Category Archives: Speeches & Testimony

Clawbacks of Erroneously Awarded Compensation

Michael S. Piwowar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Piwowar’s recent remarks at a recent open meeting of the SEC; the full text is available here. The views expressed in the post are those of Commissioner Piwowar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

A few months ago, the baseball world celebrated the 90th birthday of Yogi Berra, the legendary former catcher and manager for the New York Yankees. Yogi Berra is well-known for his witty comments, often referred to as “Yogi-isms.” [1] Several come to mind today, as we consider another rulemaking related to executive compensation.

“Pair up in threes.”

Following our earlier efforts on hedging and pay versus performance, today’s proposal is the third relating to executive compensation that we have considered in 2015. The Commission has yet again spent significant time and resources on a provision inserted into the Dodd-Frank Act that has nothing to do with the origins of the financial crisis and affects Main Street businesses that are not even part of the financial services sector. Why does the Commission continue to prioritize our agenda with these types of issues, when rulemakings that are directly related to the financial crisis remain unaddressed?

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Making Executive Compensation More Accountable

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at a recent open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff. Related research from the Program on Corporate Governance about CEO pay includes Paying for Long-Term Performance (discussed on the Forum here) and the book Pay without Performance: The Unfulfilled Promise of Executive Compensation, both by Lucian Bebchuk and Jesse Fried.

When it comes to compensation, Americans believe you should earn your money. They also believe, just as strongly, that you should not keep what you did not earn. It’s fundamental to our values. However, when companies have to restate their financial statements because they violated applicable reporting requirements, their executives may not be required to reimburse any incentive-based compensation that was erroneously paid. In other words, they get to keep what they never should have received in the first place.

And, quite often, we are talking about very large amounts. In today’s corporate world, many executives are earning eye-catching sums. Much of the increase in executive compensation is commonly attributed to the impact of incentive-based compensation, including equity and other performance-based compensation plans.

Incentive-based compensation plans are intended to align the interests of company managers and shareholders. However, when a company is required to issue a restatement, and when its executives have been paid compensation based on inflated financial results, this alignment disappears. In such cases, it is only fair that these erroneously awarded payments be recovered.

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The Role of Chief Compliance Officers Must be Supported

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Chief Compliance Officers of Investment Advisers (CCOs) play an important and crucial role in fostering integrity in the securities industry. They are responsible for making sure that their firms comply with the rules that apply to their operations. As part of that effort, CCOs typically work with senior corporate leadership to instill a culture of compliance, nurture an environment where employees understand the value of honesty and integrity, and encourage everyone to take compliance issues seriously. CCOs of investment advisers (as with CCOs of other regulated entities) also work to prevent violations from occurring in the first place and, thus, prevent violations from causing harm to the firm, its investors, and market participants. Given the vital role that CCOs play, they need to be supported. Simply stated, the Commission needs capable and honest CCOs to help protect investors and the integrity of the capital markets.

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A Threefold Cord—Working Together to Meet the Pervasive Challenge of Cyber-Crime

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent address at SINET Innovation Summit 2015; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Cybersecurity is an issue of profound importance in today’s technology-driven world. What was once a problem only for IT professionals is now a fact of life for all of us. I say “us” because, as you may know, hackers breached a government database a few weeks ago and stole the personal information of roughly four million government employees, which may well include me.

There’s hardly a day that goes by that we don’t hear of some new cyberattack. These incidents are clear illustrations of how the internet has become an integral part of our professional and personal lives. And while the benefits have been enormous, so, too, have the risks.

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Building Meaningful Communication and Engagement with Shareholders

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at the national conference of the Society of Corporate Secretaries and Governance Professionals, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I am honored to be with you here in Chicago at the Society’s 69th National Conference. Over the years, the Society has consistently provided thoughtful comments to the Division of Corporation Finance and the Commission on a wide variety of issues and proposed rules. You understand the complexities that can affect multiple parties and recognize the importance of the interests of shareholders. All of you play a critical role in corporate governance. It is the decisions you make, the practical solutions you advance and the views you share with your boards that can, in large part, dictate the relationship between shareholders and companies.

Because of your central roles in your companies, many of the Commission’s initiatives are of interest to you: our disclosure effectiveness review; the audit committee disclosures concept release the staff is working on; and any number of our rulemakings. My hope is that you will see near-term activity in these and other areas, including rules mandated by the Dodd-Frank Act, such as the clawbacks rule as required by Section 954, the pay ratio rule under Section 953(b) and the joint rulemaking on incentive compensation as required by Section 956. So stay tuned for those developments.

But today my focus is on a selection of proxy-related issues, another area of particular interest to you. And my overall theme complements the theme of your conference, “Connect, Communicate, Collaborate.” Be proactive in building meaningful communication and engagement with your shareholders.

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Getting to Know You: The Case for Significant Shareholder Engagement

F. William McNabb III is Chairman and CEO of Vanguard. This post is based on Mr. McNabb’s recent keynote address at Lazard’s 2015 Director Event, “Shareholder Expectations: The New Paradigm for Directors.”

I’ll begin my remarks with a premise. It’s a simple belief that I have. And that is: Corporate governance should not be a mystery. For corporate boards, the way large investors vote their shares should not be a mystery. And for investors, the way corporate boards govern their companies should not be a mystery. I believe we’re moving in a direction where there is less mystery on both sides, but each side still has some work to do in how it tells its respective stories.

So let me start by telling you a little bit about Vanguard’s story and our perspective. I’ll start with an anecdote that I believe is illustrative of some of the headwinds that we all face in our efforts to improve governance: “We didn’t think you cared.” A couple of years ago, we engaged with a very large firm on the West Coast. We had some specific concerns about a proposal that was coming to a vote, and we told them so.

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Quality Data and the Power of Prevention

Kara M. Stein is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Stein’s recent address at Meet the Market North America, available here. The views expressed in the post are those of Commissioner Stein and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

As many of you know, I care passionately about the success of the Legal Entity Identifier (or LEI).

With the financial crisis in the rear view mirror, it is sometimes easy to forget the forces that converged in 2007 and harmed both our financial markets and our economy. The events of 2008 are indelibly etched into my memory. I remember when many of our country’s economic leaders began closed-door briefings with members of Congress. Concerned about the unfolding financial crisis, the Chair of the Federal Reserve and the Secretary of Treasury plead for help and for an unprecedented financial intervention to stave off another Great Depression. They wanted tools to protect our nation from powerful forces that were pulling the financial system deeper and deeper into distress and potential chaos. At the edge of the abyss, our economic and policy leaders developed a strategy to stabilize our financial system and unlock the halting credit markets. [1]

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Failing to Advance Diversity and Inclusion

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [June 9, 2015], the Securities and Exchange Commission failed to take meaningful steps to advance diversity and inclusion in the financial services industry, as required by Section 342 of the Dodd-Frank Act. Accordingly, I have no choice but to dissent from the Final Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies (the “Final Policy Statement”) that was issued today by the SEC and a number of other financial regulators.

The financial services industry has a long history of failing to promote diversity in its workforce. The industry has consistently failed to recruit and retain a diverse workforce over the years, and the need is particularly acute at the executive and senior management levels. This lack of diversity has persisted despite the mounting evidence that diversity makes the American workforce more creative, more diligent, and more productive—and, thus, makes U.S. companies more profitable.

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Remarks Before the SEC Historical Society

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at the annual meeting of the SEC Historical Society, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I was delighted to be able to speak at your annual meeting. This yearly event of the SEC Historical Society is always the right occasion to underscore that those of us who currently have the privilege of serving at the SEC are part of a long and important tradition. The staff of this agency is beyond compare in its dedication, high-mindedness and expertise, making us all very proud to work here.

The SEC alumni are undoubtedly the biggest, most supportive and most enthusiastic group of any government agency or private entity. The SEC’s history is one of important public service and a tradition of protecting investors and bringing confidence to the financial markets. The SEC’s commitment to markets that are both safe and fair, as well as dynamic, has given millions of people the opportunity to share in the growth of the American economy, while facilitating capital formation to fuel the economy.

Those of us here today, who are or who have been part of the SEC tradition, can be rightly proud of our role in shaping a financial system that meets the needs both of visionary entrepreneurs, and those contributing as much as they can to their 401(k) or for their children’s college education.

As a reminder of your service at the SEC, I have been asked to very briefly share with you some of what we are working on—now and for the near future. I think you will recognize in that work the mission that brought you to the agency and which should continue to resonate long after you left your SEC post.

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Capital Unbound: Remarks at the Cato Summit on Financial Regulation

Michael S. Piwowar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Piwowar’s recent remarks at the Cato Summit on Financial Regulation. The complete publication, including footnotes, is available here. The views expressed in the post are those of Commissioner Piwowar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I am happy to be with you in New York City. When I have the opportunity to travel for meetings or to conferences such as this, I have fundamentally different conversations than when I am in Washington, D.C. In Washington, conversations frequently are scripted. Participants, who may be accompanied by trade association representatives and lawyers, use their talking points and have been coached to “stay on message.” Those discussions are undoubtedly meaningful as we at the Securities and Exchange Commission (“Commission” or “SEC”) engage in rulemaking and otherwise set policy.

But outside of Washington D.C., people generally want to talk about something else. They want to share their dreams and concerns about running their businesses. They want to show how their products, services, and innovations contribute to the economy, create jobs, and improve standards of living. And more importantly, they want to demonstrate how inside-the-beltway regulations are often focused on concerns that do not represent the biggest risks of harm to investors, customers, and businesses outside the beltway. I hear how regulations distract attention from the real risks and challenges of operating a business in globally competitive markets.

Compliance with securities laws and regulations is only one component of running a company. A business must also comply with laws on consumer protection, taxes, safety, employment, zoning, and the environment, to name only a few. If you have multiple locations—such as in New York, New Jersey, and Connecticut—you must deal with regulators in each jurisdiction. Soon, it may seem like you exist not to provide a good or service, but just to stay in compliance with the law.

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