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13 Oct. 2009 | Comments (0)

Directors, general counsel, C-level executives and others involved in corporate governance may want to take note of the SEC’s draft Strategic Plan for Fiscal Years 2010-2015. For starters, the plan of more than 70 initiatives is a lot more specific and prescriptive for its staff than the previous five-year plan in 2004 and it includes performance metrics to measure the agency’s ability to achieve its four goals. [caption id="attachment_99" align="alignright" width="131" caption="SEC Five-Year Strategic Plan Draft"]SEC Five-Year Strategic Plan Draft[/caption] The SEC is planning on issuing investor alerts and other education efforts designed to arm investors in their own first line of defense against fraud and help them understand both intermediaries and new products. With the SEC under intense scrutiny for lax enforcement during the Bush administration highlighted by the Bernard L. Madoff Ponzi scheme, companies may want to look at Strategic Goal No. 2: Establish an Effective Regulatory Environment. Having already proposed a myriad of governance-related rules and amendments – shareholder proxy access and disclosure regulations regarding compensation policies, company leadership structure and the board’s role in risk management – the SEC under Chairman Mary Schapiro is intent on changing the way it enforces its regulations. This is the third such five-year plan the SEC has created under the 1993 Government Performance and Results Act. If you wish to comment on the draft five-year plan, the SEC asks that you send letters to by Nov. 16. The SEC spells out its principles for securities regulation: “First, all investors should have equal access to accurate, complete and timely information about the investments they buy, sell and hold. Second, investors should be able to rely upon self-regulatory organizations, broker-dealers, investment advisers, investment companies, and other market participants to conduct investors’ securities transactions efficiently and in the investors’ best interests.” As part of the effective regulatory environment goal, it plans on achieving three outcomes:
  • The SEC establishes and maintains a regulatory environment that promotes high-quality disclosure, financial reporting, and governance, and prevents abusive practices by registrants, financial intermediaries, and other market participants.
  • The U.S. capital markets operate in a fair, efficient, transparent, and competitive manner, fostering capital formation and useful innovation.
  • The SEC adopts and administers rules and regulations that enable market participants to understand clearly their obligations under the securities laws.
If you were thinking this SEC under Schapiro was not going to take up such  hot button issues like proxy access, risk management disclosure, separation of chair and CEO, executive compensation and international financial reporting standards, forget it. Just look at what is listed under Outcome 2.1:
  • Improve the quality and usefulness of disclosure – Areas of focus will include disclosure about risk management, executive compensation decisions and practices, nomination of directors, board governance and discussion and analysis of results of operations and financial condition.
  • Strengthen proxy infrastructure.
  • Promote high-quality accounting standards – Support a single set of high-quality global accounting standards and promotion of the ongoing convergence initiatives between the FASB and the IASB.
Among the many metrics the SEC will use to measure its own progress is a survey of financial analysts and institutional investors on the quality of disclosure, the percentage of transaction dollars settled on time each year, the speed of execution of transactions in the securities markets and the length of time to respond to written requests for no-action letters, exemption applications and written interpretive requests. By the way, the other goals for 2010-2015 plan are:
  • Foster and enforce compliance with the federal securities laws.
  • Facilitate access to the information investors need to make informed investment decisions.
  • Enhance the commission’s performance through effective alignment and management of human, information, and financial capital.

‘Doctrine of no surprises’ Not a Goal this Time

If you want to get an idea how much priorities can change at the SEC in five years, take a look at the last strategic plan in 2004. Look at what Broc Romanek of wrote back then (The SEC’s 5-Year Plan, Aug. 10, 2004). He writes that Chairman William Donaldson touted how the “new Office of Risk Assessment is leading the way to implement the ‘doctrine of no surprises.’” Guess no matter how much you try, they’ll always be surprises.
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

    Full Bio | More from Gary Larkin


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