By: Cydney Posner

SEC Chairman Cox gave the introductory remarks at yesterday's Executive Compensation Conference held at the new Rock Center for Corporate Governance at Stanford University. What may be most interesting about his presentation is not his speech, but rather what he is reported (according to Corporate Counsel) to have said to reporters afterward:

that "small companies won't get an exemption from Sarbanes-Oxley rules requiring independent auditors to certify they're complying with securities laws." So, while certain members of Congress may contend that the SEC has the authority to provide exemptions under SOX (see my email of 3.20/06), if the report is correct, it seems likely that the SEC will choose not to exercise that authority.

In his address, Cox emphasized that investors may be interested in the compensation scandals regarding Michael Ovitz and Richard Grasso to some extent because of their "Desperate Housewives" tabloid aura, but their interest is primarily the result of their legitimate concerns as stockholders. However, Cox contends that it's not the SEC's job to substitute its judgment for that of the board, but rather to require complete and comprehensible disclosure: "Surely many executives deserve every penny they're paid, and more…. If a company's directors believe it takes a $6,000 shower curtain, or a $140 million severance package, to get the job done, fine—but at least the shareholders ought to know. They're entitled to information on the specifics of the major perks. And they deserve a clear expression of what the entire compensation package is worth." Cox then went on to commend the use of plain English: "It's an open secret that today's Compensation Committee Report is boilerplate. It's simply a waste of trees and ink. I could probably use an example from the proxy statement of most any public company in America, but to avoid giving offense I've picked one that's going out of business.

"Here's what Enron's proxy statement said in 2001:

"The Compensation and Management Development Committee's responsibility is to establish Enron's compensation strategy and to ensure that the senior executives of Enron and its wholly owned subsidiaries are compensated effectively in a manner consistent with the stated compensation strategy of Enron, internal equity considerations, competitive practices, and the requirements of appropriate regulatory bodies."

"Of course, notwithstanding the length of that sentence, we actually learned nothing about what Enron's compensation strategy might be—neither there nor anywhere else in the proxy statement."

In closing, he recommended that the audience pay close attention to the speech of John White, not "because his 14 days at the Commission have given him any secret insights or inside information, but because if he were still in the private sector, his detailed advice would have cost you thousands of dollars."

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