A Report Card on the SEC's Christopher Cox
from
September/October 2007
by Peter Galuszka
As always, the Securities and Exchange Commission chairman was smooth as silk. Leading a recent roundtable talk with five of his predecessors, he handled each man with studied skill and wit. Christopher Cox, 54, flashing his megawatt smile, even got Arthur Levitt (1993-2001)
to acknowledge a penchant for selling neckties on eBay.
More than two years into his tenure, how does Cox stack up against those who went before him? Give him a B for balance. Instead of being the shill for business that many feared or hoped, the Harvard-trained former congressman from California’s archconservative Orange County gets at least faint praise from a key Democrat. Massachusetts congressman Barney Frank, head of the powerful House Financial Services Committee, says Cox has been “a pleasant surprise to some people who thought he’d be a right-wing ideologue.” An example of that middle-of-the road course: Cox eased some ofthe internal-reporting requirements of Sarbanes-Oxley’s widely despised Section 404 but refused to exempt small businesses from the act’s other reforms. Healso took immediate action when the option-backdating story broke, charging ahead with investigations of more than 160 companies. As a result, at least 220 outfitshave disclosed internal probes into backdating, 130 havesaid they needed to restate financial results, and more than 90 board members and executives have been ousted from such companies as Affiliated Computer Services, Brocade Communications Systems, and Vitesse Semiconductor.
Cox’s popularity among shareholders has dimmeda bit this year, however. He has drawn criticism for backtracking on some key initiatives, such as requiring more complete disclosureof executive compensation. He’s considering having his enforcement staff consult directly with commissioners before agreeing to punitive settlements with companies, a practice critics say would invite the use of political influence. He has also been faulted for taking a go-slow approach to opening up proxy access to shareholders, which after Section 404 is “probably the single most controversial thing the SEC has had on its plate in five years,” according to Richard Swanson, a partner and securities-law specialistat Arnold & Porter in New York City.
Observers are split as to whether Cox is finally showing his true colors or simply trying to resolve issues the best way he knows how. The consensus-minded chairman faces a polarized board where pro-business, anti-regulation commissioners Paul S. Atkins and Kathleen L. Casey contend with populist champion Roel C. Campos. (Commissioner Annette L. Nazareth is less doctrinaire.)
Cox’s legacy may hang on how the SEC handles its response to an appeals-court decision that cuts to the heart of proxy access. In a case involving insurance giant American International Group and the pensionplan of the American Federation of State, County, and Municipal Employees union, the court in effect ruled that companies must make their proxies available for shareholder proposals, saving investors the enormous costof printing and circulating proposals themselves. Business lobbies such as the Business Roundtable and the U.S. Chamber of Commerce have vehemently fought allowing access, and the SEC must now come up with new guidance.
Ideally, Cox would get a unanimous commissionvote and a new policy that could withstand appellate-court scrutiny. “He’s very deliberative and takes his time to make sure that the commissioners have all the facts,” says Thomas Lehner, director of public policy for the Business Roundtable. Lehner adds that while capital markets are anxiously awaiting the SEC’s decision, Cox wants to make no mistakes.
The flurry of probes into option backdating spotlighted one SEC weakness—insufficient staff. Cox and the Justice Department have had to encourage companies to conduct their own internal probes. The same challenge may limit the SEC’s ability to watch for wrongdoing inthe arcane but enormously profitable world of hedge funds, which has already seen several high-profile scandals.
Overall, Washington insiders view Cox as one ofthe few successful appointees of the beleaguered Bush administration, and some mention him as a potential attorney general or head of Homeland Security. But most think he’ll stay on at the SEC.
