Crown image Columbia Law School

Private Equity, State Pension Plans, and the SEC

The Securities and Exchange Commission under Chair Gary Gensler has been exploring transparency issues and other problems in the private equity industry and considering whether additional policy interventions are needed. One motivating factor is that public pension plans are the largest investors in this $5 trillion industry.

Context is important here. This is not the first time that more aggressive policy interventions have been considered to address perceived problems in private equity. As discussed in my 2020 paper, Public Investors, Private Funds, and State Law, a wave of state legislatures passed, or seriously considered passing, laws to mandate better … Read more

SEC Chair Gensler Discusses Crypto Regulation

Some might wonder: What does the SEC have to do with crypto?

Further, why did an organization like the Aspen Security Forum ask me to speak about crypto’s intersection with national security?

As is customary, I’d like to note that my views are my own, and I’m not speaking on behalf of the Commission or the SEC staff.

Let me start at the beginning.

It was Halloween night 2008, in the middle of the financial crisis, when Satoshi Nakamoto published an eight-page paper[1] on a cypherpunk mailing list that’d been run by cryptographers since 1992.[2]

Nakamoto — we … Read more

Wachtell Lipton Discusses Mandatory Climate Change Disclosure Rules – A Preview From the SEC Chair?

As noted in our previous memos, the SEC is considering and has sought input from investors on potential new disclosure requirements related to climate change and other sustainability issues.  Yesterday, SEC Chairman Gary Gensler made remarks that add some clarity as to what can be expected:  a combination of qualitative and quantitative climate-risk disclosures that are consistent, comparable and decision-useful to investors. Examples of potential qualitative disclosures include how the company’s leadership manages climate-related risks and opportunities, how such matters impact corporate strategy and, potentially, the use of scenario analyses.  Quantitative disclosures may include disclosure of Scope 1, 2 … Read more

SEC Chair Gensler Speaks on Climate Risk and Disclosure

It’s good to be here with the Principles for Responsible Investment. As is customary, I’d like to note my views are my own, and I’m not speaking on behalf of the Commission or the SEC’s staff.

Before we get to the main event — on climate and finance — I’d like to discuss something a lot of us are watching these days: the Olympics.

In the Olympics, there are rules by which we measure an athlete’s performance.

In gymnastics, for example, the scoring system is both quantitative and qualitative. Athletes are evaluated based on the numeric difficulty of the skills … Read more

SEC Chair Gensler Speaks Before ABA Derivatives and Futures Law Committee

Thank you for the kind introduction. It’s good to be back with the American Bar Association’s Derivatives and Futures Law Committee.

As is customary, I’d like to note that I’m not speaking on behalf of my fellow Commissioners or the SEC staff.

When I first appeared before this committee more than a decade ago, Washington was still developing the regulatory response to the 2008 financial crisis.

That crisis had many chapters, but a form of security-based swaps — credit default swaps, particularly those used in the mortgage market — played a lead role throughout the story.

International banks were using

Read more

SEC Commissioner Peirce Speaks on ESG Disclosure

This summer was the summer of the cicadas. The dull hum of their song permeated the solitude of an evening stroll, along with the disconcerting crunch as pedestrian attempts to avoid squashing the creatures inevitably failed. Every seventeen years the beady-eyed cicadas emerge from underground—a natural wonder, perhaps therefore to be forgiven for their uncouth habits and off-putting appearance.[1] As eighteenth century farmer and self-taught naturalist Benjamin Banneker, having observed three appearances of cicadas, wrote:

[I]f their lives are Short they are merry, they begin to Sing or make a noise from the first they come out of Earth … Read more

Does the Strength of Investor Protection Laws Predict Capital Market Development?

Which countries provide the strongest investor protection laws? How are such laws related to the level of capital market development and ownership concentration in public companies? In a series of influential works, La Porta, Lopez-de-Silanes, Shleifer and Vishny (1997, 1998, 1999) report that investor protection laws are largely determined by a country’s legal origin, with common law countries generally providing the strongest ones.[1] These scholars also contend that countries with the strongest such laws tend to have the most developed capital markets and the least concentrated ownership of shares in their largest public firms.  Further, the scholars advance a … Read more

The Evolution of Environmental Discourse in Conference Calls

Climate change disclosure ranks among the priorities of Gary Gensler, the new chair of the Securities and Exchange Commission. With the rapid reallocation of capital to green investments – characterized as a “tectonic shift” by BlackRock[1] and a “frenzy” by the Wall Street Journal[2] – concerns have arisen about whether disclosures accurately portray firms’ commitment to protecting the environment or simply represent “greenwashing.” Intensifying climate change and commensurate increases in political and financial support for positive environmental actions reinforces how climate change disclosures have become a priority.

As regulators try to determine what types and amount … Read more

SEC Chair Calls for Transparency on What Funds Mean by Sustainability and Diversity

Thank you for the kind introduction. I enjoyed chatting with you a couple of weeks ago, Ed, and it’s good to meet with the whole committee for the first time.

I’m grateful for your time and willingness to give us advice on the asset management industry. I look forward to hearing the readouts from your various subcommittees on environmental, social, and governance investing; diversity and inclusion; and private investments.

I wanted to share some thoughts on these topics — in particular, on funds that hold themselves out to the public as investing with an emphasis on sustainability, and on diversity

Read more

How Does Private Firm Disclosure Affect Demand for Public Firm Equity?

In 2020, over 98 percent of the 40 million firms that disclosed detailed financial statement information worldwide were privately owned. Given their economic importance, the social value (or cost) of regulating private firm disclosures is likely significant, and how much to regulate these disclosures has been a central topic of debate among regulators. Key to informing this debate is understanding the potential spillover effects of these disclosures. While emerging research has made progress in investigating both the determinants and firm-level costs and benefits of private firm disclosures, relatively little is known about the spillover effects of these disclosures.

In a … Read more

Do Lawyers Make Good Gatekeepers?

Do lawyers report evidence of material violations up-the-ladder at the companies they represent, as the Sarbanes-Oxley Act and related regulations require? Have general counsel properly  investigated those reports? Can we trust lawyers to be effective gatekeepers and stop corporate misconduct? The answers to these questions have long been elusive, because corporate wrongdoing is inherently sensitive and confidential, and the actions of elite research targets are hard to observe. As we approach the 20th anniversary of Sarbanes-Oxley, though, it makes sense to revisit these questions and to evaluate the impact of one of the statute’s most controversial provisions, Section 307. … Read more

Debevoise & Plimpton Discusses SEC’s Spring 2021 Agenda

On June 11, 2021, the Securities and Exchange Commission (the “SEC”) released Chair Gary Gensler’s Spring 2021 regulatory agenda, which sets out the short- and long-term regulatory actions that the SEC plans to take.[1]  The agenda includes potential rulemakings specific to private funds and their investment advisers – such as amendments to the Custody Rule under the Investment Advisers Act of 1940 (the “Advisers Act”), amendments to Form PF and a potential new ESG rule applicable investment companies and investment advisers – and broader rules (and requests for comments on existing rules) that could affect … Read more

Entrenchment or Efficiency? CEO-to-Employee Pay Ratio and the Cost of Debt

Critics have argued that the rule requiring companies to disclose the ratio of CEO compensation to employee pay is too expensive and time consuming, with the U.S. Chamber of Commerce estimating the cost to U.S. companies at more than $700 million per year. The Securities and Exchange Commission, however, has put the annual cost at about $73 million[1], and in 2015 its commissioners voted 3-2 to adopt the rule. Since then, income inequality has reached unprecedented levels, and the CEO-to-employee pay ratio has skyrocketed. According to the Economic Policy Institute, the ratio was on average 21-to-1 in 1965 but grew … Read more

SEC Chair Gensler Speaks at London City Week

I’m honored to be speaking again at London City Week. It’s been eight years since I last spoke here. That was about benchmark interest rates and the London Interbank Offered Rate (LIBOR). I may come back to that, but I’m mostly going to take the opportunity to discuss three key areas of the reform agenda at the Securities and Exchange Commission. As is customary, I’d like to note that I’m not speaking on behalf of my fellow Commissioners or the SEC staff.

The SEC was set up in the 1930s by Franklin Delano Roosevelt and the U.S. Congress to look

Read more

SEC Commissioner Lee Addresses Climate, ESG, and Boards of Directors

“You Cannot Direct the Wind, But You Can Adjust Your Sails”[1]

Good morning and thank you for the invitation to speak today at the Society for Corporate Governance 2021 National Conference.  I’m impressed with your full and informative agenda over the next few days, and I appreciate the important work you do in supporting company boards and executives.

I also appreciate your engagement in the SEC’s policymaking process, including your recent letter in response to the request for public input on climate change disclosures. In fact, we’ve received thousands of comments in response to that request, but we hardly

Read more

The Fiduciary Principle and the Best Interests of Average Retail Investors 

The Securities and Exchange Commission recently offered a full-throated explication of its premise that investment advisers are subject to a federally imposed fiduciary standard under the Investment Advisers Act (IAA).[1]   The premise, grounded in cryptic Supreme Court dicta, served as a basis for some to advocate that broker-dealers should be subject to a similar standard in providing personalized securities recommendations to retail investors.  This concept gained statutory traction in the Dodd-Frank Act, but was never codified.  After a long and tortuous path, however, the SEC finally adopted a compromise two years ago in lieu of mandating a strict fiduciary … Read more

Improving the SEC’s Best Execution Rule

The nature of Best Execution responsibilities of market participants has been surprisingly complex in light of the evolution of trading technology and our regulatory system. My remarks highlight several facets: the NBBO, Regulation NMS and the trade-through rule, fees and rebates in trading and make-take pricing, rebate pricing tiers, proprietary data and pricing power by the exchanges, latency, and the geography of trading and post-trade opacity. These raise a variety of questions about the meaning of Best Execution. Perhaps the ambiguity in meaning reflects the Securities and Exchange Commission’s (SEC’s) desire to allow Best Execution responsibilities to evolve organically, along … Read more

SEC Commissioner Asks Whether Agency Can Make Sustainable ESG Rules

Thank you Gary [LaBranche] and the National Investor Relations Institute for inviting me to speak at your 2021 Virtual Conference. Of course, I will clarify up front that the views I express are my own and do not necessarily reflect those of the Commission.

I. Introduction

I appreciate the unique and important role Investor Relations (“IR”) teams play in our capital markets, serving as a primary channel for communication between companies’ leaders and groups such as analysts, as well as asset managers and investors who hold ownership positions in those companies. It seems that an increasing amount of that communication

Read more

Paul Weiss Discusses SEC Move to Consider ESG Disclosures

The SEC recently closed its period of public comment on the topic of climate-change disclosures after receiving hundreds of submissions. The comments, not surprisingly, reflected a range of views regarding climate-related disclosures, including whether the SEC should or must limit itself to requiring only financially material. These comments are the latest in an ongoing discussion among SEC Commissioners and staff, lawmakers, public companies and investors about the propriety, drawbacks and potential scope of SEC rulemaking mandating climate-related information. And they come about as SEC Chair Gary Gensler begins implementing his rulemaking agenda, with the new chairman changing the leadership of … Read more

The SEC’s Regulation of ESG Disclosures

The U.S. Securities and Exchange Commission has indicated that ESG disclosure regulation will be a central focus of recently confirmed SEC Chair Gary Gensler’s tenure. At the top of the agenda is climate change disclosure, and the Commission is taking steps toward broader reform. Then-Acting Chair Allison Herren Lee announced in March that the SEC will be “working toward a comprehensive ESG disclosure framework” and pursuing initiatives such as “offering guidance on human capital disclosure to encourage the reporting of specific metrics like workforce diversity, and considering more specific guidance or rule making on board diversity.” Acting Chair Lee also … Read more