Harvey Pitt, who was chairman of the Securities and Exchange Commission early in the Bush Administration, said Tuesday on a panel at the National Investor Relations Institute 2009 Annual Conference in South Florida:
Sarbanes Oxley was just the tip of the iceberg. We are federalizing the law of corporations. Companies that don’t get that are going to be left behind.
Pitt, now CEO of Kalorama Partners (a Washington-based consulting firm on business and government issues), said Congress and the SEC under the Obama Administration are dramatically changing the regulatory landscape for companies.
For example, shareholder proxy rights and board of director relationships to companies have traditionally been governed by state corporation laws but Congress now is likely to pass new laws on both, Pitt said. The “emotional and moral outrage” on extravagant compensation by companies getting federal aid also will lead to legislation – and it won’t be limited to bailout beneficiaries – he said.
Unfortunately, Congress when it legislates tends to wait for a thalidomide case – and we clearly qualify for that now [with the financial crisis] – and then tends to over-legislate.
Pitt’s advice: Public companies and boards should proactively address executive pay policy to bar large packages when companies are failing, “shareholder democracy” issues such as access to make proxy proposals, and other governance matters.