Governance Center Blog

Oct
13
2009

Directors, GCs Take Note of New SEC Five-Year Strategic Plan

Directors, general counsel, C-level executives and others involved in corporate governance may want to take note of the SEC’s draft Strategic Plan for Fiscal Years 2010-2015. For starters, the plan of more than 70 initiatives is a lot more specific and prescriptive for its staff than the previous five-year plan in 2004 and it includes performance metrics to measure the agency’s ability to achieve its four goals.

SEC Five-Year Strategic Plan Draft

The SEC is planning on issuing investor alerts and other education efforts designed to arm investors in their own first line of defense against fraud and help them understand both intermediaries and new products.

With the SEC under intense scrutiny for lax enforcement during the Bush administration highlighted by the Bernard L. Madoff Ponzi scheme, companies may want to look at Strategic Goal No. 2: Establish an Effective Regulatory Environment. Having already proposed a myriad of governance-related rules and amendments – shareholder proxy access and disclosure regulations regarding compensation policies, company leadership structure and the board’s role in risk management – the SEC under Chairman Mary Schapiro is intent on changing the way it enforces its regulations.

This is the third such five-year plan the SEC has created under the 1993 Government Performance and Results Act. If you wish to comment on the draft five-year plan, the SEC asks that you send letters to strategicplan@sec.gov by Nov. 16.

The SEC spells out its principles for securities regulation: “First, all investors should have equal access to accurate, complete and timely information about the investments they buy, sell and hold. Second, investors should be able to rely upon self-regulatory organizations, broker-dealers, investment advisers, investment companies, and other market participants to conduct investors’ securities transactions efficiently and in the investors’ best interests.”

As part of the effective regulatory environment goal, it plans on achieving three outcomes:

The SEC establishes and maintains a regulatory environment that promotes high-quality disclosure, financial reporting, and governance, and prevents abusive practices by registrants, financial intermediaries, and other market participants.
The U.S. capital markets operate in a fair, efficient, transparent, and competitive manner, fostering capital formation and useful innovation.
The SEC adopts and administers rules and regulations that enable market participants to understand clearly their obligations under the securities laws.

If you were thinking this SEC under Schapiro was not going to take up such hot button issues like proxy access, risk management disclosure, separation of chair and CEO, executive compensation and international financial reporting standards, forget it.

Just look at what is listed under Outcome 2.1:

Improve the quality and usefulness of disclosure – Areas of focus will include disclosure about risk management, executive compensation decisions and practices, nomination of directors, board governance and discussion and analysis of results of operations and financial condition.
Strengthen proxy infrastructure.
Promote high-quality accounting standards – Support a single set of high-quality global accounting standards and promotion of the ongoing convergence initiatives between the FASB and the IASB.

Among the many metrics the SEC will use to measure its own progress is a survey of financial analysts and institutional investors on the quality of disclosure, the percentage of transaction dollars settled on time each year, the speed of execution of transactions in the securities markets and the length of time to respond to written requests for no-action letters, exemption applications and written interpretive requests.

By the way, the other goals for 2010-2015 plan are:

Foster and enforce compliance with the federal securities laws.
Facilitate access to the information investors need to make informed investment decisions.
Enhance the commission’s performance through effective alignment and management of human, information, and financial capital.

‘Doctrine of no surprises’ Not a Goal this Time

If you want to get an idea how much priorities can change at the SEC in five years, take a look at the last strategic plan in 2004. Look at what Broc Romanek of TheCorporateCounsel.net wrote back then (The SEC’s 5-Year Plan, Aug. 10, 2004). He writes that Chairman William Donaldson touted how the “new Office of Risk Assessment is leading the way to implement the ‘doctrine of no surprises.’” Guess no matter how much you try, they’ll always be surprises.

Posted by Gary Larkin at 10:41 AM | No Comments »

Permalink: Directors, GCs Take Note of New SEC Five-Year Strategic Plan

Oct
07
2009

Reform Deferred at SEC…For Now

The “new” SEC under Chairman Mary Schapiro is certainly being extra careful about instituting meaningful investor reform measures following the financial crisis.

In the past week alone, the new chair reportedly delayed until November a full commission vote on granting shareholders easier access to the proxy ballot to replace directors so SEC staff could read through the more than 500 comment letters. Then, on Monday the SEC’s Investor Advisory Committee (IAC) deferred until February a vote to recommend that the commission issue more guidance on the “applicability of Regulation FD regarding communication between companies, directors and shareowners.”

The decision on the proxy access rule (officially known as S7-10-09) did grab the headlines in the financial press (Bloomberg, Oct. 2) since it meant that there is a good chance that institutional investors, hedge funds and other shareholder groups would not be able to run effective campaigns against incumbent directors in the 2010 proxy season. In this case, maybe expediency isn’t more important than substance. Nearly four months after the SEC proposed the rule, the commission doesn’t seem to be in a position to bring it to a vote. The IAC only held its first meeting Monday, and that 18-person body was designed to advise the commission on matters concerning investors.

Of the committee’s three subcommittees – Investor Education, Investor as Purchaser and Investor as Owner – it is the latter headed by Stephen Davis (executive director of Yale University School of Management Millstein Center for Corporate Governance and Performance) that has the biggest wish list. In addition to proxy access, the subcommittee plans to tackle majority voting, the role of proxy firms, collective actions by investors, the need for an independent chair, executive compensation and compensation consultants, and international financial reporting standards.

“Our purpose is to look at what happened over the last two years regarding the crisis and to see how the SEC is equipped to deal with this,” Davis told the IAC Monday. While Davis’ panel understands it has a full plate, it is being careful not to act in haste on any issue.

“We decided if we acted now on majority voting, it could muddy the waters on proxy voting (access),” he said. “We really need to know what the SEC’s view is on majority voting first.”

But it was the full committee’s reluctance to even vote on the Regulation FD guidance resolution that seemed a bit troubling for investors. The failure to even vote on whether there was a consensus for such an innocuous measure could be ominous. The main reason for the guidance request were July 15 comments made by Schapiro at the International Corporate Governance Network (ICGN) annual conference in Sydney, Australia. She said Regulation FD does not restrict communications between companies and shareholders, but rather restricts selective disclosures of “material non-public information.”

In addition to Schapiro’s comments, another reason the subcommittee took up the issue is that general counsel are telling directors they are precluded from discussing company governance unless they discussed it with all the shareholders. There is a belief that some public companies are using Regulation FD to avoid reaching out to shareholders.

Davis must have been a bit surprised by the committee’s actions since he wrote in his Compliance Week column (Sept. 15-membership required) that “the investor committee may further request boilerplate guidelines that corporate and shareowner lawyers can use to ensure that director discussions with owners stay within Reg FD boundaries…There’s no reason to expect the SEC to do anything other than happily oblige. At that point, Reg FD should once and for all go away as an obstacle to talking.”

Posted by Gary Larkin at 10:16 AM | No Comments »

Permalink: Reform Deferred at SEC…For Now