SEC Chief Takes on Short-Termism and ESG: Chairman Jay Clayton wants to bolster long-termism by streamlining reporting requirements, and his agency is evaluating new humancapital risk disclosures.

Author:Tahmincioglu, Eve
Position:THE CHARACTER OF THE CORPORATION: Long-Term Thinking - Interview

The decline of long-term thinking "bothers" Jay Clayton, the chairman of the Securities & Exchange Commission.

It isn't good for investors or Corporate America as a whole, he maintains, and he's focused his efforts on doing something about it, including holding a roundtable on the topic this summer; analyzing whether reporting requirements such as quarterly earnings may be contributing to the problem; and simplifying disclosure standards.

When it comes to the environmental, social and governance movement, Clayton acknowledges the growing drumbeat for ESG reporting standards, but he warned that ESG means many different things to different constituencies and "continuing to lump them all together, will slow our efforts to move our disclosure framework forward."

On the human capital side of ESG specifically, his agency has been evaluating whether human capital disclosures may be needed.

"Our current disclosure requirements date back to a time when companies relied significantly on plant, property and equipment to drive value," he explains.

Clayton provides his insights on the short-termism/long-termism imbalance and ESG disclosure in this Q&A with Directors & Boards:

Short-termism is seen as a major factor undermining corporations and the greater community today, and it's something you've been vocal about. How do you see short-termism impacting what you've said is the SEC's mission to protect investors; maintain fair, orderly and efficient markets; and facilitate capital formation?

If by short-termism you mean companies, in response to market and other pressures, pursuing short-term objectives to the detriment of long-term performance, it bothers me. It principally bothers me because that type of short-term perspective generally is inconsistent with the investment objectives of our Main Street investors. In addition, if our public capital markets are overly short-term focused, that perspective may undermine capital formation in our public markets. I will elaborate on both of these concerns.

We should recognize that our Main Street investors, and in particular their willingness to commit their hard-earned money to our capital markets for the long term, have been instrumental in providing the depth that is necessary for markets to function efficiently and effectively over time. It is their money--401 (k)s, IRAs, pension funds, insurance contracts, etc. -that fuels our markets.

We also should recognize that our Main Street investors--whether they participate in our markets directly or through an intermediary such as an investment adviser --now, more than ever, have a substantial responsibility to fund their own retirement and other long term financial needs. For these and many other reasons, we owe it to our Main Street investors to ensure that our markets appropriately reflect these long-term needs and objectives.

Short-termism, or more accurately too much short-termism, also is inconsistent with facilitating capital formation. Said another way, short-termism can deter companies that are looking to raise capital from doing so in our public capital markets. Companies seeking capital often expect to invest that capital for the long term and manage their business on a similar longterm basis. If these types of companies believe our public markets are dominated by participants with a short term perspective, they may look elsewhere for longer term growth capital.

What is the SEC doing under your leadership to combat short-termism and boost long-term thinking in corporate America?

We recently announced that our staff will hold a roundtable this summer that will seek to explore whether short-termism should be a concern and, if so, what are its causes and what can and should be done from a regulatory perspective in response. We also intend to...

To continue reading