TheCorporateCounsel.net

March 12, 2009

The Battle for the SEC’s Budget

To me, among the big “sleepers” in the race for who is most to blame for what went wrong with financial regulation are those Congressional overseers who failed to direct sufficient resources to the SEC and other financial regulators – and you won’t see them calling themselves before a committee to be subjected to a public flogging. In over 10 years of working at the SEC, I recall that a substantial portion of that time was spent under one sort of hiring freeze or another, and the general question on everyone’s mind was always “how do we do more with less?” Granted, in the wake of Sarbanes-Oxley, the agency got the opportunity to beef up, but it amazes me to this day how quickly that advantage eroded. Within only 5 years of enactment of Sarbanes-Oxley, there was a risk that lawyers would become an endangered species in Corp Fin, as Staffers left and a prolonged hiring freeze prevented acquiring any replacements. I myself oversaw an office that had more than doubled in size after 2002, only to shrink again to back to its prior size just a few short years later. During just the first two years of former Chairman Cox’s tenure, Corp Fin’s Staff shrank by a whopping 13%! In short, the budget has a huge impact on the effectiveness of regulators – in many instances, budgetary pressures mean doing less, because doing more with less is no longer an option.

As Broc mentioned in the blog last week, the SEC is seeking a significant increase in its budget, which very well may be too little, too late. In testimony yesterday before the House Appropriations Committee’s Subcommittee on Financial Services and General Government, Chairman Schapiro set out in more detail how the SEC intends to utilize an increased budget (including a $17 million “reprogramming request”). Among the top priorities are to:

1. add staff to the SEC’s Enforcement program to focus on pursuing tips, complaints, and other leads;

2. add new positions in the Examination program to expand its inspections of credit rating agencies, and to strengthen risk-based surveillance and examination oversight of investment advisers;

3. increase the number of staff in the Office of Risk Assessment specifically dedicated to deepening the SEC’s understanding of risk, and incorporating risk assessment into all aspects of the agency’s operations; and

4. enhance technology, including improved systems for: handling tips, complaints and referrals; monitoring risks; and managing cases and exams.

Now we will just have to wait and see what the SEC ends up getting for fiscal year 2010. If past practice is any indicator, we should know that some time in 2011.

Say-on-Pay Proposal Defeated at Disney

As noted in this LA Times article, a shareholder proposal asking Disney’s board to provide for an advisory vote on executive compensation received 39% support earlier this week. If you back out abstentions, the level of support was 42%. While not a majority, these numbers clearly represent significant support for the measure, and may foreshadow the possibility some majority votes on these proposals coming up this proxy season.

Disney shareholders were apparently less enamored with a shareholder proposal seeking to address so called “golden coffin” benefits. Several of these proposals are likely to be on ballots this year, courtesy of AFSCME and other proponents. At Disney, the proposal only got 27% of the vote. It was a nice touch, however, that Scott Adams from AFSCME handed the Disney board members a golden nail to hammer into the golden coffin benefits, but apparently such theatrics were not enough to carry the day on the proposal.

Aligning Compensation Incentives with Corporate Objectives

In this CompensationStandards.com podcast, David Koenig, Founding Partner of Ductilibility, discusses how companies can align their compensation incentives with risk management objectives, including:

– How work regarding risk and pay ties into today’s environment
– How a compensation incentive system with objective performance metrics might actually lead to misalignment between an employee’s incentives and the company’s operational objectives
– Whether corporate codes of ethics are effective in preventing risky behavior, including the “risk manager’s dilemma”

– Dave Lynn