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Remarks at the SEC’s Investor Advisory Committee Meeting

Commissioner Kara M. Stein

March 9, 2017

I want to welcome everyone this morning. I also want to join Acting Chairman Piwowar in extending a special welcome to the newest member of the SEC’s Investor Advisory Committee, Jerome Solomon.

In both today’s IAC meeting and in tomorrow’s Evidence Summit, we will be focused on improving the investor experience.

In his first press conference as Chairman of the SEC, William O. Douglas articulated his vision of what should guide the Commission: “We are the investors’ advocate.”[1]

There is no doubt that Douglas would be astounded at the technology and organization of today’s market. So much has changed; yet that iconic principle has and will remain the same for the Commission.

It also grounds us. “We are first and last the investors’ advocate.”[2] And that is precisely where we should be.

Douglas and the early pioneers of the Commission learned from the crash of 1929. They saw first-hand that complexity and opacity are bad for investors, markets, and capital formation. The famous economic historian John Kenneth Galbraith, in his well-known history of the crash of 1929, described holding companies of holding companies built upon a pyramid of leverage and complexity that ultimately played a key role in bringing the market to its knees.[3]

Investor protection also is critical for the companies seeking to raise capital.[4] If investors don’t trust the markets, they won’t invest their capital. And without capital, our businesses will not survive, thrive, and create jobs.

If we are the investors’ advocate, we must continually ensure that we are in touch with the modern investor. We must understand how today’s investors interact with our increasingly complex markets. We need to continuously strive to conduct outreach and use technology in order to identify gaps in investor protection, which may include, for example, gaps in investor financial literacy. In order to foster informed engagement by all investors, we need data, research, and analysis.

This is why I’m excited about today’s agenda. I look forward to listening to the panel about how to use a data-centric approach to understanding today’s investor.

In addition, I look forward to learning about new ways to use technology to maximize investor engagement and understanding. We can and should be providing information to today’s investor in a variety of formats based on data, which can hopefully help us discern how information is best provided to a particular investor.

As the investors’ advocate, we also need to focus on how some innovation may prove detrimental to investors. Voting rights have been a foundational component of sound corporate governance. Unequal voting rights present complex and new issues that need to be understood and addressed.

We also must be mindful of the precedent being created. What is the effect on capital formation and emergent public companies when the bundle of rights offered to shareholders in a public offering excludes voting rights? In the long-run, we need to critically assess our regime for initial public offerings. The current structure is premised on taking an investor’s capital, while giving that investor the rights that help hold a company’s management accountable in the use of that capital.

As always, I very much appreciate the hard work and dedication that this Committee brings to the issues that matter to investors.

[1] Transcript of Douglas’s press conference, September 22, 1937, Douglas Papers, box No. 630, Library of Congress. See See also Text of W.O. Douglas’s Statement at Press Conference, THE NEW YORK TIMES, September 23, 1937, p. 45.

[2] The text of the address delivered by W. O. Douglas, at the dinner of the Association of Stock Exchange Firms, THE NEW YORK TIMES, May 21, 1938.

[3] See generally, Galbraith, John K., The Great Crash 1929, Houghton Mifflin Harcourt, 1954.

[4] Frank Heads SEC¸THE NEW YORK TIMES, May 19, 1939; “[The] SEC’s part of the job relates primarily to investors, to the millions of Americans who put their savings into the stocks and bonds of American industries. SEC has been called the investors’ advocate. Now, you can’t have continued investment without profits, and you certainly can’t have investment without the confidence of investors—without the confidence of the great middle class. And that’s where, as I see it, the SEC comes in. While, to be sure, there are some great self-sufficient industries, not requiring new investors, yet it is undoubtedly true, in the main, that the flow of funds from investors to business and back to investors and to labor and to farmers, in the form of profits and wages, is the life-line of American democracy.”

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