Mary L. Schapiro, who stepped down last month as chairman of the Securities and Exchange Commission, had a four-year tenure marked by significant accomplishment.
The post-mortems of Ms. Schapiro's tenure have focused justifiably on the extraordinary circumstances under which she became chairman: a global economic meltdown caused in part by the failure of SEC oversight of complex financial instruments such as credit default swaps. Among her biggest accomplishments was restoring greater confidence in the commission and the capital markets it regulates.
But there is a less heralded aspect, and nearly as important, to Ms. Schapiro's tenure: She heard and responded to increasing investor concerns about the lack of corporate disclosure on the serious financial impacts from major environmental and social issues. At the same time, the Schapiro SEC recognized the need to assure investors meaningful roles in corporate governance. This reflected her strong dedication to public disclosure and informed investors.
In 2010, for example, after hearing requests from investor and environmental groups and recognizing that many companies now face material financial risks related to climate change, the SEC issued formal guidance regarding disclosure of material risks and opportunities arising from global climate change and emerging regulations for addressing it. This SEC action was a world first, supported by nearly 100 institutional investors in the U.S.-based Investor Network on Climate Risk. Canadian and U.K. regulators have since followed the SEC's lead.
Similarly, under the Dodd-Frank financial reform act, the SEC issued new rules governing company reporting on mining safety, conflict minerals (minerals mined in conditions of armed conflict and human rights abuses) and payments for foreign resource extraction. Public disclosure of such information is important to a growing number of large investors concerned with both the financial risks of related investments and the impact of economic and social justice issues. While some business and trade associations have challenged two of these rules, Ms. Schapiro's efforts to pry open the doors and allow public scrutiny of this hidden information is laudable.
Ms. Schapiro's SEC also proved responsive to events that highlighted the financial risks of deepwater oil drilling, which became apparent following the Deepwater Horizon spill in the Gulf of Mexico, and hydraulic fracturing for natural gas. During Ms. Schapiro's tenure, the SEC issued a number of “comment letters” on these issues that require more information from companies about plans to address risks and about potential impacts on their bottom lines.
Ms. Schapiro also gave investors new leverage over the corporate governance of the companies in which they hold shares. For example, in 2009 the SEC ended the practice of uninstructed broker voting in director elections, a practice that had allowed brokers to vote shares of customers who failed to return proxy forms. Because brokers almost always voted with management, this gave management undue power over director elections. A year later, the SEC adopted a rule allowing long-term shareholders to nominate board of director candidates.
Investors also now have a say about executive compensation and “golden parachute” arrangements between companies and departing executives, although further rule-making in this regard is needed. In short, under Ms. Schapiro's leadership, and often in the face of powerful opposition, the SEC strengthened the hand of shareholders in matters of corporate governance, bolstering efforts by investors to improve corporate management of environmental and social risks and helping to protect the shareholders' investments.
Ms. Schapiro's legacy must be continued now by Elisse B. Walter, President Barack Obama's appointment to succeed Ms. Schapiro. Ms. Walter, a commissioner since 2008, has been Ms. Schapiro's closest ally at the SEC and a staunch supporter of these outstanding SEC accomplishments in her own right. Ms. Walter has a unique opportunity to build upon the accomplishments of the past four years. Much remains to be done. Although the SEC issued climate change disclosure guidance in 2010, implementation must be strengthened so more corporate reporting takes place. Final rules on executive compensation reform remain to be written and approved. A growing number of large institutional investors, responsible for trillions of dollars of assets, are pressing for needed “integrated” corporate reporting that fully integrates environmental, social and financial risks and opportunities, and how companies are adjusting governance structures to address those risks and opportunities.
This transition provides a profound opportunity to bring all these reforms together in a productive and meaningful way. Ms. Walter, in her new role as chairman, can help ensure the Schapiro SEC's momentum toward more open, transparent capital markets with a greater investor voice continues into the future.
Nancy K. Kopp, state treasurer of Maryland, is chair of the board of trustees of the Maryland State Retirement and Pension System, Baltimore; Anne Stausboll is CEO of the California Public Employees' Retirement System, Sacramento; and Jack Ehnes is CEO of the California State Teachers' Retirement System, West Sacramento. They are members of the Ceres-led Investor Network on Climate Risk, a group of 100 investors representing $11 trillion in assets focused on the business impacts of climate change.