Marc I. Steinberg is the Radford Professor of Law at Southern Methodist University Dedman School of Law. This post relates to a recently published book by Professor Steinberg. Related research from the Program on Corporate Governance includes Federal Corporate Law: Lessons From History, by Lucian Bebchuk and Assaf Hamdani.
In my recently published book, The Federalization of Corporate Governance (Oxford University Press 2018) (ISBN 978-0-19-993454-6), I explore this process of federalization in the United States from 1903 to the present. Clearly, the states, particularly Delaware, traditionally have been and continue as principal regulators of the sphere of corporate governance. Nonetheless, to an increasing degree, the federal government, the SEC, and the national stock exchanges impact corporate governance standards. The book views this federalization as an evolutionary process that commenced at the beginning of the twentieth century. Going through periods of activism, gradual transition, and stagnation, the process intensified with the enactment of the Sarbanes-Oxley and Dodd-Frank Acts.
To view these Acts as representing a revolutionary transformation with respect to federal oversight of corporate governance is an exaggeration. Rather, they symbolize a period of enhanced activism whereby this federalization process was accentuated. From a historical perspective, between 1903 and 1914, 24 bills were introduced in Congress which sought to require federal chartering and/or the implementation of federal minimum substantive standards. During that era, both Presidents Roosevelt and Taft favored federal incorporation. Between 1914 and 1930, another seven bills were introduced in Congress seeking to effectuate similar objectives—with one such bill requiring that the Federal Trade Commission approve executive officer remuneration. Interestingly, the next significant legislative effort occurred 50 years thereafter with the Metzenbaum Bill of 1980 which prescribed federal minimum standards that largely focused on adherence to fiduciary duties, including with respect to related-party transactions. Although hearings were held through the years, none of these bills were enacted.
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The Effect of Enforcement Transparency: Evidence from SEC Comment-Letter Reviews
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Miguel Duro is Assistant Professor of Accounting and Control at University of Navarra IESE Business School, Jonas Heese is Assistant Professor of Business Administration at Harvard Business School, and Gaizka Ormazabal is Associate Professor of Accounting and Control at University of Navarra IESE Business School. This post is based on their recent paper.
Regulators increasingly rely on policies to disseminate their oversight actions, with the assertion that the disclosure of regulatory oversight activities can enhance the effect of enforcement by increasing third-party monitoring. However, the validity of this assertion has rarely been tested. In this study, we examine the effect of the public disclosure of the Securities and Exchange Commission (SEC) oversight activities on firms’ financial reporting. Specifically, we exploit a major change in the SEC’s policy regarding comment-letter reviews (henceforth “CLs” or “CL reviews”). Contrary to its prior policy, the SEC announced in 2004 that it would begin to publicly disseminate all CLs. From a research-design perspective, our setting provides three strengths: (1) the change was unexpected, (2) affected all public firms (all public firms are subject to CL reviews at least once every three years), and (3) did not modify the underlying regulation, but simply required the disclosure of CLs.
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