Corporate Governance

Regime Change, President Obama, and the SEC

By J. Robert Brown

The new administration has come to Washington.  President Obama gave his inaugural address today.

He made no mention, in the relatively short speech, of corporate governance or the Securities and Exchange Commission.  He did, however, make this one statement:  "Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age."  One can't help but think that he means excessive executive compensation, at least extraordinary amounts that were built on short term and untoward risk taking.  After all, the President sponsored "say on pay" in the Senate.

Mary Schapiro will now lead the Commission (although I looked but could not find any official announcement that Chairman Cox had resigned, opening a position for her to fill).  She was recently accused by the WSJ of someone who, while at FINRA, engaged in regulatory lite.  Perhaps but the fault, to the extent there was any, exists not with Schapiro but with the self regulatory structure of FINRA.  As anyone knows who studies these things, self regulation is inherently limited and prone to problems associated with lack of enforcement.  Had Schapiro been as aggressive as commentators wanted, she wouldn't have survived long in charge. 

Few think that Schapiro will in fact implement an approach of enforcement lite.  Quite the reverse.  She is likely to be a vigerous enforcer of SEC requirements, someone who will fight for additional resources to expand the reach of the Division of Enforcement and improve the effectiveness of OCIE.  The open question with Schapiro is whether she will rigerously support issues of critical importance to individual and institutional investors.  Nothing in her testimony, for example, indicated that shareholder access held much interest or priority.

Unlike other areas of government, this has not been eight dark years at the Commission.  Chairman Donaldson more or less promoted a shareholder/investor agenda and Chairman Cox, early in his tenure, supported SOX at a time when it wasn't popular, particularly among those who saw the market place as the only source of regulation.  But current turmoil has shown substantial weaknesses in the system of corporate governance and in the protections afforded shareholders and investors.  It is time for a regulatory approach that gives these concerns primacy.  On that issue, with respect to Mary Schaprio, the jury is out.

The Race to the Bottom has recently added a Donate link.  The Blog is advertisement free and plans to remain that way.  If you have an interest and enjoy the content, consider a contribution.  Thanks to those who have already done so.

Full post as published by The Race to the Bottom on January 20, 2009 (boomark / email).