades later, these companies were sued in state court by several Louisiana municipalities that sought damages for the drilling’s impact on the coastal environment.

Whose turf? The case was removed to a federal court, as the companies were acting as government contractors when they undertook the drilling.

• The municipalities appealed the change of venue, however, and the Fifth Circuit upheld their appeal—wrongly, as the NAM has charged in a series of amicus briefs.

Bad reasoning: The Fifth Circuit held that for the federal officer removal statute to apply, federal contracts must contain an explicit “directive” from a federal officer, such that parties to the contract are “acting under” the officer.

SCOTUS involved: The case has been on a merry-go-round of appeals and remands, finally resulting in the defendant oil companies seeking U.S. Supreme Court review.

• The Supreme Court granted certiorari in June—giving the NAM the opportunity to file its sixth brief in defense of manufacturers performing work on the government’s behalf.

The NAM’s argument: In its latest brief, the NAM argued that federal contractors have long relied on the protection of the federal officer removal statute when contracting with the government.

• The Fifth Circuit’s “contractual directive” reasoning takes an unjustifiably narrow view of the statute, which is intended to apply to all work “related to” a federal contract, the NAM charged.

Administration agrees: The Department of Justice also filed an amicus brief in the case, supporting the NAM’s position and asserting that the oil production at issue was connected closely to aviation fuel refining efforts for the U.S. military.

Continued advocacy: Through the Manufacturers’ Accountability Project, the NAM is making sure courts uphold long-standing legal protections that enable manufacturers to serve the national interest without fear of politically motivated lawsuits.

Arizona Chamber of Commerce & Industry President and CEO Danny Seiden testified before the House Energy and Commerce Committee about the burden that stringent emissions regulations inflict on businesses without providing any environmental benefit.

Speaking as an Arizonan: “Arizona businesses aren’t asking for a free pass … just a fair chance to grow responsibly,” Seiden told legislators.

• “Arizona is at the center of America’s growth story. … A symbol of that growth is TSMC’s decision to invest $165 billion in Arizona—the largest foreign direct investment in U.S. history,” he pointed out.
• Arizona has managed to achieve record growth while also reducing emissions, he noted: “Since 1990, our state’s population has skyrocketed, our GDP has risen more than 550%, and vehicle miles traveled have soared. Yet overall emissions are down more than 70%.”
• “That’s proof that economic growth and cleaner air can go hand-in-hand.”

Beyond the state’s control: In addition, Arizona’s ozone emissions levels are caused largely by factors it cannot control, Seiden said.

• “In fact, approximately more than 80% of our ozone comes from other states, from Mexico and Asia, and natural events like wildfires.”
• “Even if we shut down every industrial source in the state and took every car off the road in Phoenix, an area about the size of Connecticut, we wouldn’t meet the standard,” he added. “Still, Arizona businesses are penalized as if they are responsible.”

The costs: This regulatory burden threatens crucial industrial and infrastructure projects that are “vital to national security,” Seiden warned.

• “If companies can’t build here, they’ll build somewhere else—likely in countries with weaker standards. That’s a lose–lose scenario.”
• “To make matters worse, unlike states with long industrial histories, Arizona has no emissions reduction credits, or offsets, to rely on,” he noted. “So when a new facility wants to break ground, or an existing one wants to expand, there are no offsets available to purchase.”

The bigger picture: Arizona’s problem is the nation’s problem, Seiden emphasized, as states work to attract and support major manufacturing investments—“especially if standards continue to be set at or below natural background levels.”

A good start: Seiden praised EPA Administrator Lee Zeldin, saying, “Administrator Zeldin came to our state early on and took action. By rescinding outdated Section 179B guidance, signaling flexibility on unfair nonattainment classifications and recognizing the difference between controllable and uncontrollable sources, EPA is moving toward fairness.”

A prescription for change: Seiden made a list of recommendations for policymakers that would advance Arizona’s and the country’s economic growth:

1. Protecting competitiveness by keeping standards realistic 
2. Codifying reforms to Section 179B
3. Incentivizing upwind controls
4. Modernizing permitting
5. Encouraging innovation and collaboration
6. Strengthening cooperative federalism by allowing states to approve projects if the EPA fails to act within a reasonable time frame

The last word: “Give us the flexibility and tools to continue reducing emissions while ensuring that industries vital to Arizona’s economic future are not sanctioned out of existence,” Seiden told legislators.

Washington, D.C. — Following the release of the Make America Healthy Again (MAHA) Commission’s strategy report, National Association of Manufacturers President and CEO Jay Timmons issued the following statement:

“Manufacturers share the administration’s goals of safeguarding Americans’ health and safety. However, in light of this administration’s exceptional track record to drive a rebalanced regulatory agenda to strengthen manufacturing and benefit consumers, the Commission’s strategy report is a shocking misstep.

“Manufacturers are concerned that policies based on faulty information and misguided science could result in overly burdensome and ineffective regulatory proposals for manufacturers without making consumers safer. If implemented, the strategy would harm manufacturers across the country and the consumers who benefit from an efficient, healthy and cost-effective supply chain. It also would add to the compliance burden that the administration has made so many great strides to unwind. Manufacturers in the U.S. shoulder nearly $350 million every year in compliance costs—capital that manufacturers would much rather invest in their facilities, their employees, their products, and this administration has been a key partner in alleviating that burden.

“Manufacturers throughout the chemical, pharmaceutical, and food and beverage supply chains prioritize Americans’ health and safety. They comply with strict regulatory guidelines and lead with innovation to deliver safe and reliable products, ensure resilient and secure supply chains, safeguard health, preserve consumer choice, and enhance accessibility and affordability.

“Manufacturers are committed to working with the administration to ensure our industry can continue to deliver safe, innovative and affordable products to American families. But the strategy of the MAHA report will take America in the wrong direction.”

Background:

The National Association of Manufacturers this week launched a new national ad showcasing the vital role that manufacturers throughout the food and beverage supply chain play in strengthening families, building communities, and driving the nation forward. The ad highlights the people and innovation behind America’s food supply chain—from farms and shop floors to grocery stores, kitchen tables, restaurants and beyond—reminding policymakers and the public of the industry’s essential contribution to safe, healthy, nutritious and affordable food for every American family.

-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 nearly 13 million men and women, contributes $2.90 trillion to the U.S. economy annually and accounts for 53% 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.

​​​​​​The Trump administration has announced new funding for critical minerals projects in the U.S., seeking to award nearly $1 billion to key projects (Politico).

• In announcing the new funding, Energy Secretary Chris Wright “cited a March executive order that tapped a range of agencies for efforts to boost minerals production in announcing the award plans.”

How it works: The funding comes in part from the Bipartisan Infrastructure Act, one of manufacturers’ and the NAM’s many policy victories over the past five years.

• “The largest pot of funding, up to $500 million, comes from the Battery Materials Processing and Battery Manufacturing and Recycling grant program, which was established by the bipartisan infrastructure law,” according to Politico.
• “DOE said Wednesday its Office of Fossil Energy and Carbon Management also plans to award up to $250 million under the Energy Act of 2020 and the infrastructure law for industrial facilities to pilot initiatives to produce critical minerals as byproducts from their existing processes.”

Rare earths: Also notable is the $135 million in funding that the Office of Manufacturing and Energy Supply Chains will award to rare earths demonstration projects.

Concerted efforts: The NAM has urged President Trump to support critical minerals projects since his election, and the administration has been swift to act.

• As NAM President and CEO Jay Timmons said in response to the March EO, “For too long, red tape and burdensome regulations have stood in the way of the basic building blocks that power manufacturing in the United States, especially mining and processing the minerals manufacturers rely on to create jobs and dominate on the world stage.”
• “The administration is addressing those barriers, making it easier for manufacturers to access the resources we need to build the future in America.”

The Securities and Exchange Commission’s executive compensation reporting requirements are needlessly complex and costly for manufacturers—and reforming them would be a boon to the industry, the NAM told the SEC this week.

What’s going on: The NAM laid out a series of recommendations for making the reporting requirements more workable for publicly traded companies while still providing investors with useful, material information.

• “Neither Main Street investors nor companies are well served by rules that have directed issuers to provide an expanding array of footnoted tables, retain outside consultants to perform ‘compensation actually paid’ calculations that often are confusing to investors, and churn out pay-related disclosures that often exceed 20 or 30 pages,” the NAM told the SEC.
• This week’s suggestions build on ones the NAM made in June.

What should be done: The SEC can benefit both manufacturers and investors by taking several specific steps, the NAM said, including:

• Replacing unduly burdensome mandates with “principles-based disclosure designed for the reasonable investor”;
• Simplifying the 2022 “pay versus performance” rule;
• Giving meaningful disclosure relief to smaller firms;
• Addressing the outsized impact that proxy advisory firms have on compensation decisions;
• Updating perk disclosure rules to reflect changes since 2006, including by ensuring company executives can access needed security protections; and
• Suspending enforcement of the 2022 “clawback” rule until the rule is made less burdensome to companies.

The final word: By making these changes to its executive compensation reporting requirements, the SEC “can ensure manufacturers can recruit and retain leaders that will grow the business, create more jobs and contribute to our overall economic growth,” said NAM Managing Vice President of Policy Charles Crain.

To win the artificial intelligence race with China and better compete with Russia, the U.S. must reduce its project-approval times, the head of the largest American natural gas company has warned Congress (Financial Times, subscription).

What’s going on: “Congress [needs] to step up and act,” EQT President and CEO Toby Rice told the FT regarding the need for the government to streamline “America’s byzantine permitting process,” which has greatly increased infrastructure project costs and times.

• “The threat of not getting infrastructure built has only gotten larger,” he continued. “Not only from bad actors getting rich by selling energy that could be replaced with American energy—it’s also the threat of China winning the AI race.”
• The biggest concern, according to Rice: judicial review, which allows for up to six years of legal challenges of permit decisions.

We need it all: In recent years, the U.S. has been shuttering baseload power plants and making it harder for companies to build natural gas infrastructure, Rice continued, and as a result, prices have risen and the electrical grid is becoming unreliable.

• Since the start of his second term, however, President Trump has prioritized making the U.S. energy dominant, taking actions like lifting the previous administration’s ban on new LNG export permits.

The backdrop: “These actions come as the U.S. races to meet growing domestic and global power demand caused by the data centers used to build and develop AI.”

• Global electricity demand from data centers is expected to double by 2030, according to the International Energy Agency.

A positive step: This week, EQT “signed an agreement in principle to provide gas to a 4.4[-gigawatt] plant that will power the Homer City Energy Campus, a 3,200 acre data center in Pennsylvania.”

Europe, too: Europe has been trying to wean itself off Russian gas since Russia’s invasion of Ukraine in 2022.

• This week, ENI—one of Europe’s biggest energy firms—signed an agreement to purchase 2 million metric tonnes of LNG from U.S. company Venture Global.

The NAM’s view: “Mr. Rice is right that, as the NAM has long said, the U.S. permitting system is holding us back,” said NAM Vice President of Domestic Policy Chris Phalen.

• “The administration has made important strides in cutting needless red tape, but manufacturers need comprehensive permitting reform legislation from Congress that supports all energy sources and makes improvements to our transmission and distribution systems for the nation to reach its full potential.”

Streamlining, simplifying and reducing compliance requirements would relieve a large burden that now rests on manufacturers’ shoulders, the NAM told Securities and Exchange Commission and Congress this week.

What’s going on: “Many small and medium-sized manufacturers incur substantial costs each year to comply with the law, and particularly Section 404(b)” of the Sarbanes-Oxley Act of 2002, NAM Managing Vice President Charles Crain told the House Subcommittee on Capital Markets ahead of a Wednesday hearing.

• “Striking the balance between capital formation and investor protection is a key test for any requirement that falls on smaller public companies.”
• Companies spend more than $1 million a year to comply with SOX 404(b), which requires an external audit of a company’s internal financial controls.

What Congress should do: To ease the load on smaller reporting companies—a category under which many manufacturers in the U.S. fall—Congress should consider legislation that would exempt them from SOX 404(b), the NAM said.

• Congress should also exempt all accelerated filers (companies with a public float below $700 million), as well as newly public companies, from SOX 404(b), Crain said.
• Finally, the NAM supports reforms outlined in the subcommittee’s draft legislation to update the SEC’s definition of SRCs, including raising both the maximum public float and revenue thresholds.

Introduced into the record: Rep. Warren Davidson (R-OH) introduced the NAM’s statement into the record and expressed support for exempting smaller companies from SOX’s costly attestation audit requirements.

NAM at the SEC: The NAM also urged the SEC to institute reporting requirement reforms related to executive compensation—a complicated and costly area of disclosure that often provides minimal investor benefit.

• “The NAM has long supported flexibility in the design of executive compensation benefit packages to ensure manufacturers can recruit and retain leaders that will grow the business, create more jobs and contribute to our overall economic growth,” Crain told the SEC ahead of a Thursday roundtable on executive compensation disclosure requirements. “Unfortunately, the SEC’s compensation rules have become too complex and have undermined that flexibility.”

What the SEC should do: The NAM laid out several steps the agency should take to ease compensation reporting requirements “to moderate the compliance burdens on public companies while reducing the number of pages and tables in a proxy statement that investors must review each year.” These include urging the SEC to take the following steps:

• Scale compensation disclosure burdens based on company size.
• Replace the disclosures required by the 2022 Pay Versus Performance rule with principles-based narrative disclosure.
• Support the repeal of the CEO pay ratio rule, “which mandates the costly determination of a company’s median employee and the collection of company-wide employee compensation data to generate disclosures that are not relevant or used by most investors.”

The two largest, most influential proxy advisory firms in the U.S. wield outsize, harmful influence on businesses—and they need to be regulated now, the NAM said this week.

What’s going on: Together, Institutional Shareholder Services and Glass Lewis control 97% of the proxy advice market. Those firms exist to advise institutional investors on how to vote on shareholder proposals and other proxy ballot measures that come before publicly traded companies.

• The ISS/Glass “duopoly … [is insulated] from accountability—to the point where these two market players have significant conflicts of  interest and are widely recognized as offering error-filled, opaque, one-size-fits-all advice and yet they still enjoy market dominance,” NAM Managing Vice President Charles Crain told the House Judiciary Subcommittee on the Administrative State, Regulatory Reform and Antitrust at a hearing on Wednesday.
• The firms use their dominant market position and influence over proxy vote outcomes to drive investors and companies to buy consulting, governance ratings and other related services.
• The firms remain largely unregulated despite calls for reform “and everyday people pay the price,” Crain continued.

What they do: While the voting platforms of ISS and Glass Lewis offer a legitimately helpful service—connecting investors to the back end of the proxy voting system—the firms use the platforms to steer clients toward their own voting research and recommendations.

• “They’ll even pre-fill the platform with their preferred votes and then robo-vote an investor’s shares on their behalf,” said Crain.
• Furthermore, some of the proxy firms’ guidelines (such as on equity incentive plans) are so complex and opaque that companies are effectively forced into hiring the firms’ corporate consulting arms to navigate them.
• The proxy firms have other policies—for example, they recommend for annual shareholder votes on executive compensation at companies even though Congress has said annual voting is unnecessary—that “appear designed to increase their own market power,” according to the NAM.

What should be done: Congress should pass the legislation introduced by Subcommittee Chairman Scott Fitzgerald (R-WI), the Stopping Proxy Advisor Racketeering Act, Crain said.

• The measure would bar “proxy advisory firms from issuing voting recommendations when any conflict could reasonably be expected to affect the objectivity or reliability of proxy advice, including being a member of a group that supports proposals similar to the shareholder-sponsored proposal,” according to Fitzgerald’s office.
• “[M]anufacturers support Chairman Fitzgerald’s bill,” Crain concluded because, “[m]anufacturers understand the stakes of getting this right.”

The Interior Department will begin implementing a new policy to speed up the search for and development of offshore critical minerals, it announced Wednesday.

What’s going on: “To support a more efficient and predictable offshore minerals program, the Bureau of Ocean Energy Management … and the Bureau of Safety and Environmental Enforcement … are updating policies across all stages of development—from early exploration to post-lease operations and production.”

• The changes are intended to cut down on delays, improve coordination and give industry more certainty—“all while upholding key environmental safeguards.”
• For early-stage exploration, BOEM plans to “apply existing streamlined environmental reviews whenever appropriate” and to extend prospecting permits’ length to five years from three.

Leasing plan details: To speed the leasing process, BOEM will identify areas for development without first issuing formal requests or forming task forces.

• This change alone could shave from two months to a year off the development times of projects, according to the agency.
• BOEM will also begin readying environmental assessments during the lease sale phase, saving the more detailed impact statements for later planning stages, if needed.
• Once a lease is issued, the BSEE and BOEM “will continue to streamline the process by considering offshore critical mineral projects for expedited permitting under the department’s emergency procedures and other applicable laws.”

Why it’s key: China dominates global critical minerals production and refining, and in the past year has greatly restricted exports of certain critical minerals vital to semiconductors, electronics and fiber optics, among other applications.

The final say: “Manufacturers have long sounded the alarm on the need for permitting reform, and this latest plan from Interior combines that priority with the pressing need to boost critical mineral supply chains,” said NAM Director of Energy and Resources Policy. 

• “Manufacturers support the administration exploring every available, feasible avenue to increase our supply of those resources and reduce our reliance on China.”

The Securities and Exchange Commission should rescind certain reporting requirements for cybersecurity incidents in its 2023 final cybersecurity rule, the NAM told the agency.

What’s going on: The NAM supports a rulemaking petition recently submitted by five financial industry groups that asks the SEC to “rescind the Form 8-K (Item 1.05) incident reporting requirements for cybersecurity incidents, as well as the corresponding Form 6-K requirements for foreign private issuers.”

The SEC should also do the following, according to the NAM:

• Rescind the four-day reporting requirement: The NAM asks the agency to stop mandating that public companies report on cybersecurity incidents within four business days. Instead of this rigid deadline, the NAM supports a return to a voluntary principles-based disclosure regime, whereby companies have more flexibility to disclose significant cybersecurity attacks to provide timely and useful information for shareholders.
• Allow more flexibility for companies to delay disclosures that could jeopardize national security or law enforcement investigations. The NAM asks the SEC to broaden a narrow exception that requires companies to obtain permission from the U.S. attorney general within four business days to delay public disclosure, an impractical requirement for most manufacturers.

Why the SEC should do it: The current four-business day reporting mandate provides manufacturers “with insufficient flexibility to delay or forgo disclosure to investigate and respond to an incident, work with law enforcement or avoid tipping off attackers,” NAM Managing Vice President of Policy Charles Crain explained.

• The mandatory disclosure deadline has “increase[d] costs and complexity for businesses” and has the potential to “mislead investors and ultimately create significant risks for shareholders and the broader economy that would eclipse the potential benefits of reporting.”
• The SEC’s incident reporting mandate also harms shareholders by diverting company resources from efforts to address the impact of a cybersecurity attack.
• Finally, requiring that companies issue public reports while a cybersecurity incident is ongoing could provide information helpful to the perpetrators or other bad actors.

The last word: “The NAM strongly supports a more flexible approach to cybersecurity reporting, and manufacturers respectfully encourage the SEC to amend its 2023 cybersecurity rule to more appropriately reflect the important concerns of public companies, shareholders, law enforcement and national security agencies,” Crain said.