The joke goes something like this: As Christopher Cox, chairman of the S.E.C. navigates his first balloon flight without an instructor, he finds himself in a little bit of trouble. Fog has set in and his compass no longer works. His staff, along for the ride became worried. He decides to descend to get his bearings. The fog clears somewhat as he comes closer to the ground. He spots Ben Bernanke walking his dog with another man.
He yells to them: “Ben, where am I?” Before Mr. Bernanke could respond, the other man yells, “about a half mile from town”.
The fog once again engulfs the balloon, hiding the two men on the ground. Mr. Cox mumbles under his breath that the man must be a CEO. “How can you tell?” one of his passengers asks.
“He told be what I wanted to know in plain English but it was totally irrelevant.”
Plain English has been a crusade of sorts from Mr. Cox since he took over as chairman of the agency. Giving shareholders the ability to read a company’s reports and understand them has been at the heart of his push for better disclosure rules. Those rules he had hoped would eliminate much of the legalese that bog down the average investor’s understanding of such publications as earnings reports and more specifically, the hot button topic of compensation.
Pfizer, known for its wordy explanations of how its executives were paid produced a trimmed down version of their compensation package recently for the chairman’s review. Hoping the report would provide concise details in an easy-to-use format, a publication the company referred to as a “concept document” it instead was still met with criticism. It seems the document was more stylish that it was informative.
The report, which came with a disclaimer that it was only a mock-up of the report that is expected to be delivered next year during the company’s proxy filing, came with color coded sections, a variety of fonts to emphasize importance, bullet points, and a format that uses two columns.
Can Mr. Cox have it both ways? As much as he thinks he can, the simple answer is not likely. The members of his agency want content but not as much as was provided by Pfizer in 2006. That hefty publication landed in shareholder’s laps full of charts and analysis that cleverly masked the robust compensation package such as the $200 million one received by the outgoing chairman and chief executive of the company, Henry A. McKinnell. The mock-up report, one the company had hoped would be the template for concise disclosure instead went too far in the opposite direction.
But the S.E.C. chairman has bigger problems. How will Mr. Cox handle the lack of plain English disclosure in the banking and securities industry? The balance sheets of many of the major financial centers have become, for lack of a better description, unbalanced. The recent write downs of bad investments as related to mortgage backed securities, something the average investor or homeowner wishes they could do, should lead to some suspense filled exchanges with the S.E.C. But don’t count on it. Banks are Bernanke’s problem and he doesn’t seem too concerned.
There was a time in the not too distant past when a loan was backed by some sort of secure asset. The recent credit crunch has exposed numerous instances when these firms have been unable to explain exactly what it was they were holding or for that matter, selling. These questionable maneuvers cryptically referred to as tradable assets should warrant further investigation by Mr. Cox in his quest for clarity. Which brings us to the Federal Reserve chairman.
Mr. Bernanke does seem interested in the dollar though and in a speech given at the Economic Club in New York on Monday suggested that it would provide some pressure on inflation. Calling the problems in housing an evolving crisis suggesting that, “the further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year”, Mr. Bernanke left most wondering if what he said was relevant.
The Fed chairman referred to the rate cut on September 18th as “risk management” without taking aim at the purveyors of that risk. The chairman seemed to be hoping that the same type of credit shenanigans would keep the markets buoyed long enough to shake out the loose chafe. That doesn’t seem like manageable risk.
Neither Mr. Cox nor Mr. Bernanke can make the claim that they are doing all that is possible to protect the average investor. They seem to want to be able to caress the businesses that seem to be increasingly cloaked in deceptive practices while expounding on the fact that they are doing all they can do to protect the average investor and, by default, the typical homeowner.
Unfortunately, these two chairmen cannot walk the fence forever. Nor can they have it both ways.