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Campos Applauds Activism That Promotes Shareholder Democracy

SEC Commissioner Roel Campos, in remarks at the New American Alliance conference in New Mexico, said he was heartened that many institutional pension investors continue to strongly support the Sarbanes-Oxley Act and have stated their willingness to bear its costs. He also reviewed developments in shareholder activism, executive compensation, hedge funds and Latino representation in the pension industry and the financial services sector. Campos urged Latinos and other minorities to seize the new business opportunities that arise with new regulations and to act with integrity in their business dealings.

The view of the pension and retirement industry has profoundly influenced the corporate governance structure of some of the largest businesses in the world, according to Campos. The retirement industry challenged corporate policies on labor, the environment and diversity. The industry is an important voice in the SEC's rulemaking process, he added, since it also speaks for millions of individual investors who invest through retirement plans.

Campos noted that the pension and retirement industry has been among the strongest supporters of the Sarbanes-Oxley Act. He acknowledged the lingering problems with the section 404 internal control requirements, but said it is a top priority for the SEC this year. The continuing support of the pension and retirement industry is critical, according to Campos, especially as the corporate scandals recede from memory.

Campos observed that activist institutional investors have led the way in improving the election process for boards of directors. He believes the use of the proxy process has resulted in positive steps for shareholder democracy. Campos said it was a shame that the SEC did not issue final rules on a system of shareholder access, as proposed. However, institutional investors have become smarter and more aggressive since that proposal stalled, he said, and their tactics appear to be working through ballot initiatives on majority voting for directors and advisory votes on executive compensation.

Campos hopes the new executive compensation disclosure rules will give investors a better sense of total compensation and will empower investors when they see what they believe to be excessive compensation. The new rules do not provide for an advisory shareholder vote on executive compensation as required in the UK and Australia, but Campos said that investors could use the proxy process to include advisory vote proposals in companies' proxy materials. If investors are dissatisfied with the newly disclosed executive compensation, they can take action, he said.

Campos reviewed the recently approved bill that will allow hedge funds to circumvent the 25% ERISA limit on pension fund assets. Those in favor of the legislation said that pension funds will no longer be denied investment opportunities with quality hedge funds. Those opposing the bill said that hedge fund strategies are not consistent with the pension fund philosophy of steady, low-risk growth. Campos suggested that the answer may be somewhere in-between.

Campos also talked about the SEC's decision not to appeal the Goldstein decision that vacated its hedge fund adviser rules. The decision was tactical, rather than a statement on the merits of the rule, according to Campos. He agreed with the decision not to appeal, but recognized the value of an appeal with respect to its allegiance to the SEC's rulemaking function. The SEC now has to remedy the unintended consequences of the court's opinion, he said. Campos pondered whether the SEC should consider reforming the offering process for hedge funds, particularly the public solicitation component. He said he has been meeting with hedge fund representatives to gain a better understanding of the industry and their views on regulation.