SEC Director of Corporation Finance Encourages Continuous Examination of Rules
Commentary by Steven Lofchie
SEC Director of Corporation Finance Keith Higgins identified rules that deserve reexamination and modernization.
In a speech before the National Institute on Executive Compensation, Mr. Higgins highlighted requirements that were worthy of consideration. These include Item 10 ("Compensation Plans") of Schedule 14A ("Information Required in Proxy Statement"). He questioned whether the SEC rules needed to provide better guidance about the matters that companies should cover in their "brief" descriptions, and whether investors are getting the information they need to make informed voting decisions about the plan. He questioned whether the level of disclosure is "in the weeds," and pointed to specific language in Item 10 that might be confusing for investors.
Mr. Higgins also examined Form S-8 ("Registration Statement under the Securities Act of 1933") and argued that it may be time to "reexamine" the "traditional" assumption that 401(k) plans are "beyond ministerial activities." He suggested that interested parties look at how other regulatory restrictions on 401(k) plans under tax and ERISA rules affect these self-directed brokerage accounts. Additionally, he asked whether registration under the threat of Securities Act liability provided meaningful employee-investor protection or has been "largely a compliance exercise."
He encouraged ongoing discussion about ways to modernize rules for executive compensation and corporate governance.
Commentary
One of the biggest impediments to a fresh examination of existing rules is the political danger to any regulator of being seen as loosening a rule in any way, lest they be construed as capitulating to the financial industry. In a rational world, rules would be subject to continuous reexamination. But the broader question is whether reexamination means making a genuine assessment (perhaps resulting in the retraction of a rule that is no longer working) or continually adding new requirements. Will the SEC be able to convince Congress to allow it to look at old rules when years will pass before it catches up with the new rules that Congress has required it to adopt? Under the current climate, that is difficult to imagine. That said, Mr. Higgins should be commended for asking straightforward questions about the utility of several existing requirements.