Questions for the Next SEC Chair

President Biden has nominated Gary Gensler to be the next Chair of the Securities and Exchange Commission.  The SEC is charged with overseeing federal securities laws to protect investors and ensure the safety and consistency of capital markets. The commission will play a critical role in ongoing discussions about the role of corporations in American society and how they address and disclose Environment, Social, and Governance (ESG) factors.

BPC suggests the following questions for Mr. Gensler:

1. Stakeholder Capitalism vs Shareholder Capitalism: In 2019, the Business Roundtable (BRT) created shockwaves here in DC with a statement about the purpose of corporations. Specifically, their assertion that all relevant stakeholders (communities; suppliers; customers; along with shareholders) should be a priority. While some referred to it as a sea change on how we view corporations, others insisted that engaging with all relevant stakeholders was the hallmark of well-run companies.

• Assuming stakeholder capitalism continues to be at the forefront of discussions, how should companies prioritize stakeholders when conflicts arise between them?
• Should Boards and Management continue to have a fiduciary to maximize returns for shareholders or does stakeholder capitalism require a new definition of their fiduciary duty?
• Does proliferation of stakeholder capitalism theory undermine the distinction between traditional corporations and B-corporations?

This year we have seen extraordinary social upheaval in the wake of the pandemic. In response, we have heard a lot of talk about diversity, equity, and inclusion.

• What responsibility do companies bear for addressing these types of social concerns? How should these concerns be evaluated regarding all stakeholders?

2. ESG Disclosure: The Supreme Court indicated that companies should disclose financially material information where there is a “substantial likelihood that a reasonable shareholder would consider it important” in making investment decisions, though cautioned against too much disclosed information. In 2010, the SEC provided guidance regarding disclosure related to climate change. In that guidance, the Commission explained that existing disclosure requirements includes the costs of compliance with existing environmental laws and regulation, legal proceedings, risk factors, management discussions and analysis (MD&A), technological innovation, and international agreements. Just last week, acting SEC Chair Allison Herren Lee indicated that the SEC will update the 2010 guidance to create “a more comprehensive framework that produces consistent, comparable, and reliable climate-related disclosures.”

• Does the existing SEC disclosure framework provide for financially material disclosure? If not, what existing statutory authority would justify expanding the current disclosure requirements?
• While there is a growing interest in evermore amounts of information related to ESG disclosure, how will you balance the desire for increasing amounts of information with a company’s duty to disclose only financially material information in order to avoid the concern the Supreme Court had with too much information for the investor to evaluate?
• Given the differences between the US and Europeans approaches on corporate disclosure, what is the feasibility of a global standard without statutory changes?
• Do you believe the SEC should consider modifying the definition of materiality to include “double” or “dual” materiality, which includes both material information on sustainable topics and the traditional financially material information?
• How does the concept of “dynamic” materiality fit with the current SEC’s stated approach to standardizing not only how information is disclosed but also what information is disclosed?