Speech by SEC Chairman:
Statement to SEC Staff
Chairman Christopher Cox
U.S. Securities and Exchange Commission
August 4, 2005
I'm happy to be here on the job as the new head of OPM. Don't worry. I know where I am. And I know this isn't the Office of Personnel Management. But for me, that's not what OPM means. OPM stands for "Other People's Money."
And that's what we are all about here -- ensuring that those who exercise power and control over Other People's Money respect the trust that has been placed in them ... and treat investors right. That's why my first meeting with Commission Staff was with Linda Thomsen, our head of Enforcement. She and her entire Division will have my unstinting support.
I can't tell you how happy I am to be here this morning to join you in our vital work - and how enlivening it is to join an agency with such a successful history and such a critical mission. First, however, I would like to congratulate Commissioner Roel Campos on his reappointment, and to welcome Commissioner-designate Annette Nazareth in her new role. It was a unique pleasure to appear with both of them before the Senate last week.
I'd also like to thank Commissioner Cynthia Glassman for her leadership as Acting Chairman of the SEC during the last two months, and for her advice thus far.
It will be an honor to work with our commissioners, who are men and women of such high caliber - not least of all Commissioner Paul Atkins, who I look forward to meeting on his return from family vacation. I expect pictures.
As a Member of Congress, I've learned a great deal about the federal government -- its strengths, its weaknesses. And of its strengths, the SEC is at the top of the list. When President Bush nominated me in a White House ceremony, I told him that there is no more professional agency than the SEC -- and no more highly regarded workforce than each of you. I meant it. So when the President offered me the opportunity to join you, your reputation made my decision very easy.
In my travels to other nations over the past two decades of my government service, there has been a recurrent theme: almost every nation I've visited seeks to emulate our capital markets. And yet, over the years, no nation has gotten it quite as right as ours. A big reason for that is the exceptionally capable and professional staff of this agency. You have helped make our markets the envy of the world.
But certainly, other nations have capable people as well. So why is it that our markets are the gold standard? It boils down to trust. Investor confidence. The integrity of the system. The world has faith in our markets because it has faith in the integrity of the people minding the store. You. Most investors will never know your names, but the world knows your work. Each one of you is part of this agency's stellar reputation.
That is why I pledge to go to bat for you. I'm not talking only pay and benefits; I'm talking about an entire climate -- the kind of work you do, how you do it, and why you do it. You are smart people who deserve to be respected, appreciated, and listened to. I pledge to do that.
Having just watched 17 years in Congress fly by, I appreciate what a motivator it is to have interesting and challenging work. The SEC certainly offers that. But I hope to make the SEC an even more stimulating and satisfying place to work and to renew our shared commitment every day to keep this agency a place of excellence, where excellent people are encouraged and allowed to do what they do best.
I will count it as my business to see to it that the SEC can always attract and retain the brightest and most dedicated professionals. Many of you have been working at the Commission for 5, 10, 15, years - and some even 25 years or more. You have extraordinarily valuable experience and training. And I'm counting on that, as well as the fresh ideas and enthusiasm of our many new people. The clarity and continuity in SEC policies that the markets and investors deserve depends in large measure on your service -- excellent people doing what you do best with enthusiasm, and heart.
We've heard much debate in the past few weeks, about whether the SEC should be "investor friendly" or "business friendly" -- as if they were mutually exclusive. Lines drawn, pick sides. I enjoyed the speculation, and outright pronouncements, on which "side" I will take as SEC Chairman. Such predictions, while part of the territory, often have as much factual basis as a WorldCom prospectus.
The phenomenon is summed up nicely by the man who administered my oath of office, Alan Greenspan, whom I first met two decades ago when I worked in the White House. He's retained a healthy skepticism about the accuracy of predictions and forecasts --never mind all the sophisticated analysis from professional experts. The Fed Chairman famously congratulated the soothsayers for correctly predicting eight of the last three recessions.
The pundits who are so sure of the direction I'll take might do well to heed the boilerplate caveat found in every prospectus: Statements that are not statements of historical fact should be considered forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements.
So which is it? Business friendly or investor friendly? Ladies and gentlemen, the Department of Commerce serves our country's businesses. We are the investors' advocate.
If a business is investor friendly, the SEC will be friendly to it. But during my chairmanship, anyone who attempts to drive a wedge between the interests of their business and interests of investors in that business will find themselves confronted by a relentless and powerful adversary in the Securities and Exchange Commission.
The truth is, it isn't necessary for the interests of investors and the interests of business to be in conflict. After all, if we're talking about common stock holders, the investors own the business. If the business succeeds, so do they. And if the business fails, they do, too. The vast majority of businesses get it, and conduct themselves accordingly. We are concerned with the ones that don't.
When I was a young boy, Charlie Wilson was the chairman of GM. He famously told a congressional hearing that "What's good for General Motors is good for the rest of America." I'm not sure how accurate that ever was, but I'm certain that such days are long gone. When Charlie Wilson made his statement, investing wasn't common for working Americans. Today, the majority of America's workers are participants in our capital markets. It is increasingly true -- and increasingly apparent -- that what's good for American investors is good for the American people. It is also absolutely true that the managers of a well-run business should at all times concern themselves with what is good for their investors.
It's not a difficult concept. We've all come to embrace the wisdom of the basic truth that "if mama ain't happy, ain't nobody happy." It's pretty much the same in business. If investors ain't happy, ain't nobody happy.
What does it mean to be the investors' advocate? Of course it means ensuring issuer compliance with our securities laws and rules. And it means policing the markets, and all of the participants. But it is more: the SEC has an obligation to actively seek out from our customers, the investors themselves, their views on what's important for their investing decisions. And we must act on it. This is the work that Susan Wyderko is heading up in the agency, and it is destined to play a far greater role in everything that the SEC does for investors.
When a company issues a proxy statement, should the millions of ordinary Americans who own the company's stock be able to read and understand it? It is all well and good that their broker's lawyer could understand it. But what about the individual investors themselves -- is disclosure for them, too? And if it is, should it be an impossibly obscure game of Where's Waldo -- with rules, shrouded in unintelligible language?
When a young worker starts putting away money for her retirement, and goes online to compare mutual funds -- should she have to be a detective in order to see how much the funds pay in brokerage fees each year? Or should she be able to comparison shop on the basis of clearly expressed and reliable information written in a language people actually speak?
The SEC faces some truly thorny issues in the days ahead, from the implementation of Reg NMS, to hedge fund adviser registration, to mutual fund governance. And the contestants in all of those disputes are well represented. The markets, hedge funds, and mutual funds have lawyers, economists, and accountants who will professionally weigh in with the Commission to ensure that their issues are on our agenda.
But the same can't be said for the average investor. The retail consumer doesn't have the wherewithal to hire professional advocates to put his or her issues before the SEC. It's true that we receive hundreds of letters from regular Americans who want to share their concerns. But in most cases those "pro se" efforts are at serious disadvantage to Wall Street lawyers. Not because the concerns lack merit, but because of sheer overwhelming complexity of issues, language and terminology. The lawyers have the decoder rings.
What's more, the Office of Investor Education and Assistance, with its relatively small staff, can't possibly keep up with the task of integrating individual Americans' concerns with all of the work in all of the Commission's divisions and offices.
That means that every day we at the SEC -- all of us -- have to re-dedicate ourselves to the mission of protecting the individual investor. It's got to be in the DNA of every office and every division. Every last one of us.
This requires a conscious effort, and deliberate action. Because without it, the concerns of the individual investor will take a back seat to the legions of professional, well-financed special interests. While all stakeholders in our capital markets are entitled to a voice, no one is entitled to line-jump and press their issues to the forefront simply because lobbying the SEC every day is just part of doing business.
If I may ask a personal question: How many of you were English majors in college? Raise your hands. Quite a few, considering the demand for accountants, lawyers, and economists at the SEC.
Well, for those of you who were English majors, and the rest of you who appreciate good English, we have an immediate bond. Even though I'm an attorney, legalese is not my first, second, third, fourth, or even fifth language. Chronologically, it came after my native tongue, and then Spanish, Latin, Greek, and Russian. And I never could actually speak legalese -- I could only read it.
So I never got invited to the really FUN parties. I'm sure I missed out -- all those people conversing in the parlance of party-of-the-first-part and whereases. Oh, the times I could have had.
Not too many years ago, Chairman Levitt began a noble effort to encourage writing in plain English. It involved staff in Corporation Finance and Investment Management, the Office of Public Affairs, the General Counsel, and the Office of Investor Education and Assistance. There was an enthusiastic response from the likes of the Investment Company Institute, the Society of Corporate Secretaries, the American Bar Association, and The Bond Market Association. But many years later, despite the introduction of profile prospectuses, can we honestly say that there is adequate disclosure for the individual investor?
Some of you may have participated in the SEC's contest awhile back, to find the worst piece of disclosure "gobbledygook" and transform it into plain English. The winners received a $250 U.S. Savings Bond. I thought it was a great idea, and tried to get it going in Congress. My idea was to pare down monstrous appropriations bills into simple lists of where the pork was going. But the project failed when even the simple list ran to several hundred pages.
It's now been awhile since we issued a $250 Savings Bond here at the SEC. But Chairman Levitt's vision is still dead on. How hard do you think it would be today to find offensive legalese in almost any mutual fund prospectus or proxy statement? More tellingly, how hard would it be to find dense legalese in the SEC's own rules and publications?
The challenge of creating truly useful disclosure in the 21st century goes well beyond exhorting the use of everyday language, active voice, personal pronouns, and shorter sentences. It extends to the questions of what is disclosed, and why. We've got to continue to ask investors what they need -- in order for them to decide whether to purchase an investment in the first place; and to decide whether to hold or sell.
And when it comes to exhortations to write in plain English, the SEC has to practice what it preaches in its own rules and publications. Continuing to advance this noble initiative of my predecessors is but one of many ways in which I hope to build upon the successes of the recent past, and to ensure continuity, clarity, and consistency in the SEC's policies.
As part of my last assignment in the Congress, as Chairman of the Committee on Homeland Security, we spent a great deal of time focused on "critical infrastructure." There is no more critical infrastructure in the world than the capital markets protected by the Securities and Exchange Commission. Without our capital markets, there wouldn't be much industry, or finance, or even much tax revenue to support a government capable of doing any part of the people's business.
The terrorists know this.
Without the work of the SEC, America's capital markets as we know them today simply couldn't exist. Our markets thrive because of the global trust we have earned. That makes the SEC itself a key part of America's critical infrastructure that secures a quality of life and freedom to countless people the world over. It's a wealth of immeasurable proportion.
So, to each of you, thank you for what you do.
Thank you for the honor of joining you in the mission of protecting America's financial markets.