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The Securities and Exchange Commission's Christopher Cox has been in the limelight lately -- and not in a good way. The recent short-selling ban looked suspiciously interventionist and downright anti-free market to many of us who don't have too much sympathy for those "poor" companies that screwed up. There were plenty of rational reasons for sagging stock prices beyond some conspiracy theory about short sellers. (Meanwhile, the short-selling ban didn't even work.)
However, this isn't the first time you could reasonably suspect that while the SEC, particularly under Cox, may be looking out for somebody, it sure as heck isn't investors.
Almost a year ago, I was outraged that the SEC had passed a ruling that allowed companies to block shareholders from putting their own director nominees on proxy ballots. The SEC got flooded with 34,000 letters commenting on the topic, but the commission's ruling basically sent the message that investors should put up and shut up.
You may not be surprised that corporate interests lobbied for the ruling. They argued that special-interest shareholder groups can hold too much sway over corporate elections, and that costs money. My response at the time was, and I quote, "boo-freakin'-hoo." As I pointed out, poor governance policies at companies can cost shareholders money, too.
I pointed to a number of bank stocks, all of which were in the hot seat and some of which no longer exist -- like Countrywide and Merrill Lynch, which got snapped up by Bank of America (NYSE: BAC ) , and Fannie Mae (NYSE: FNM ) and Freddie Mac (NYSE: FRE ) , which are both under conservatorship. And I said, "Given this climate, it seems like an outlandish time to argue that corporate managements need greater freedom from shareholder action."
I rest my case.
Not enough good ideas
Many people have been understandably calling for greater regulation; I think the SEC's recent behavior has underlined why regulatory agencies can be dangerously biased and hardly angelic. (I recently commented on what I see as more important: a shift to ethics and responsibility, corporate or otherwise.) Meanwhile, in 2004, the SEC under then-chairman William Donaldson put forth new rules that basically allowed the big investment banks to get what they were begging for -- an exemption from old limits on how much debt they could pile on. Obviously, the SEC didn't see the mounting danger in the time since then, and now we're all paying for the investment banks' ill-conceived follies.
As far as I can tell, the SEC under Cox has often sided with corporations over shareholders, even though that the agency was formed after the Great Depression to advocate for investors. Some point out that Cox has reduced SEC enforcement against larger companies and shifted to smaller violators. I know I didn't get the memo about the SEC's switching its mission to protect large corporate interests. Did you?
I guess I should give a few grudging kudos to the SEC -- it is (at long last) working on more technologically advanced ways to distribute company information on its website, and it has also required that companies do a better job of divulging executive-compensation information. Still, though, there are glaring areas in which the SEC has dropped the ball; other recent criticisms include its lack of action in the auction-rate-securities mess.
We are in the midst of a major financial crisis, but what better time is there to contemplate an even more concerted effort for shareholder activism by pushing solid, commonsense corporate-governance principles? The SEC should remember its mission and make it easier, not harder, for shareholders to have a voice in some of their companies' policies.
The recent economic debacle has the "runaway CEO compensation" component, too. Too many executives have already pocketed big bucks for failing, and allowing CEOs to exit with obscene golden parachutes that are guaranteed regardless of their performance with their companies must end.
It's time for shareholders to push for solid policies such as say-on-pay provisions and the idea that pay should mirror performance. Getting these things done isn't impossible; some companies, including Aflac (NYSE: AFL ) , Verizon (NYSE: VZ ) , and Blockbuster (NYSE: BBI ) , have already voluntarily adopted "say-on-pay" policies. H&R Block's (NYSE: HRB ) new CEO signed a contract that stipulated that should directors cut managers' salaries, he will take a pay cut, too. These are moves that exhibit the proper spirit in a world that's too often run amok these days.
Who works for whom, again?
We need to remember the pride of honest, responsible business dealings and meritocracy, instead of looking the other way as some corporate heads run companies into the ground, therefore robbing shareholders, employees, and -- here lately -- even our society blind, and then get paid for it. The SEC needs to remember that, too.
Last but not least, maybe it's time for the SEC to either remember its roots, or get the heck out of the way.