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Chairman Schapiro's Address Before the Stanford Directors' College


On June 20, 2010, SEC Chairman Mary L. Schapiro addressed the Sixteenth Annual Directors' College at Stanford Law School, an executive education program for directors and senior executives of publicly traded firms.  Schapiro's remarks described three main areas where the SEC is focusing its regulatory agenda.  

Adapting the Commission's regulatory approach to meet the challenges of the current structure of the financial markets

Schapiro opened her remarks by discussing the ways  the SEC is responding to rapidly changing trading and market technology.  In particular, the Commission has committed itself to finding out what caused the May 6 "Flash Crash" by forming Advisory Committee, comprised of two Nobel Prize winning economists, three former CFTC or SEC Chairmen and other distinguished experts. Also, the Commission has proposed rules intended to prevent such market disruptions in the future by halting trading for certain individual stocks if their price moved 10 percent in a five minute period. In addition, the Commission recently proposed rules designed to bring order and transparency to the process of breaking "clearly erroneous" trades. 

Protecting the interests of investors in transparent, secure markets

The Commission continues to focus on improving disclosure designed to provide investors with "the timely and accurate information they need to analyze a company's operating results, financial position and risk, and thus make informed investment decisions."  One area of focus is reporting of financial results.  Schapiro reiterated the Commissions committment to the convergence of U.S. GAAP and International Financial Reporting Standards, or "IFRS."

Reconciling rules to support the evolving dialogue between corporate boards, managers, and their shareholders concerning corporate governance

Though the Commission's job is not to define what is or is not good corporate governance, Schapiro noted that the SEC is in a unique position "to enhance the dialogue between boards and investors, strengthening best practices in corporate governance."  Disclosure is a key tool the SEC uses to foster good corporate governance, and the Commission recently adopted new disclosures about the qualifcations of company directors.   According to Schapiro, "investors should have detailed information about directors' and nominees' qualifications; about compensation consultants' fees and conflicts; and about the relationship between a company's overall compensation policies and its risk profile."  The newly required disclosures "require more than the bare outline of a board candidate's qualifications, they also require the 'specific experience, qualifications, attributes or skills that led to the conclusion that the person should serve as a director…in light of the [company's] business and structure.'"   

In addition to enhanced disclosures about director qualifications, the Commission has also adopted rules requiring companies to disclose discussion of the risk-related responsibilities of the board and its various committees. In both cases, Schapiro provided examples of disclosures actually submitted that she considered particularly strong or weak.  

While the Commission's regulatory agenda may soon be diverted by financial regulatory reform legislation, Chairman Schapiro's June 20 speech provides a solid summary of the Commission's regulatory focus at the moment.  Schapiro concluded her remarks by inviting her audience and all market participants to help the Commission refine its regulatory efforts toward market structures.

These are only a sampling of the questions that we cannot answer alone. Just as the back-and-forth between boards and shareholders yields better decisions, the back-and-forth between regulators and stakeholders improves the process, as well. I hope that you and your companies actively participate in this concept release, because we really do need to hear from you.

The full text of Chairman Schapiro's address at Stanford is available at: