Securities and Exchange Commission Historical Society

The Center for Audit Quality Gallery on Corporate Governance

Coming to Grips with Prosperity

Crisis of Management

“That became the Foreign Corrupt Practices Act, which is a very important piece of legislation, very important piece in the field of corporate governance. It was really one of the first entries of the SEC into the field of corporate governance. And that was just absolutely tremendous the way that it worked, but it shows you how the SEC was able to make such progress.”

September 23, 2003 Interview with Stanley Sporkin

From the “Summer of Love,” the upheavals of 1968, and protests over the Vietnam War, every bastion of traditional authority came under attack by the late 1960s. Corporations faced challenges from shareholder proposals seeking to make them engines of social change. Pioneered by community activist Saul Alinsky, the tactic reached its most mature form in “Campaign GM,” an effort undertaken by Ralph Nader to put proposals related to corporate social responsibility on GM’s proxy statement and to rally shareholder support.

Campaign GM and similar efforts compelled the SEC to develop new guidelines for shareholder proposals in proxy statements. The Commission eventually ruled that companies could exclude only proposals that covered matters outside of their control or that had little business impact. Encouraged by SEC staff, particularly Alan Levenson, Director of the Division of Corporation Finance, shareholder proposals increasingly appeared on company proxy statements.13

High-profile events soon turned shareholder efforts from social responsibility to corporate mismanagement. The Penn Central Railroad’s 1970 collapse was the largest bankruptcy in American history to that point. It became evident that the railroad’s directors had been lax in their oversight of the company and had failed to challenge questionable management decisions of all kinds. Harvard Business School Professor Myles Mace highlighted the Penn Central meltdown in his 1971 Directors: Myth and Reality, which argued that boards neither constituted an effective check on management nor truly set the corporate agenda.

In the wake of the Watergate investigation, it became apparent that hundreds of international companies had made improper payments, both at home and abroad, to government officials in exchange for political favor and lucrative contracts. These payments were often approved by managers and unquestioned or undetected by directors. As Daniel Goelzer recalled, that “caused people to ask themselves how corporations were governed in a way that they hadn’t asked before.”14 Together, the Penn Central debacle and the questionable payments scandals brought corporate governance under a level of scrutiny it had not faced since the New Deal.

As scandals unfolded, scholars proposed measures to strengthen boards and empower directors. At a 1973 conference on “The Greening of the Board Room,” Harvey Goldschmid urged that boards be comprised entirely of independent directors, compensated adequately for their time, supplied with appropriate data, and supported by administrative staff, thus allowing them to dig deeply enough into company matters to prevent collapses like the Penn Central’s.15 A year later, former SEC Chairman William Cary proposed that minimum federal standards be imposed on state corporate laws.16 Ralph Nader called for mandatory federal incorporation for the largest firms, which would then be overseen by independent directors responsible for both profits and probity.

Academic and activist pressure did set the stage for moderate reforms. The SEC preferred disclosure to federal incorporation, and was reluctant to assert control over internal corporate matters. At the behest of SEC Chairman Roderick Hills, the SEC worked with the New York Stock Exchange to strengthen listing requirements to require audit committees to be comprised entirely of independent directors. The SEC cooperated with the American Institute of Certified Public Accountants to develop accounting standards that would bring irregularities to a board’s attention, and worked with Congress to create new corporate disclosure standards. The 1977 Foreign Corrupt Practices Act levied penalties for falsifying corporate records or misleading auditors and required companies to impose internal controls over their accounting systems.17


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Related Museum Resources

Papers

January 8, 1970
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
September 10, 1970
image pdf (Courtesy of National Archives)
March 1, 1971
image pdf (All worldwide intellectual property rights including without limitation moral rights vest in NYSE Euronext and/or its affiliates.)
March 26, 1971
transcript pdf (Courtesy of National Archives and Records Administration)
November 5, 1971
image pdf (Courtesy of National Archives)
November 10, 1971
transcript pdf (William O. Douglas Papers, courtesy Library of Congress)
December 31, 1971
image pdf (Courtesy of National Archives)
January 15, 1972
transcript pdf (Courtesy of National Archives and Records Administration)
February 3, 1972
document pdf (Courtesy of Richard Rowe)
May 21, 1972
image pdf (Courtesy of National Archives)
June 13, 1972
image pdf (Courtesy of National Archives)
June 16, 1972
image pdf (Courtesy of National Archives)
June 16, 1972
transcript pdf (Courtesy of National Archives and Records Administration)
June 30, 1972
transcript pdf (Courtesy of National Archives and Records Administration)
October 3, 1972
image pdf (Courtesy of Stephen A. Zeff)
June 14, 1973
transcript pdf (All worldwide intellectual property rights including without limitation moral rights vest in NYSE Euronext and/or its affiliates.)
December 20, 1973
image pdf (Courtesy of the Gerald R. Ford Library)
January 31, 1974
transcript pdf (Courtesy of National Archives and Records Administration)
March 29, 1974
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
May 9 and 10, 1974
document pdf (Government Records)
September 11, 1974
transcript pdf (Courtesy of Harvey L. Pitt)
September 11, 1974
transcript pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
January 31, 1975
document pdf (Government Records)
May 5, 1975
transcript pdf (Courtesy of National Archives and Records Administration)
May 7, 1975
transcript pdf (Courtesy of National Archives and Records Administration)
June 13, 1975
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
September 9, 1975
transcript pdf (Courtesy of National Archives and Records Administration)
February 16, 1976
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
March 15, 1976
transcript pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
March 30, 1976
transcript pdf (Courtesy of National Archives and Records Administration)
April 12, 1976
image pdf (All worldwide intellectual property rights including without limitation moral rights vest in NYSE Euronext and/or its affiliates.)
April 12, 1976
transcript pdf (All worldwide intellectual property rights including without limitation moral rights vest in NYSE Euronext and/or its affiliates.)
April 13, 1976
transcript pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
June 8, 1976
image pdf (All worldwide intellectual property rights including without limitation moral rights vest in NYSE Euronext and/or its affiliates.)
June 21, 1976
transcript pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
August 24, 1976
transcript pdf (All worldwide intellectual property rights including without limitation moral rights vest in NYSE Euronext and/or its affiliates.)
September 3, 1976
image pdf (Roderick Hills Papers, Courtesy of the Gerald R. Ford Library)
September 10, 1976
image pdf (Roderick Hills Papers, Courtesy of the Gerald R. Ford Library)
September 27, 1976
image pdf (Courtesy of National Archives)
October 7, 1976
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
January 31, 1977
image pdf (All worldwide intellectual property rights including without limitation moral rights vest in NYSE Euronext and/or its affiliates.)
January 31, 1977
image pdf (All worldwide intellectual property rights including without limitation moral rights vest in NYSE Euronext and/or its affiliates.)
March 9, 1978
transcript pdf (All worldwide intellectual property rights including without limitation moral rights vest in NYSE Euronext and/or its affiliates.)

Oral Histories

09 May 2012

Richard Beckler

14 April 2008

Daniel Goelzer

17 June 2013

Harvey Goldschmid

20 December 2002

Roderick Hills

14 January 2003

Alan Levenson

24 May 2004

Richard Rowe

  • - Part 1
  • - Part 2
  • - Part 3
  • edited transcript (pdf)
23 September 2003

Stanley Sporkin

Programs

14 October 2010

Deloitte Fireside Chat III: Regulation in the Audit Profession: Yesterday, Today and Tomorrow

Moderator: G. Peter Wilson

Presenter(s): Roderick Hills and Robert Kueppers

15 April 2010

Fireside Chat - Foreign Corrupt Practices Act

Moderator: Jeffrey Manns

Presenter(s): Paul Berger, Stanley Sporkin

Made possible through the support of Debevoise and Plimpton LLP

18 September 2007

Fireside Chat - Accounting Aspects of the Foreign Corrupt Practices Act

Moderator: Theresa Gabaldon

Presenter(s): Philip Ameen, Teresa Iannaconi

Galleries

The Bright Image: The SEC, 1961-1973
In the Midst of Revolution: The SEC, 1973-1981
Wrestling with Reform: Financial Scandals and the Legislation They Inspired

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