The Director of the Securities and Exchange Commission’s 21st Century Disclosure Initiative, Dr. Bill Lutz, was on the Marquette University campus May 4. He was kind enough to give an update on the Initiative over lunch to a group of faculty from the Law School and the College of Business Administration. Dr. Lutz is an interesting choice to lead the SEC’s effort to reconceptualize the manner in which the agency collects, analyzes, and disseminates financial information. He is Professor of English emeritus at Rutgers University, and one rarely thinks of the words “English language” and Form 10-K in the same breath.
The 21st Century Disclosure Initiative finished its Report in January 2009. You can read the Report here: www.sec.gov/spotlight/disclosureinitiative/report.shtml. The recommendations in the Report are both modest and potentially revolutionary. Today the SEC continues to operate under the same system of preparing and filing specific disclosure documents such as annual reports and quarterly reports that was instituted in 1934. In the 1990s, the Commission adopted EDGAR, a system for filing and viewing each individual report electronically. However, the “document centric” format remains and anyone searching for specific items of company data today on EDGAR still has to typically scroll through hundreds of pages to find what they are looking for.
The Report by the Initiative proposes the adoption of company-specific databases for each company required to file reports with the SEC. Continue reading “Little Reforms Have Big Implications at SEC”
I am very excited to undertake my duties as Faculty Blogger for the month of May. My colleagues have done an outstanding job in making the Marquette University Law School Blog a “go to” destination for ideas and information about law, politics and society. They have demonstrated an inspired vision of how technology can bring the Marquette community together, and the inaugural year of the blog has been an unqualified success. This makes their apparent lapse in judgment in inviting me to serve as Faculty Blogger for this month all the more surprising. I will try my best not to embarrass anyone.
Arthur Brooks of the American Enterprise Institute had an interesting op ed in the Wall Street Journal on April 30 entitled “The Real Culture War is Over Capitalism.” You can find it on the Journal’s website. His key quote: “Advocates of free enterprise must learn from the growing grass-roots protests [like the “tea parties”], and make the moral case for freedom and entrepreneurship.” I agree with his central point, which is that free market conservatives have made the mistake of assuming that capitalism is a good in and of itself, and have failed to make the case that free markets have moral ends. Is it in fact demonstrable that free market capitalism leads to the greatest economic benefit to the greatest number of Americans, a utilitarian standard with its roots in the classical Greek conception of government? Alternatively, can free market advocates demonstrate that the best way to preserve and promote the dignity of human beings is through a marketplace unfettered by regulation or government oversight, a standard that comes from Catholic social teaching? Shouting “Socialism!” at every government intervention in the market is not enough. Continue reading “Capitalism on Sale?”
The current crisis our nation faces on Wall Street and in the broader economy will be the primary focus of the next President. The crisis is complex, with many facets, and any solution will be equally complex. Issues such as the effectiveness of regulatory oversight versus deregulation, the transparency of specific types of financial transactions and market actors under current law, and the proper accounting rules to ensure an accurate depiction of a banking institution’s financial health will all be part of the debate over how to resolve the present crisis and how to prevent a future recurrence. However, my advice to the next President is that he should not overlook the beneficial role that private civil lawsuits under the securities laws can play in deterring risky market behavior.
Much has been made of the greed and speculative fervor that gripped the investment professionals on Wall Street. Clearly bets were being made with borrowed money that risked the very existence of institutions that are necessary to preserve the liquidity of capital in our markets. Expanding the oversight of the Treasury Department, increasing the transparency of transactions that involve derivatives and hedge funds, and re-examining accounting rules may all be necessary components of a plan to avoid such risk-taking in the future, but they will not be sufficient in and of themselves. From personal experience in the boardroom, I can vouch that nothing deters executive approval of speculative investment strategies as much as the prospect of a potential civil lawsuit if the deal goes sour.
Continue reading “Priorities for the Next President: Securities Regulation”
Continuing our faculty workshop series, Nadelle Grossman presented a work in progress earlier this week entitled “Clarifying the Long-Term Nature of Director and Shareholder Fiduciary Duties.” Her presentation examined the various factors that have magnified the influence of short-term institutional shareholders, such as hedge funds and activist investors, over the decisions of corporate management. These factors include the way the market punishes firms that fail to meet their quarterly earnings targets, the incentives of money managers to maximize their own fees by boosting the share price of their holdings, and the increasing effectiveness of the shareholder franchise. Professor Grossman argued that the increasing influence of the “short-termers” has impaired management’s ability to set a long-term strategy for the corporation. Her thesis is that the fiduciary duties of directors and institutional shareholders should be re-examined in order to promote the adoption of business strategies with longer time frames. Continue reading “Addressing the Short-Termer Problem in Corporate Governance”