January 7, 2009

Incoming SEC Chair Schapiro: A Rebuttal

In today’s Washington Post, Steven Pearlstein writes a column arguing that Mary Schapiro would be a great choice as SEC Chair at any other time but now. I often agree with Pearlstein’s thoughts, but I contend that Mary indeed is a great choice – and now is the most when we need someone with her incredible experience and willingness to act independently. Here are a few specific points:

1. Experience to Spare – No one can come close to Mary’s experience – a SEC Commissioner at a young age when most lawyers are still learning the rudimentary basics; a former Chair of the CFTC (an agency with a different culture and mission, which may soon be merged with the SEC) and in leadership positions at FINRA (and its predecessor, the NASD) for the past decade. She is the best person to parse the issues related to reforming the derivative disaster, which is some complicated stuff. And if I remember correctly, she was appointed to the Commission back in 1988 as an “Independent,” long before that became fashionable. I dare say there has never been anyone with this breadth of experience…ever.

2. Need Level-Headed Drastic Measures – I agree with Pearlstein that drastic measures have to be taken to shake up Wall Street culture. As Pearlstein admits, Mary is a reformer committed to protecting investors. He even admits that he knows Mary comprehends the fundamental problem with Wall Street’s culture. Pearlstein rests his argument on his belief that Mary won’t launch a brutal assault on Wall Street.

I disagree that Mary is not up to the task. When the coming regulatory reform is here, we need someone capable of knowing what is “baby” and what is “bathwater.” As someone who has worked inside the SEC twice, I can tell you that this is harder than it seems. I would have little confidence in someone without a regulatory background being able to keep level-headed.

Let’s face it. The market already has kicked off the drastic measures to clean up Wall Street. A massive correction has begun as all the investment banks have laid off thousands and none of the major ones remain on a stand-alone basis. I don’t know Mary personally, but I do know many that do – and they all say she is an independent thinker and has the utmost integrity. I believe she will be able to figure what the nature of the “assault” that Wall Street needs, without overreaching and hurting our financial system more than necessary.

3. No Confidence in a “Joe Kennedy” – From the opening of Pearlstein’s column, I guess he is wishing someone that created this crisis was tapped as the next SEC Chair, which is what FDR did when he hired Joe Kennedy as the first SEC Chair. Who is he looking for, Hank Paulson?

I can’t imagine a bigger mistake than picking someone from Wall Street to untangle this mess – and I surely doubt that type of pick would inspire confidence among the investing public. I would argue that Kennedy was picked in an era when no viable candidates were available since no real regulators existed.

4. Don’t “Clean House” at the SEC – Pearlstein basically makes two arguments against Shapiro – the first is that she won’t assault Wall Street, which I address above. And the second is that she won’t “clean house” at the SEC. I’m not sure what Pearlstein means by “cleaning house” but it scares me.

I do agree that the SEC needs an overhaul to perform more efficiently – but one thing that surely doesn’t need change is the Staff itself. Most of the people there truly believe in the mission of investor protection – and they work for little pay. When a new Chair comes in, there often are changes in key personnel (eg. General Counsel, Chief Accountant) and these changes are already underway. But beyond that, there often is little change and that is a good thing.

In fact, I would argue the converse – there has been too much “brain drain” over the past decade as some of the SEC’s finest Staffers have left to either seek more money or escape a poorly-run SEC during the current Chair’s tenure. With a better “tone at the top,” I expect we shall see an invigorated SEC that will help restore its reputation as one of the finest federal government agencies in town.

The bottom line is that we should be grateful that Mary is willing to take a large pay cut to serve as SEC Chair (from $2 million/yr. as FINRA head to $158k as SEC Chair) – and we should give her all the support she will need. Clearly, the SEC will face the biggest challenges in its history over the next few years. Here is one guy who agrees with me…

Proxy Season Items and More Meltdown Stuff (and Don’t Forget to Renew)

Since all memberships are on a calendar-year basis, please note that today is the end of the “grace period” for – meaning that if you don’t renew today, you will be unable to access Pat McGurn’s webcast on Monday: “Forecast for 2009 Proxy Season: Wild and Woolly.” Renew now for ’09! [Here is our “Renewal Center” to better enable you to renew all your expired memberships and subscriptions.]

We recently sent the Nov-Dec issue of The Corporate Counsel to the printers. This issue includes pieces on:

– Proxy Season Items and More Meltdown Stuff
– Former Executive Officers and Former Directors—Proxy Disclosure Checklist
– Item 404(a)—When Does a Law Firm Partner Have a Material Interest in the Firm’s Relationship with the Issuer?
– The Staff’s Rule 14a-3 Relief Authority
– Whatever Happened to the Proposed Amendment of NYSE Rule 452 to Ban Uninstructed Broker Voting of Street-Name Shares in Director Elections?
– Meltdown Accounting Issues
– Rule 14a-8 Practice Update
– A Suggested Alternative to Repricing Melted-Down Stock Options
– Updating Risk Factors—Update

Act Now: Get this issue on a complimentary basis when you try a 2009 no-risk trial today. And for those that already subscribe, don’t forget to renew for ’09 since all subscriptions are on a calendar-year basis.

Relief for Companies with Underfunded Plans: New Pension Bill Enacted

On December 23rd, President Bush signed the Worker, Retiree, and Employer Recovery Act of 2008, which provides relief for companies that contribute to single-employer and multiemployer defined benefit plans, as well as for certain individual taxpayers. We have posted memos regarding the new Act in our “Pension Plans” Practice Area.

– Broc Romanek