IN-DEPTH: Q&A with SEC Commissioner Hester Peirce
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As debate continues around the merits and drawbacks of potential reforms to Rule 14a-8, DMI discusses the shareholder proposal process with Hester Peirce, commissioner at the Securities and Exchange Commission (SEC).
What would success in shareholder proposal reform look like for you?
For me, success would mean getting the balance right with shareholder proposals that are being made in the long-term value of the company as opposed to individual proponent’s idiosyncratic interests. The question is, how do you get that right balance? You've got to get the incentives right and at present, I don’t think that we have those.
How do you balance requiring a meaningful economic stake while keeping the process accessible to all investors?
I don't know if the process should be open to as many investors as possible. The thresholds should be high enough so that it is a barrier because you don't want to be in a situation where someone is just picking up a few shares for a short amount of time to lob in a shareholder proposal on an issue that's important to them.
When you put in a proposal, you are claiming the time, attention and resources of the company, and so you ought to have a real thesis behind it.
I think part of the problem is that the discussion around this topic is being phrased as if we should be drawing the parallel between shareholder democracy to voter democracy. It's a different thing. We don't let any voter who has an issue stick it on the ballot. This is just a different world.
Given the resources required to arbitrate between companies and proponents, should the current system be reworked? Could more direct negotiation and settlement agreements offer a simpler alternative?
One thing you could do which would not maintain the current processes is to say that the SEC staff isn't going to do this at all. The other thing is that with clearer rules and guidance, the number of proposals that companies feel needs excluding goes down.
I do worry about the process because it's unlike anything else that we do at the SEC. It is putting staff in the uncomfortable position of making decisions on these things, so I'm open to thinking about other ways of doing it.
It would be great if companies and shareholders worked this out, except for the problem that you have, which is that the settlement itself can be a very problematic occurrence.
What are they agreeing to? Is that something that is in the interest of the company, or are they just doing it to get that proposal to go away? How is that helping other shareholders? The other shareholders don't have any visibility into that process and that's problematic.
My preference is to have the SEC not involved in this. It should be decided at the state level how those are going to be handled, and then shareholders can opt in or out of companies depending on whether they like that or not.
If the SEC was to see further reductions in headcount, how might that affect enforcement?
Firstly, the goal to make the government more efficient is positive. We have a lot of wonderful talent at the SEC. We have lost some people, and we certainly have lost some experience with those people, but we have a very dedicated, professional, excellent workforce here and I think you will see that the SEC is still an agency that's committed to regulating the markets well.
Enforcement is not going to go away, because if you write rules and don't enforce them, then essentially, you don't have rules.
There may be decisions made, and I've been very open about saying that I think we've used our enforcement tools inappropriately in some instances so there will be careful consideration about when it is appropriate to use enforcement.
Also, there are lots of people who are working hard and maybe the addition of some tools can help them to do their jobs more efficiently. While artificial intelligence (AI) does pose some risks, it can be a valuable tool in helping make our people more efficient.
In late March, the SEC announced that it had ended its defense of climate-related disclosure rules. Do you see a future for rulemaking that establishes mandatory reporting on climate or other ESG issues?
Materiality has been the touchstone of our disclosure regime. It has proved to be a very effective touchstone because it allows us to have a disclosure regime that works for all kinds of companies and helps people to see the company through the eyes of the management and board. That's the result we want.
Every time a new issue comes up for some companies, we don't want to have to change our disclosure rules. Our rules should be able to stand the test of time and that works better if you use materiality as the touchstone, I think that's consistent with the job that Congress gave us to do.
Should your time as commissioner end at your second term, what would you want your legacy to be?
I think this commission is about multiple people. It's not about one person, and we have excellent staff who do amazing work, so I think the legacy is not mine alone.
I am excited about Chairman [Paul] Atkins coming in. He's someone I worked with before. I am excited to be able to turn back to the issues of capital formation, helping to ensure that people of all different levels of wealth have access to financial services and products so that they can improve their lives.
There have been a lot of people over many years now working to make our capital markets the envy of people all across the world, the place where people want to come to raise money, where they want to come to build businesses. That is the work of many, many people in government and outside of government.
The views expressed in this Q&A are those of Commissioner Peirce and do not necessarily reflect those of the Securities and Exchange Commission or its staff.
