Steps Directors Can take to Avoid SEC Enforcement

SEC Chair Mary Jo White recently shared steps directors can take to meet various SEC expectations. At the annual Stanford Directors’ College, Chair White highlighted the important role directors play in the eyes of the SEC and set out her planned agenda to discuss:

  1. How the SEC views directors as “gatekeepers” over corporate behaviors and compliance;
  2. How the SEC takes into account corporate self-reporting and cooperation during investigations; and
  3. How the SEC relies on its whistleblower program as a touchstone for assessment of corporate compliance programs.

This communication from White is important because it provides specific steps directors—and their corporations—can take to protect themselves. White provided clarity on what the SEC expects from directors. Directors should:

  • Fulfill their role as gatekeepers; detecting, preventing and stopping violations. In addition, collectively address any problems that do occur,
  • Establish “tone at the top,”
  • Be active players; research their role, know their company’s business model and associated risks,
  • Know the regulators and seek open communication and cooperation with them;
  • Reward employees “who do the right thing,”
  • Listen to shareholders and review their proposals carefully—those submitted by other companies “could be relevant to your company,”
  • If something goes wrong, consider self-reporting, as that could earn credit for cooperation; without doubt, hiding and stonewalling has led to significant corporate penalties—even personal liability for some directors,
  • Take all whistleblowers seriously. The SEC has done a 180 here and now addresses complaints diligently. Corporations should, too.

Read White’s full speech here.