The SEC issued a March 1974 release that held that a conviction under the Federal Election Campaign Act required a corporate disclosure to shareholders. Stanley Sporkin argued that any illegal payment required full disclosure because it required falsification of the corporate books, and thus constituted a material event directly related to the integrity of the corporate board.(48)
As the scope of the corporate payments scandal under Congressional investigation expanded, the SEC's disclosure position appeared inadequate. SEC Chairman Roderick Hills advocated in his speeches and Congressional testimony that more control and regulation of corporate boards was needed. However, he would not recommend or support a new federal law establishing corporate board responsibilities.
In 1976, the SEC formally published its "Report on Questionable and Illegal Corporate Payments and Practices." The report recommended establishing new accounting record keeping and stricter management practices. While those limited recommendations were enacted by Congress in the 1977 Foreign Corrupt Practices Act, they failed to establish any formal rules that would ensure the independence and integrity of corporate board members.(49)
The 1976 election of President Carter, who ran against Washington corruption evidenced by the Watergate scandal, seemed to portend an opportunity for change. However, SEC Chairman Harold Williams failed to support proposals for national corporate governance legislation. Instead, he proposed that the SEC hold hearings to study the "rules relating to shareholder communication, shareholder participation in the corporate electoral process, and corporate governance generally." Near the end of his chairmanship, the SEC would issue its 1980 "Staff Report on Corporate Accountability."(50)
To be fair, the changes many sought may have raised questions as to whether the federal government or the states could lawfully regulate corporate board conduct. In addition, the U.S. Supreme Court, under the leadership of Justice Lewis Powell, reversed four decades of precedent which had allowed the SEC to use Rule 10b-5 to regulate the behavior of directors.
SEC Chairman Williams kept the issue of a federal role in corporate board governance alive in the face of strong countervailing forces that might have otherwise ended the discussion.(51) However, the outcome of the SEC response to the corporate payments scandal and other problems inherent in the lax standards for corporate board governance was limited reform between 1974 and 1981. Given the significant reform impetus surrounding the Watergate scandal, the SEC's response to corporate governance concerns left many advocates calling for more comprehensive changes.
(50) September 4, 1980 SEC Division of Corporation Finance Staff Report on Corporate Accountability
Ed Greene served at the SEC from 1978 to 1982, first as director of the Division of Corporation Finance under Chairman Harold Williams, then as General Counsel under Chairman John Shad. He was involved in several ground-breaking projects. As director of Corporation Finance, he led efforts to integrate and improve disclosures around Initial Public Offerings (IPOs), and spearheaded efforts to create faster access to markets for shelf registrations. As general counsel, he negotiated the agency’s first Memorandum of Understanding (MOU), which became a template for future cooperative agreements between governments. Mr. Greene was a founding trustee of the SEC Historical Society.
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