Speech by SEC Commissioner:
Remarks before SEC Speaks in 2005
Paul S. Atkins
U.S. Securities and Exchange Commission
March 4, 2005
Thank you, Annette.
I'm delighted to have this opportunity to share some observations with you today. I won't talk too long, since I'm all that is standing between you and your next, critically-needed, coffee break. I also must remind you that the views that I express here are my own and do not necessarily represent those of the Securities and Exchange Commission or my fellow commissioners.
Before I begin, I want to mention what a great pleasure it has been to have worked with Paul Roye during the past 2 years. He has had the unenviable job of leading the Division's efforts to combat recently discovered abuses in the mutual fund industry. He has done a very good and honest job, and I will miss him very much.
The broad range of issues on the agenda for this conference indicates just how busy the Commission has been over the past year. 2005 is shaping up to be another busy year. We will be acting on a number of important rulemaking initiatives, such as the Securities Act reform initiative, and reviewing past actions, such as the Sarbanes-Oxley reforms. In addition to business-as-usual, we will be moving to new, state-of-the-art headquarters. You may have heard rumors of controversy about the new building and who will get which office with what view. This is an issue that affects all levels of employees, from what I hear. Fortunately, this issue has been resolved peacefully and in keeping with long-established Commission precedent. All windows will be bricked over to ensure that everyone has exactly the same view!
The move affords us an opportunity to take stock of our resources and the effectiveness with which we are using them to achieve our objectives. If we seize that opportunity, and take such an inventory, in addition to tossing some old, worn-out furniture and lots of unneeded files onto the trash heap, we might find that we are able to shed some old habits. Conversely, taking inventory will undoubtedly reacquaint us with all the valuable assets the Commission has, foremost among which is a talented and dedicated staff.
A good starting point for any self-assessment would be the report that was prepared two years ago at the request of Chairman Pitt on the operations and resources of the Commission. During the past two years, we have taken some steps that are consistent with the recommendations of that report, including the development of the Office of Risk Analysis and a greater commitment to technology to help our staff carry out their jobs more effectively. Many other issues raised in the Report, however, await attention.
The new building will provide a more comfortable working environment, but there are other changes that we can make to further improve conditions for our staff, which, in turn, will improve the quality of the Commission's work. The Report suggested, for example, a greater emphasis on professional development of our staff and management quality. We have taken steps in both of these areas, but there is room for further improvement.
One crucial issue that was highlighted in that report is the need for closer working relationships among the Commission's staff. We have many talented and accomplished individuals on our staff, but we have allowed institutional barriers to stymie individuals within and across divisions from working together more efficiently to achieve our objectives. As a result of what the Report dubbed a "silo mentality," interaction between and even within divisions is often engaged in only grudgingly and with mutual suspicion. In any organization, there will always be petty rivalries, political intrigue - even SEC employees are not immune. But our mission of Investor protection is compromised by any gaps in universal internal cooperation, gaps that can manifest themselves in inconsistent or even contradictory actions by different parts of the Commission staff.
There are a number of ways to achieve greater cooperation between divisions and offices, including, for example, providing staff opportunities to rotate through one or more different divisions and offices. Today, people are hired into divisions or into sub-groups within divisions. Often, the only way for someone to continue his or her professional development in a well-rounded manner is to leave the SEC. More internal flexibility would not only improve intra-agency communications, but could improve morale by offering variety and better training to employees. Even the simple step of having members from different divisions share floors at our new headquarters could help us to achieve greater cooperation. At least it is an attempt.
We also should look back at our ten years of experience with a stand-alone Office of Compliance Inspections and Examinations to see if this is the most sensible model for us to learn about potential problems before they've morphed into full-blown catastrophes. Would it make more sense for us to reintegrate examiners into the Divisions? Doing so could help the Commission provide a more consistent message to the entities and individuals we regulate. An integrated structure could allow for interaction and exchange between the folks who write and interpret rules and those who are on the frontlines interacting with registrants and assessing their compliance with our rules. On the other hand, potential benefits from a stand-alone OCIE might weigh in favor of implementing more moderate measures to improve coordination between OCIE and the Divisions, such as compliance liaisons in the regulatory divisions and staff rotation. I understand that, in the "Old Days," new hires would routinely be assigned to inspections so that they would learn about the industries we regulate and "cut their teeth" in the real world before moving on to a regulatory group.
Another recommendation of the Report was that the Commission increase the number of trained economists on the staff, and consider placing some of them directly in the offices that do the Commission's work. This would foster a culture in which the costs and benefits of alternative regulatory approaches are considered simultaneously, along with a consideration of the substance of various regulations. Rather than performing primarily a review function, our economists could assist in shaping regulatory policy. For an agency with significant economic jurisdiction, it's curious that the agency continues to be so heavily lawyer-oriented.
Economists could play a role beyond the work of our regulatory divisions. They could be integrated into our enforcement division to assist the attorneys there, and the Commission itself, in understanding the economic implications of proposed theories of law and specific remedies proposed to be sought. This would help to ensure that our actions actually protect the people we intend to protect, that monetary sanctions are reasonably correlated to the underlying harm, and that we are not taking money from one set of victims to compensate other victims, all in the guise of appearing to punish the actual perpetrators.
I hope that as we work on improving working relationships within the building, we will reach out to our federal, state, and international sister regulators in order to allocate regulatory responsibilities sensibly. Sometimes we need to acknowledge that another regulator can do the job as well or better than we can. At other times, we need to be more forceful in discouraging other regulators from taking duplicative or even inconsistent actions in areas in which the Commission is best-suited to regulate. No one is served by a system in which multiple regulators compete with one another to punish a person or entity multiple times for the same wrongdoing.
We also need to find new ways to encourage our employees to spend their time effectively. As the Report suggested, for example, the Commission should award enforcement staff for conducting an investigation well, even if the staff ultimately concludes that no Commission action is warranted. Otherwise, attorneys are implicitly encouraged to pursue cases even after discovering that the evidence is weak or the violations immaterial.
Finally, as I mentioned at the outset, the one feature for which the Commission consistently has been recognized is its staff. Many employees have devoted all or the better part of their careers to furthering the objectives of the Commission. I should like to recognize a couple of these individuals today. Jack Katz is Secretary of the Commission and has served the Commission for many years. His name is known widely outside the Commission, since he is the one to whom all comment letters are addressed.
Sadly, this means that he bears all the wrath of spurned commenters or those who cannot understand why the Commission will not take up their rulemaking petition immediately. But, Jack is an old pro at dealing with people frustrated by not getting their own way. After all, it is Jack who has to balance the often conflicting demands of five, fiercely independent, Commissioners. It is in that role that I fondly remember him as a true comrade-in-arms, when I was in the Chairman's office and he and I practiced a form of shuttle diplomacy between warring parts of the sixth floor. He certainly deserved an SEC Peace Prize.
Some of you might think that sitting through even a single Commission meeting is one too many. Can you imagine what it's like to have sat through 20 years of Commission meetings? He has run meetings for Shad, Cox, Ruder, Breeden, Levitt, Unger, Pitt, and Donaldson. Imagine the stories that he can tell! Just imagine what it must take to get this guy to fall asleep! Jack's second career should be testing sleeping pills for the FDA.
Jack serves as our institutional memory. There are few shenanigans that individual Commissioners can devise for which Jack is unable to cite historical precedent. Despite having sat through thousands of commission meetings, he has served the unpopular and underappreciated role as the Commission's last sanity check. Former enforcement directors and regional administrators will tell you that there have times when Commission orders and litigation releases were changed because Jack went to them - after everyone had signed off - and asked "do you really want to say this?"
Jack has also been willing to walk the extra mile when necessary. I hear that, in the waning hours of one September, Jack's office approved more than 25 Commission orders and litigation releases in a single day. Jack saw to it that all of these orders were issued in a timely fashion because the public interest demanded it, regardless of when the Commission's fiscal year ended. But, nonetheless, I am sure that many enforcement staffers count their blessings at his helping them in the process make their "stats".
Unfortunately, now Jack is counting down the days until his retirement later this year. We will miss him tremendously.
To make matters worse, we are also losing Marge McFarland, Jack's right-hand-person in the Secretary's office. Marge is wonderful - immensely knowledgeable about procedure and Commission history and a pleasure to work with. She is ever pleasant and calm, regardless of the pressure of the moment. She has helped to organize that office and make it run efficiently. She and Jack leave behind a very capable crew in the Secretary's office. They have big shoes to fill, but are certainly up to the task.
By early next year, the move into the new Station Place buildings should be complete, although some of us may still be relying on maps to navigate the halls. I hope, too, that by that time, we shall have made the changes necessary to make sure that we are fit to occupy such impressive new headquarters.
Thank you for your attention.