SEC Chair White Discusses Director Responsibilities and Defends the Whistleblower Program

At the Stanford Directors College, SEC Chair Mary Jo White delivered a speech about director responsibilities and the SEC's whistleblower program.

Chair White explained that directors play a "crucially important" role in overseeing a company by preventing, detecting and stopping violations of federal securities laws. She emphasized that directors must set the standard for good corporate governance and rigorous compliance in order to create a strong corporate culture throughout an organization, noting that, often, deficient corporate culture is the cause of the "most egregious" securities law violations. Additionally, she stated, it is the job of directors to be knowledgeable about issues, to be vigilant in protecting against wrongdoing, and to tackle difficult issues head on. &

In encouraging directors to take an active role in creating a positive corporate culture, Chair White acknowledged that people often question whether the SEC discourages strong directors from serving on boards because of the risk that such directors might be caught in an SEC enforcement action. Chair White responded by explaining that, oftentimes, directors must decide if it is appropriate to self-report an issue to the SEC. She highlighted certain benefits of cooperation, including the reduction of a penalty or no penalty in certain cases.

Regarding internal investigations, Chair White explained, companies have voiced concerns about whistleblowers reporting wrongdoing to the SEC that is either unknown to senior management or has not yet been reported by companies to the government. She said that certain incentives are in place to motivate those with reliable information about misconduct to work within their company's own compliance procedures. For example, if a whistleblower first reports to the company and then reports to the SEC within 120 days, the whistleblower not only receives credit for whatever information the company discovers as part of its internal inquiry, but also is considered to have reported to the SEC on the date he or she first reported to the company.

Chair White closed by encouraging directors to foster a culture which ensures that investors in "capital markets can invest with confidence, knowing that a company's disclosures are accurate, that their finances have been adequately and transparently reported and audited, and that their management is carrying out the business in the way they have said they are."

See: Chair White's Speech.See generally: Cabinet Whistleblower Page.