by T. GormanPosted on Posted in SECActions

Change, the future and the Commission’s regulatory agenda were the subject of SEC Commissioner Troy Paredes remarks to before the Society of Corporate Secretaries & Governance Professionals, 66th National Conference on “The Shape of Things to Come.” (July 13, 2012). In his remarks, Commissioner Paredes reviewed key topics from the SEC’s regulatory agenda to discuss the overall direction of regulation.

First, the Commissioner focused on the Dodd-Frank Wall Street Reform Act. The Act represents what Commissioner Paredes termed a “historic expansion of the federal government’s power over the economy.” While the Commission has enacted regulations under portions of the Act, there are more to come.

The key question coming out of the recent financial crisis is not whether to have regulation, but “How much” as the Commissioner put it. In raising this question Commissioner Paredes expressed concern that the “present wave of regulation will prove to be excessive, unduly burdening and restricting our financial system . . .” This may well come from “the cumulative impact of the aggregation of rules . . .” all of which may make it more difficult for an enterprise to raise capital and manage its risks. Thus a great deal of the future will depend on how regulators craft new rules.

Second, the Commission’s regulatory agenda is broader that Dodd-Frank. In addressing this agenda it is critical that the SEC “carefully evaluate whether the intended goals of our actions will be achieved; and that we need to identify and give due regard to the possible undesirable effects and unintended consequences of our choices. In other words, the SEC must engage in rigorous cost-benefit analysis – rooted in economics and the available data – when fashioning the securities law regime.” In this regard the Commissioner’s remarks echoed the congressional testimony of Chairman Schapiro earlier this year which discussed the increased prominence of economic analysis in Commission rule making. The comment also reflects the holding of a D.C. Circuit Court ruling earlier this year which remanded a Commission rule for inadequate analysis.

Third, Commissioner Paderes discussed two items on the pending Commission rule making agenda. Once focuses on executive pay while the other deals with clawbacks.

Executive pay is a high profile issue which can influence the manner in which the executive behaves, according to Commissioner Padres. A mix of Dodd-Frank provisions focus on this question. New provisions will require that there be disclosure of comparisons of executive pay to the firm’s financial performance, the ratio of median annual total compensation of the issuer’s employees to the CEO’s annual total compensation and employee and director hedging of the value of the issuer’s stock.

In developing these regulations it is critical that they be “workable in practice.” This means in the first instance that the Commission needs to consider the practical difficulties and costs of obtaining and assembling the data. It also means that the SEC should anticipate the consequences of the new regulation as a safeguard against undesirable effects.

Clawbacks under Section 954 of Dodd-Frank is also on the Commission’s regulatory agenda. Some commentators have stated that section imposes no fault liability the Commissioner noted. Thus “an executive who has worked diligently and honestly . . . may nonetheless have to pay back a considerable portion of his or her compensation if the company has to restate because of an accounting error. I can understand why many might find this troubling,” according to the Commissioner. He went on to state that this could have “unintended consequences.” Commissioner Paredes did not mention the SOX clawback Section the Commission is currently utilizing in its enforcement program which imposes strict liability and requires the repayment of certain incentive based CEO and CFO compensation if there is a restatement as a result of misconduct.

The Commissioner concluded his remarks by focusing on the importance of good decision making by corporate directors. Quoting Peter Drucker, he stated that “Decisions of the kind the executive has to make are not made well by acclamation. They are made well only if based on the clash of conflicting views, the dialogue between different points of view . . .” He cautioned however that the deliberations should not give way to hostility, but focus on good dialogue.

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by T. GormanPosted on Posted in SECActions

The new Report of the OECD Working Group on Bribery details its recent work while providing an overview of anti-bribery enforcement around the globe. The Anti-Bribery Convention came into force in 1999. As of December 2011 there were 38 parties to the Convention, 34 of whom are OECD member along with Argentina, Brazil, Bulgaria and South Africa. In 2011 Columbia and Russia became members of the Working Group on Bribery. The two countries will join the Convention in 2012. The 40 Working Group members account for almost 80% of world exports, according to the Report, and nearly 90% of global outward flows of foreign direct investment.

The Anti-Bribery Convention is the only legally binding global instrument to focus on the payment of bribes to foreign officials, according to the Report. It requires all signers to make foreign bribery of public officials a criminal offence. The Convention also requires countries to investigate and where appropriate prosecute those who offer or pay bribes while requiring that tax deductions for the payments be denied.

Since the Convention came into force much has been accomplished as the basic statistics in the Report demonstrate. In this regard:

  • 210 individuals and 90 entities have been criminally prosecuted in 14 states;
  • 66 individuals have been sent to prison;
  • 43 individuals and 92 entities have been sanctioned in criminal, administrative and civil cases for other offenses related to foreign bribery such as money laundering or accounting in four states; and
  • Approximately 300 investigations are on-going in 26 states that are parties to the Anti-Bribery Convention and criminal charges have been brought in 13 states against 158 individuals and 13 entities.

The United States is by far the leader in anti-bribery enforcement as illustrated by the statistics tabulated in the Report. Since the Convention came into force 190 actions have been brought against individuals. This includes 22 plea agreements, 59 agreed sanctions and 39 settlements. Another 97 actions have been brought against business organizations, including 30 plea agreements and 48 deferred and non-prosecution agreements and 55 settlements. These actions were brought by:

  • United States: 97 against individuals which includes 22 plea agreements and 39 settlements and 79 against business organizations which includes 28 plea agreements, 48 deferred and non-prosecution agreements and 50 settlements;
  • Hungary: 26 against individuals and none against business organizations;
  • Korea: 16 against individuals and 4 against business organizations;
  • Germany: 14 against individuals plus 59 agreed sanctions under the German criminal code and 3 against business organizations;
  • Italy: 10 against individuals which include 9 plea agreements and 3 against business organizations, all of which are plea agreements;
  • Japan: 6 against individuals and 4 against a business organization;
  • Norway: 5 against individuals and 1 against a business organization;
  • France: 4 against individuals and none against business organization; and
  • United Kingdom: 3 against individuals and 2 against business organization.

As these statistics illustrate, enforcement is concentrated in relatively few countries, while a number have not brought any actions against either an individual or a business organization. The OECD statistics are only for bribery actions. They do not include actions based solely on provisions such as the books and records and internal control provisions of the FCPA. This makes it difficult to analyze overall enforcement efforts.

The OECD statistics do suggest a marked focus on individuals, a point which has been emphasized by U.S. enforcement officials but a source of criticism in recent Congressional hearings considering possible amendments to the FCPA. In those hearings there have been claims that U.S. enforcement officials have not brought enough cases against individuals. Overall, the statistics suggest that global anti-bribery enforcement is on the rise, a point which should be well recognized in the United States.

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