June 20, 2014
In a recent speech, SEC Commissioner Daniel M. Gallagher warned that his agency's core mission of investor protection is "under attack" by an influx of congressionally mandated and activist investor-driven corporate governance disclosures, including say on pay and the pay ratio, that "are simply not material to a reasonable investor." According to Commissioner Gallagher, the SEC was formed with the goal of shedding sunlight on the financial markets while being conscious of the negative impacts of information overload. The SEC is at a similar juncture today, thanks in part to the Dodd-Frank Congressional mandates involving say on pay, pay ratio, clawbacks, pay for performance, hedging disclosures, conflict minerals and extractive industries disclosures, as well as activist initiatives. Gallagher, the senior Republican member of the Commission, criticized this foray into corporate governance as distracting the SEC from its core purpose of investor protection and stating that corporate governance is "traditionally- and better-regulated by states." At the same time, Gallagher faulted special interest groups which push companies to provide sustainability and other non-financial disclosures, even where companies have not determined them to be relevant to investors. He expressed concern that these "not-too-subtle 'voluntary' disclosures" would soon be pushed as mandatory on companies. Gallagher’s comments come as the SEC is engaging in a top-down review of the disclosure system and considering rulemaking on a final pay ratio rule, as well as proposed rules on clawbacks and pay for performance.