The SEC's Christopher Cox on Executive Pay and More
Since taking charge of the Securities and Exchange Commission nearly two years ago, Chairman Christopher Cox has rung up a string of regulatory victories, confounding some critics who thought he'd go lax on corporate accountability. Senior Writer Kit R. Roane talked with Cox recently about his history, what he's learned, and what he wants to accomplish next. Excerpts follow.
What is your proudest achievement so far at the SEC?
Without question, it is our dramatic reforms in the disclosure of executive compensation. When I came to the commission, there was a good deal of complaint about the lack of clear disclosure of how much the boss makes. But despite all the talk, nobody was doing anything about it.
Beginning this year, shareholders will receive dramatically more information and in far clearer fashion about executive pay than they ever have had before. As you know, that will include the distillation of all forms of compensation into one number. It used to be that shareholders had to hunt through financial statements, footnotes, proxy statements, and disclosure documents, and even in that they might not find it particularly easy.
What is the greatest challenge going forward?
Maintaining America's high standards in this era of global securities markets is one of our greatest challenges. The New York Stock Exchange is combining with Euronext and forming alliances with overseas exchanges, such as in Japan. The Nasdaq has bought a 25 percent share of the London exchange. Other markets around the world are looking to consolidate.
At the same time, retail investors in America are being exposed, for the first time, to opportunities to directly purchase foreign securities. Technology is bringing the whole world closer together and faster than anybody would have imagined just 10 years ago. There is no question where the market is headed. But securities regulations in the 21st century have to be sturdy enough to protect American investors and our markets, in the midst of truly international forces. Our capital markets are an extraordinary resource, and protecting them means protecting our national savings, the engine of job creation and the lifeblood of our economy.
Is U.S. market regulation harming our competitiveness?
No, but we need to keep pace with change. The SEC has been successful throughout its history by constantly changing in response to the changing marketplace. Without question, both technologically and commercially, the markets are in a state of rapid flux. Regulation has to keep apace with that, but that is very different than saying that there is overregulation.
Some of the SEC's recent moves have concerned shareholder advocates. One in particular is your decision to weigh in on an important Supreme Court case (known as Tellabs), arguing that shareholders in the case needed to pass a higher hurdle in bringing lawsuits under the 1995 Shareholder Litigation Reform Act, a law you helped pass.
We have sided with the largest number of courts that have interpreted the law. The law provides important protections for shareholders against unscrupulous lawyers. Private lawyers, unlike the SEC, have a financial stake in the outcome of litigation, which raises conflicts of interest that the SEC must police. In Tellabs, we argued against an expansive reading of the statute that would have, in effect, repealed a key protection for shareholders.
The SEC's chief accountant, Conrad Hewitt, recently urged that "something ... be done" to limit the exposure of the Big Four accounting firms to liability. Do you support capping legal damage awards against accounting firms that fail to uncover fraud in corporate audits?
I haven't spoken to that. What I have said is that the discussion of liability limits for accounting firms is for the Congress, not the SEC. The SEC, and certainly the chairman, have not made such a recommendation to the Congress. The SEC has many authorities, but that is not one of them, so we are sticking to our responsibilities here.
Do you believe the Public Securities Litigation Reform Act was strong enough, or would you support further reforms in this area?
I believed at the time, and the ensuing decade of experience under the law has borne this out, that the law struck an appropriate balance between promoting sound litigation and preventing fraud against shareholders.
Now that you have another vantage point, do you feel any of your positions or votes while a congressman were mistakes or ill-informed?
It requires a lot of humility to consider that question. We should all be humble with using hindsight. A couple of times I pressed the wrong button; I would surely change those votes. But if I go back and think about the votes I've cast, if I'd changed my vote, I would have fixed one problem and caused another. On the big issues, on general principles, I still strongly believe in economic growth through lower taxes, and a whole lot of things I don't have anything to do with as commissioner.
In 1995, you were named in investor lawsuits against First Pension Corp. You had done legal work for the company, which later failed, and its principals were convicted of fraud. Although you were later dropped from the lawsuit, did the experience affect your thinking?
Fortunately, with that experience, the system worked reasonably quickly. But certainly in my years of observing the working of the civil justice system, I was made amply aware of the costs to ordinary citizens of the litigation system. I can assure you that if I had ever believed that a client of mine was guilty of fraud, I would have acted immediately to end the representation and refer the matter to the authorities.
Has your long history in Washington, D.C., taught you anything?
I grew up with Democrats in Minnesota and Republicans in Orange County [Calif.]. I still visit both places. What I find is that, outside of Washington, people of various political stripes seem always to put the country first and politics second. The temptation in Washington is to put politics first. Whether we are Republicans or Democrats in charge of protecting American investors, we have a responsibility to keep partisanship out.
What's on the table for you this year?
We're redoubling our efforts to protect senior citizens from fraud. We have aggressively moved to give investors the full benefits of today's technology. We are working closely with our overseas counterparts to make regulation work in this new global environment. And we're simplifying the presentation of disclosure so that investors get to see things in plain English, rather than legalese.
Is it going to be harder getting unanimous votes out of the SEC this year because of the contentious nature of the issues?
It's never easy to tackle tough issues and resolve them to everyone's satisfaction. The way we have been able to do that on the commission is that there has been a lot of mutual respect. Our skills and experiences complement one another nicely. There is no guarantee that we will always agree. But I remain convinced that we will have a collegial commission even if necessarily we have an occasional disagreement.
Comments? Please direct them to kroane@usnews.com.