Archive for the ‘Regulatory & SEC issues’ Category

Washington revs up enforcement

September 12, 2013

Wall Street’s Top Cop: SEC Tries to Rebuild Its Reputation,” an interesting piece on page 1 of The Wall Street Journal today, traces the enforcement actions of the Securities and Exchange Commission since the financial crisis reached meltdown five years ago.

SEC logoThe agency is still smarting from suggestions that too little was done to punish Wall Street fat cats for the supposed malfeasance behind the financial crisis, the article says. Actually the SEC brought civil charges against 138 companies and individuals related to the crisis, and garnered $2.7 billion in fines, forfeited gains and other penalties, the Journal says, enumerating them in a timeline graphic.

But the gummy bear image persists in Washington, the story says, so leaders at the SEC feel they’ve got something to prove. For example …

In April, former federal prosecutor Mary Jo White started work as SEC chairman with a simple enforcement motto:

“You have to be tough.”

As crisis-era cases run their course, the SEC will redeploy resources to new enforcement actions, the paper reports.

© 2013 Johnson Strategic Communications Inc.

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Reg FD: Does $50,000 get your attention?

September 7, 2013

Court gavelIn the old days, companies sometimes tried to soften the shock of bad news by getting on the phone with key analysts to tweak their assumptions, whether on this quarter’s earnings or another issue. A Regulation FD case against an IRO, resolved Friday by the Securities and Exchange Commission, sends a clear message: The old days are over.

Here’s my non-lawyer version of what Reg FD says to IROs: When things are changing in ways that may be material for shareholders, don’t think about “signaling” or “telegraphing” the market by talking to a few analysts and investors. Instead, broadly disclose the changes through a news release, 8-K filing, or conference call open to all investors. Selective disclosure is out, fair disclosure is in – that’s been true at least since Reg FD took effect in 2000.

The recent SEC case involves Lawrence Polizzotto, former head of investor relations for First Solar, Inc., an Arizona firm whose financing was part of the political controversy a couple of years ago over Energy Department loans to renewable energy companies. On Friday, Polizzotto agreed to pay a $50,000 penalty in the selective disclosure case and accepted a cease-and-desist order with the SEC, without admitting guilt.

Here’s the scenario the SEC painted: In September 2011 Polizzotto attended an investor conference with First Solar’s CEO at the time. The firm had conditional commitments from the Energy Department for three loan guarantees totaling $4.5 billion, and the CEO expressed confidence  the company would receive that backing.  Two days later, word came that First Solar would not get at least one of the guarantees. According to the SEC:

A group of employees including Polizzotto and one of First Solar’s in-house lawyers began discussing how and when the company should publicly disclose the loss of the loan guarantee.  The company lawyer specifically noted that when the company received official notice from the Energy Department, “we would not have to issue a press release or post something to our website the same day.  We would, though, be restricted by Regulation FD in any [sic] answering questions asked by analysts, investors, etc. until such time that we do issue a press release or post to our website …”

Comment: When lawyers talk, IROs should listen. SEC went on …

Polizzotto violated Regulation FD during one-on-one phone conversations with approximately 20 sell-side analysts and institutional investors on Sept. 21, 2011 – the day after a Congressional committee sent a letter to the Energy Department inquiring about its loan guarantee program and the status of conditional commitments, including three involving First Solar.  This Congressional line of inquiry caused concern within the solar industry about whether the Energy Department would be able to move forward with its conditional commitments.

Analysts began issuing research reports about the Congressional inquiry, and analysts and investors began calling Polizzotto. Despite knowing that the company had not yet publicly disclosed anything, Polizzotto drafted several talking points that effectively signaled that First Solar would not receive one of the three loan guarantees.  His talking points emphasized the high probability of receiving two of the loan guarantees and the low probability of receiving the third.

Polizzotto delivered his talking points in the one-on-one calls with analysts and institutional investors, and he directed a subordinate to do the same.  Polizzotto went even further than his talking points when he told at least one analyst and one institutional investor that if they wanted to be conservative, they should assume that First Solar would not receive one of the loan guarantees.

So there it is: material nonpublic information. The proof of materiality is that, when First Solar learned of the one-on-one disclosures and issued a press release the next day, its stock dropped 6 percent.

If you want guidance on Regulation FD or its application, ask your securities counsel. You can read Reg FD here, see the Polizzotto order here or explore links on the SEC’s selective disclosure webpage.

The philosophical heartbeat of Reg FD was captured by Michele Wein Layne, director of the SEC’s Los Angeles office: “All investors, regardless of their size or relationship with the company, are entitled to the same information at the same time.”

© 2013 Johnson Strategic Communications Inc.

The phone call no IRO wants

June 8, 2013

As a non-lawyer, I always pay heed when an attorney for a client speaks. Certainly when a letter from a law firm or government agency arrives (though most are friendly). And when the phone rings and a caller says he or she works for the SEC or FINRA, well …

In 20-plus years of IR work, I’ve never personally heard from a regulator. But a piece in the June/July issue of NIRI’s IRupdate, “What to Do When You Get ‘The Call’,” caught my eye. And it’s worth noting.

The advice of the lawyers NIRI cites comes down to this:

… if you are the one to get the call, it’s not hard to know what to do: Basically, it’s say little and listen a lot …

Be polite but reserved. Neither hostile nor chatty. Don’t volunteer details or opinions. Your goal at this stage is to gather information to give your general counsel or securities lawyer – who can then manage the process. Ask the caller what the focus of the inquiry is, if it relates to a specific event, time  or person. Then head for your company lawyer’s office.

This seems like good advice to me. Any reactions?

© 2013 Johnson Strategic Communications Inc.

SEC has its say on pay

January 25, 2011

The Securities and Exchange Commission adopted final rules on “Say on Pay” and other executive compensation requirements under the Dodd-Frank Act of 2010.

Starting now, most companies must get an advisory vote of shareholders on executive compensation at least every three years. And ask stockholders how often they want to offer their say on pay. And get input on “golden parachute” arrangements to take care of execs in mergers. And add disclosures, of course.

Only the smallest public companies (less than $75 million in float) get a reprieve: They won’t have to implement say on pay votes for two years, in 2013.

The SEC website provides a good summary of the provisions and a video of Chairman Schapiro’s comments today, and the text of the final rule. Look for more explanations from law firms and comments from corporate governance gurus.

More than just studying up, investor relations officers should talk through say on pay – and all issues around executive compensation – with their senior management and legal teams. This is the thrust of the National Investor Relations Institute’s counsel in a NIRI “Executive Alert” today:

Since President Obama signed Dodd-Frank into law on July 21, 2010, NIRI has reinforced its long-standing advice that members become more involved in their companies’ corporate governance process. Investor relations professionals are the primary conduit between companies and Wall Street, and are ideally suited to provide the executive team and board of directors the insight into shareholders that will be critical as these shareholders become more active and influential in corporate governance matters.

Executive pay and your company’s plans for putting these issues before shareholders will likely come up in conversations with investors, especially institutions, in the coming days. Preparing a Q&A or “talking points” would help keep management and IR on the same page with the legal beagles.

The say on pay rule isn’t surprising. In my mind, it’s not terribly helpful, either. But let’s face it: Astronomical paydays for high-visibility CEOs are tremendously unpopular. I hear gripes about fat cats’ pay from all kinds of people, including bankers, institutional investors, high net worth people and – gasp – Republicans.

The SEC rules for say on pay are a classic case of Washington’s reflex to “do something” each time the economy goes through a crisis. So … we’ll implement.

© 2011 Johnson Strategic Communications Inc.

Mr. Market, meet Mr. Regulator

July 21, 2010

Today President Obama signed into law the far-reaching expansion of federal regulation of US banking and capital markets. The overhaul has been brewing in Washington since the financial crisis in 2008 – and the 848-page heft of the Dodd-Frank Wall Street Reform and Consumer Protection Act (PDF here) may have something to do with the two years spent crafting it. The law orders new rules governing banks and investments, creates new agencies, and grants regulatory powers here, there and everywhere.

Supporters say it will protect investors and consumers, prevent abusive and risky behaviors by the bad boys on Wall Street, and avert future financial meltdowns.

President Obama cited eternal benefits for the Act he signed: “The American people will never again be asked to foot the bill for Wall Street’s mistakes [emphasis added].” Never again, of course, is Washington-speak that promises the latest patch in the roof will keep out the rain at least until after the next election. OK, that’s cynical. But financial crises have recurred every few years – over centuries and centuries – despite many previous regulatory fixes. Never again? Well …

For investor relations professionals trying to figure out what this wave of regulation means to us and the financial markets where we work, a few resources:

The New York Times story “Financial Overhaul Signals Shift on Deregulation” (July 15) offers an understandable overview and historical perspective on passage of the overhaul. The Times calls the new law “a catalog of repairs and additions to the rusted infrastructure of a regulatory system that has failed to keep up with the expanding scope and complexity of modern finance.”

A Wall Street Journal piece “Congress Overhauls Your Portfolio” (July 17) takes a “micro” view, looking into how regulatory expansion may affect individual or institutional investors – and companies.

“Several provisions promise to give investors a louder voice in policy-making circles and corporate boardrooms,” the WSJ says. Among the coming attractions: a new Office of the Investor Advocate at SEC to assist retail investors; an Investor Advisory Committee, also at SEC, watching out for investors’ interests; a mandate for the SEC to allow major shareholders access to corporate proxies to nominate directors; and nonbinding “say on pay” votes for shareholders.

Lawyers are weighing in with interpretations, too. On the Harvard Law blog on corporate governance and financial regulation, a partner in the firm of Davis Polk Wardwell LLP says this isn’t just about banks or Wall Street giants:

This legislation will affect every financial institution that operates in this country, many that operate from outside this country and will also have a significant effect on commercial companies. As a result, both financial institutions and commercial companies must now begin to deal with the historic shift in U.S. banking, securities, derivatives, executive compensation, consumer protection and corporate governance that will grow out of the general framework established by the bill. …

By our count, the bill requires 243 rulemakings and 67 studies. … U.S. financial regulators will enter an intense period of rulemaking over the next 6 to 18 months, and market participants will need to make strategic decisions in an environment of regulatory uncertainty.

Davis Polk has made its memorandum available online as a PDF. This 123-page “brief,” as the lawyers like to say, offers a rundown of all of the Dodd-Frank Act’s provisions and their implications for market participants. By scanning the Table of Contents, which hyperlinks into the narrative, you can see where you fit in.

What you can’t see is where all the rulemaking and wrangling will lead. In a few years, all of us probably will be running into financing deals that can’t be done, or reports that must be filed, or language that must be used – thanks to the 2010 Act.

Who knows what unintended consequences – such as increased costs of capital or even the genesis of our next “bubble and bust” cycle – may lurk amid the unknowns of the new law? I’m sure there is good in the Act, but also plenty of uncertainty.

Feel free to share your comments – pro, con or otherwise – by clicking below. And good luck with financial reform as it applies to your business.

© 2010 Johnson Strategic Communications Inc.

Body language & tone are back

June 16, 2010

In a spirit of renewed regulatory machismo, the SEC is reportedly investigating whether generic drug company Mylan violated Regulation FD by “sounding excited” and dropping positive hints about upcoming earnings in a 2009 meeting with a analysts and investors, according to today’s Wall Street Journal (page C1).

The incident is a reminder of the risks of what should be normal investor relations activities – meetings and phone calls with the Street. Exactly what happened in the Mylan meeting isn’t clear from the WSJ or a similar Reuters article – but this story is going to be worth following.

According to the WSJ, the SEC has asked Mylan and some analysts who attended the meeting last September – three weeks before the end of the third quarter – what the company said regarding earnings for the quarter. The day after the meeting, the paper said, Mylan shares jumped 7% – and the stock rose further when earnings were reported in late October.

Mylan told the WSJ the company is “confident the communications made during the conference were entirely appropriate.” The meeting wasn’t webcast, and Mylan didn’t issue a news release or file anything with the SEC disclosing information from the meeting – as Reg FD would require if something material was said.

Details so far are scarce. The most color came from analysts cited by the WSJ:

A UBS analyst who attended the Sept. 9 meeting said in a report to clients the next day that Mylan’s “management sounded excited about the upcoming 3Q.” The report added: “although not saying it, management basically implied once again that it was confirming 2010 EPS guidance.” Other analyst notes also said the company was “excited” about reporting earnings.

SEC cases based on Reg FD have been rare. Reuters notes that the Mylan incident is reminiscent of an SEC action against Richard Kogan, former chief executive of another drugmaker, Schering-Plough. Reuters recalls:

The SEC investigated [Kogan’s] private meetings in September 2002 with four institutional investors in Boston, three of which were among the company’s largest investors.

“At each of these meetings, through a combination of spoken language, tone, emphasis and demeanor, Kogan disclosed negative and material, nonpublic information regarding Schering’s earnings prospects,” including that the company’s 2003 earnings would significantly decline, the SEC found.

In the Schering-Plough case, the stock price took a dive after the lunch meeting with investors. Publicly, the company remained silent. The CEO was gone a few months later, and Schering-Plough ultimately agreed to pay a $1 million civil penalty to the SEC. Kogan paid $50,000.

So … maybe body language and tone are back in the SEC’s sights. We’ll have to see. Today’s news is a reminder that IR professionals – and senior managers – need to be vigilant about even inadvertent guidance on earnings in private meetings.

One way to prevent this problem is to announce an analyst day in advance and webcast the presentations. That works for larger meetings.

I believe companies also should continue to meet personally with individual investors or small groups – this is how relationships are built. The executive team and IR should rehearse  beforehand what’s to be discussed – and not discussed – especially regarding upcoming earnings. If selective disclosure happens, Reg FD prescribes a pretty clear cure: broad disclosure of the information to the market.

What’s your approach to avoiding potential Reg FD problems?

© 2010 Johnson Strategic Communications Inc.

Let’s NOT squash trading

January 20, 2010

As you know from reading the papers, Washington “powers that be” have two impulses when it comes to Wall Street and stock market activity:

  • If it’s an activity where people can lose money, we need to regulate it.
  • If it’s a thing where people can make too much money, we need to regulate it – and maybe just outright squash it.

Following the market’s unfortunate meltdown in 2007-09, and the even more unfortunate fact that Wall Streeters who remain are taking home big bonuses, Congress and the Obama Administration are in full rush to “do something.” You know, do something so “this will never happen again.” No one believes that last part – mostly it’s about casting blame and seeming to punish someone – but they are working on a wave of escalating regulation, which could be very real.

Update: On Jan. 21 President Obama pledged to go after big banks, again using that “never again” language. Among other things he proposed a ban on proprietary trading by banks, curbs on advising hedge funds and limits on involvement in “risky financial products.” Depending on how it’s structured, this might greatly reduce trading – or just drive traders out of mega-banks into smaller firms.

Earlier this week the Kansas City chapters of NIRI and the Security Traders Association put on an educational panel, “Not Your Grandma’s Market Anymore,” on how the new world of trading affects public companies. The Jan. 19 audience was a mix of 50 investor relations people, long-term investors and short-term traders, all in one room.

Speakers were Joe Ratterman, CEO of BATS Global Markets, the No. 3 US equity exchange behind Nasdaq and NYSE; Tim Quast, managing director of ModernIR, an analytics firm that tracks trading patterns for public companies; and Jeff Albright, VP and head of equity trading for mutual fund family Waddell & Reed. I moderated.

In another post, I’ll share ideas from the session on what investor relations people can do amid this new world of trading. But let’s start with Washington – because regulatory excess in trading could do a lot of damage to the markets our public companies depend upon. Some examples of what the power brokers are up to:

  • The Securities and Exchange Commission issued a “concept release” on equity market structure on Jan. 14. It’s a good primer on changes in how stocks are traded. The SEC seeks public comment on how to beef up regulation of market structure, high-frequency trading and “undisplayed liquidity” such as the private markets called dark pools. That’s the start of a push for expanded regulation. I’ll post excerpts in a page called “Not Your Grandma’s Market,” but the full 74-page release is worth reading.
  • Democrats in Congress are proposing a new tax of 0.25% to 0.5% on securities transactions – every trade of stocks, options, futures, etc. Proponents say the tax could raise as much as $354 billion a year for Uncle Sam and curb “speculative excess” by cutting total trading volume, say, 25% to 50%. Those last numbers are, well, speculative – no one knows what the actual impact of lobbing a new tax into the markets would be.
  • The SEC proposes to regulate dark pools, whose very name suggests something sinister – should have sent that one to the branding consultant before going with “dark pools.” They’re generally platforms for securities firms to match orders and do proprietary trades without disclosing price and volume offers. The new SEC rules would bring that trading out into the open.
  • Also targeted by the SEC are flash orders. Flash trading essentially is a way automated traders’ computers can get a peek at pending orders from other investors 30 milliseconds before those orders go to the broader market. The fear is that high-tech trading desks are gaining an unfair advantage.
  • And, of course, the SEC has been tinkering with rules on short selling, a hot button for some companies that have felt victimized on the downside of the market – and another unpopular group of Wall Streeters.

Now, the opinions here are my own – I can’t speak for the other panelists. My takeaway from the discussion was that, yes, technological and regulatory changes of recent years have created a huge new realm that basically is automated trading.

Perhaps two-thirds of the trading volume in US stocks is short-term activity. The traders are math majors who program computers to make or withdraw offers from the market, hundreds or thousands of small trades at a time, in milliseconds. They use algorithms to implement strategies based on tiny anomalies in price, or theories about market movement. The activities go by a bunch of acronyms and names like “high-frequency trading.” They use ultra-fast technology.

And, yes, this trading activity makes life complicated – both for public companies trying to figure out what is happening with our stocks day-to-day, and for individual or institutional investors who may be trying to do a trade for long-term investment but encounter a flurry of “noise” moving the price or spiking volume.

The fact that life has become more complicated, however, doesn’t mean it’s worse – or that trading cries out for a regulatory crackdown. Automated trading certainly was not responsible for the financial meltdown we just came through, and those traders Washington likes to label “speculators” aren’t doing anything wrong.

The societal benefit of short-term trading, as it emerged in discussion, is that when a long-term investor is trying to put a trade on – say, buy 50,000 shares of your stock – the automated traders often are the ones putting up the offers that match that bid and form the other side of the trade. Liquidity comes from more offers, and this lubrication enables people to own stocks less risk of being stuck.

My bottom line: Let’s NOT squash trading. Taxing trades will only add costs, ultimately borne by the people who own equities or mutual funds. And we ought to be very careful about dictating market structure based on an understanding of today’s needs and technologies – which tomorrow will already be changing.

Capitalism thrives in free markets. Rigidity in capital markets will inhibit the flow of money and hinder investment in new technologies yet to be envisioned. And let’s face it, the equity markets (however bumpy) ultimately enable businesses to exist, grow … or in some cases disappear. We don’t want to lock in the status quo.

That’s my two-cents’ worth. What’s your opinion of regulating trading?

© 2010 Johnson Strategic Communications Inc.

Oh, good (for now anyway)

October 2, 2009

One regulatory reform proposal has slowed down a bit, at least for now: The Securities and Exchange Commission doesn’t plan to vote until early 2010 on a “proxy access” rule, which would help shareholder activists nominate slates for corporate boards, The Wall Street Journal reports today.

Delay of an SEC vote from autumn to January or February means companies wouldn’t have to contend with direct proxy access in the spring 2010 proxy season, the WSJ notes. That would offer a breather for corporate staffs – and maybe some embattled corporate boards – amid a wave of potential new regulation.

Proposed in May, the SEC proxy access rule (if passed) would give shareholders a “right” to have their board nominees listed in a company’s proxy materials -empowering dissidents who might otherwise be shut out. To qualify for submitting board candidates, shareholders would need to hold a minimum of 1% of the shares for larger firms; 3% for mid-sized companies; and 5% for small firms.

SEC Chairman Mary Schapiro favors the proposal, citing the financial crisis as evidence that boards need more accountability.

Business groups like the National Investor Relations Institute oppose the idea. President & CEO Jeff Morgan said in NIRI’s comment letter to the SEC:

Possible side effects of a federal proxy access rule include increased costs to public companies to ensure valid nominations are included on the proxy, an increased influence of activists with narrow economic interests that run counter to that of long-term shareholders, a continued reduction of individual investors’ proxy voting influence and the possibility for decreased board effectiveness.

Morgan favors company-initiated changes in the proxy process, tailored to the varied interests and circumstances of individual companies. (See Morgan’s comments on a range of regulatory issues in his President’s Blog at the NIRI website, or a quick summary in this IR Café post. Broc Romanek gives an overview of comment letters on proxy access in a post at TheCorporateCounsel.net.)

“Proxy access” hasn’t gone away – just slipped a notch in the Washington timetable.

My own opinion: Handing more power to hedge funds, social activists or union pension funds isn’t really a good “fix” for corporate blunders or misdeeds. Activists follow their own political or economic agendas – not necessarily in the best interest of shareholders. Companies that destroy shareholder value, in my opinion, are punished in the market. And their CEOs and boards often share in the downfall.

What’s your opinion? And have you or your top management spoken out?

Watching Washington

September 29, 2009

All eyes are on Washington this fall, as the country watches hope and change take hold through new laws and regulations. When NIRI President and CEO Jeff Morgan briefed a group of investor relations people and corporate lawyers in Kansas City on changes coming our way from DC, “scary” was a word that kept recurring.

Jeff Morgan 9-29-09“There are a lot of scary things happening in Washington, and some potentially good things happening in Washington,” Morgan said Tuesday evening at the NIRI Kansas City chapter meeting.

Motivated by the financial crisis, Morgan noted, politicians have turned from talk to action on regulatory issues that have been around for years. Rightly or wrongly, he added, politicians see only two causes for the financial crisis: corporate greed and lack of adequate regulation. So they are bent on fixing those problems.

Morgan said significant changes in the way corporations are governed are in the works in Congress and at the Securities and Exchange Commission (SEC):

  • “Say on pay” proxy votes and input from a federal “pay czar,” initially targeting financial companies that got bailouts, could be expanded by Congress to all public companies.
  • If say on pay spreads, institutional investors – many of whom lack the staff to examine every executive pay proposal – would outsource the research and perhaps the voting to RiskMetrics Group. RiskMetrics sells governance advice to companies, and chastises those who don’t measure up to its standards.
  • An SEC proxy access proposal to expand shareholders’ ability to nominate board members seems likely to take effect, and Congress could weigh in to expand the mandates. That would empower activist investors such as union pension funds to target companies for changes in governance.
  • An SEC change in Rule 452 to eliminate broker discretionary voting, starting January 2010, seems likely to disrupt voting of retail stockholders’ share.
  • Various proposals are kicking around Congress on board compensation committees, separating the CEO and chairman roles, requiring certification and training for directors, eliminating staggered boards and other issues.

What can companies do? Get senior management to reach out to Congress with the public-company viewpoint on proposals for federal intervention. Take pre-emptive action by implementing compensation and proxy access programs designed to enhance, rather than put a strangle hold on, good governance for companies.

Two good sources on legislative and regulatory changes are Jeff Morgan’s blog on NIRI.org and Broc Romanek’s blog at TheCorporateCounsel.net.

We’d better be watching Washington. Says Morgan: “Corporations are the lifeblood of America, and we’re doing things that are dangerous to those corporations.”

Schoolmarm & the three Rs

September 14, 2009

FederalHall-GovtPhotoPresident Obama commemorated today’s anniversary of the collapse of Lehman Brothers and the ensuing financial panic by going to the Wall Street playground and delivering a schoolmarm’s lecture to the boys who’ve been acting up. (News story here, text of speech here.)

Like many a grammar school teacher, Mr. O lectured all the kids without differentiating much between those who actually misbehaved and those who followed the rules. For example, the president said:

I want everybody here to hear my words: We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses. Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall.

The president retold the brief history of the financial crisis since September ’08. Not delving much into root causes or the cyclical nature of markets, he focused on the misdeeds of Wall Street. He reminded us (twice) that the crisis was already raging when his administration walked in the door. In this lecture, he made it clear that the schoolboys have failed to learn the three R’s.

The first “R” word is risk. And risk, we gathered from the president, is bad. At least, it’s bad when Wall Street fails to properly anticipate or control it – he spoke of risky loans, risky behavior, reckless risk. These may be seen more easily in hindsight, perhaps, but the president definitely wants financial markets to take less risk.

The president also invoked responsibility. We heard the second “R” word 20 times in its various forms. Mostly, he chastised the giants of the financial world for not acting responsibly … and urged them to grow up and embrace responsibility.

Most of all, Mr. O lectured on regulation. He said the financial crisis came about, essentially, because of a lack of adequate regulation from Washington. And he promised the errant schoolboys more regulation – much more – and by the end of this year if he and Vice Principal Barney Frank have anything to say about it.

Don’t get me wrong. I’m not defending executives on Wall Street, or elsewhere, who failed to disclose risks to investors, dodged responsibility for their actions, or found ways to exploit loopholes in regulation. The wreckage of shareholder value is producing recriminations – and malefactors deserve what they get, you might say.

Mr. O offered one admonition to corporate leaders that I think is correct:

The reforms I’ve laid out will pass and these changes will become law. But one of the most important ways to rebuild the system stronger than it was before is to rebuild trust stronger than before — and you don’t have to wait for a new law to do that.  You don’t have to wait to use plain language in your dealings with consumers.  You don’t have to wait for legislation to put the 2009 bonuses of your senior executives up for a shareholder vote.  You don’t have to wait for a law to overhaul your pay system so that folks are rewarded for long-term performance instead of short-term gains.

Those are actions CEOs and boards of directors could begin taking, and if they demonstrate responsibility maybe the powers in Washington will feel less need for severity in imposing all manner of new regulation. Maybe.

President Obama had all the rhetoric right today at Federal Hall. His speech, of course, was short on detail and long on generalities. He really was speaking to people outside the financial markets, those who deeply resent the bailouts and bonuses and (especially) both happening at the same banks. The symbolism of going to Wall Street to deliver the lecture was the main point today.

Whether the new rules that the financial markets eventually do get will actually improve things – or merely shift risks into different forms and sectors while stifling the flexibility (and discipline) of the free market – we will see in time.