Chris Cox' Tenure So Far

Those of us who follow corporate scandals and governance issues were certainly expecting the worst when President Bush nominated Chris Cox to head the SEC, after the former chairman, William Donaldson, was forced out (Donaldson, despite being Republican, had a bit too much of a reformist for this administration to stomach). Cox, after all, had spent his entire career in the House working to weaken corporate regulations. But in the early months after his nomination, some commentators suggested that Cox might not be the right-wing nutcase everyone expected, but would instead carry out some of Donaldson's modest reforms and do his best to try to avoid another wave of corporate scandals similar to those in 2002.

Or at least that was the thought. But now Roger Lowenstein has a piece in the February American Prospect arguing that, no, no, the worriers were right all along; Cox probably will be as bad as everyone expected. Corporate America, after all, needs some serious reforms—and fast—in order to avoid meltdowns in the relatively near future:

The SEC staff has singled out "special purpose entities" (those off-the-books partnerships used so deftly by Enron) as needing more transparent treatment. Accounting for derivative deals is still abysmally incoherent. There are probably not a dozen people in America who can decipher the disclosures of, say, GE Capital. And accounting for pensions is simply nonsensical. Companies now book earnings based on the percentage gains they expect in their pension funds -- a number their treasurer pulls from thin air -- even if the actual performance is far better or far worse. Given the seriously underfunded condition of many pension funds today, Cox should be pressing the Financial Accounting Standards Board to rewrite such rules.

For more on the pension crisis, Lowenstein wrote a good—and unnerving—article for the New York Times Magazine awhile back that takes stock of the Jenga-like state of corporate pension funds. But back to reforms. Is Cox the guy to carry this stuff out? Probably not:

And it is clear that, under Cox, the business lobby is expecting a gentler SEC. "We think he'll be a good addition … a calming influence," David Chavern, an executive at the Chamber, says pointedly. Cox deserves credit for running a more consensus-driven SEC, a departure from the Donaldson years. But it's not hard to see why the Chamber is celebrating. With both his principles and his political future in mind, Cox appears to be charting a conservative course that nonetheless maintains a patina of Donaldson-style vigilance. He is going slow on some of Donaldson's reforms while preserving them in a legalistic sense; letting others (shareholder access) lapse; ignoring areas in which the reforms are incomplete (mutual funds); and winning points as a "moderate" by picking a superficial initiative or two that will please the crowd.

Cox has said, for instance, that he may press for more disclosure on executive compensation. At first blush, this looks bold. On second look, it is mostly public relations. There is already a tremendous amount disclosed on what CEOs earn; the trouble is, pay totals keep rising regardless. It is doubtful that more disclosure will reverse the trend. To do more than grab headlines, the SEC will have to reach the people who set their pay -- the boards. Donaldson's shelved proposal for letting shareholders pick directors is an obvious solution. Imagine how the calculus on CEO pay would change if the head of the compensation committee had to run against a candidate picked, say, by Calpers and other large outside shareholders. It would mean, in effect, real democracy. So far, Cox has said nothing to suggest that he favors it.

So no serious reforms are forthcoming. Only the appearance of serious reforms. And the country almost certainly needs serious reforms, rather than mere appearances. We can only guess where this is going.