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Beyond Sarbox, what other SEC accomplishments are you most proud of?
A couple of things. One was playing a leading role in helping to restore investor confidence, which is part of the agency's role. It's not something I expected to be in the middle of. The second thing was the securities offering reform. That's was a 40-year project and we brought it to an extremely successful conclusion. Also, we wrote the first comprehensive set of rules for registration and disclosure for the asset-backed market. This is something many people don't focus on because it affects a narrow segment. But, in 2003 or 2004, there was more asset-backed debt than straight corporate debt.
What was your biggest disappointment while a director at the SEC?
The inability to find a solution for the Commission to adopt [its] shareholder access [proposal].
The proposal would have allowed major, long-term shareholders to nominate directors under certain circumstances. Why do you think it received so little support?
[The proposal took] a balanced approach. It was designed to apply only to companies whose shareholders demonstrated very significant dissatisfaction. Triggers were set up, and companies were not subject to the rule unless either a shareholder proposal was adopted, or there was a substantial withheld vote against one or more directors. But it was criticized by the corporate side for a variety of reasons. They feared the possibility ÂÂ… [that] the rule would be divisive in the boardroom. [Some opponents claimed the proposal would] promote special interests; unions and politicians who run public pension funds were mentioned. Also, [opponents] said it would be hard to find directors to serve. On the other side, many said it didn't go far enough [complaining that the process] took too long. It was a two-step process. Companies really in trouble would be dead by the time the second step took place.
Did you think any of the claims about the shareholder access proposal were valid?
They were all correct, in part. But, the rule was designed to be balanced and cautious. It was a big step. Some people say that the proxy access debate spawned the majority vote movement for electing directors. I agree with that. Both proposals were looked at roughly the same time. I do believe there was a cause and effect. The shareholder access rule did embolden activist shareholders.
Most companies use a plurality system of voting, which discounts "withheld" votes and, at least in theory, allows a director to be elected with only one "yes" vote. But majority vote movement has given shareholders more power in electing directors because it requires, well, a majority of shareholder votes to win an election. What is your opinion of majority vote process?
It's mostly a state law issue.
Do you have a preference between the so-called Pfizer model of majority voting—which requires a directors who get a majority of "withhold" votes to submit a resignation—and the Intel model—which amends corporate bylaws to require majority voting?
It's too early to say a single solution will work. I don't think this movement is mature enough. All of the scenarios are pretty close to brand new. I'm unwilling to put my eggs in one basket. I support what Pfizer did. I know some say it has not gone far enough. Time will tell if it was enough. I also support mandatory shareholder proposals for by-law changes. If enough [stockholders] feel strongly it is the right approach, that's what they should get.
Job offers for former SEC directors are usually plentiful. What did you think your next job would be after leaving the commission?
It's interesting, because it ended up being an easy decision, but I spent an awful amount of time [mulling it over]. I had a lot of people expressing an interest in talking to me about what to do next. I spent more than two months working my way through that question. I actually spent the majority of time working through a couple of in-house opportunities at public companies to become general counsel.
Why did you decide to return to Cleary?
I ultimately concluded that [the corporate offers] weren't quite right for me, today. Five years from now, I might reach a different conclusion. My main mandate [at Cleary] is to work on the hardest transactional and advisory assignments that the firm has related to securities and corporate governance. Such as: How does the audit committee deal with a crisis? How does the compensation committee deal with the new rules? How does a financial institution think about whether to engage in a particular structured transaction? I hope to be counseling corporate leaders and boards in corporate crisis situations, which I learned a lot about at the SEC.
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