In a speech yesterday at the 12th Annual Boardroom Summit and Peer Exchange in New York, SEC Commissioner Luis A. Aguilar offered a measure of comfort to people serving on boards of directors of public companies.
Commissioner Aguilar observed that serving as a director of a public company is a particularly difficult job. Public directors, he noted, have significant oversight responsibilities over both executive management and the overall direction of the company; must help set the appropriate tone at the top; must be guardians of the company’s assets; and much more -- all on a "part-time basis" and with the threat of lawsuits constantly hanging over their heads.
Commissioner Aguilar stated that while he knows directors also have concerns that the SEC will "second-guess" their judgment and bring an enforcement action against them, "the reality is far different." Commissioner Aguilar said that in fact, SEC cases against directors—particularly outside directors—for failing to fulfill their responsibilities as corporate fiduciaries are so rare that "the agency does not currently maintain statistics on cases that are brought against directors."
Citing the handful of cases that the SEC has brought against directors, Commissioner Aguilar observed that these cases
typically involve directors who either have taken affirmative steps to participate in fraudulent misconduct or have otherwise enabled fraudulent misconduct to occur by unreasonably turning a blind eye to obvious “red flags” of misconduct.
The rarity of SEC cases against directors, Commissioner Aguilar concluded, shows that "the vast majority of directors are embracing their responsibilities and are fulfilling them conscientiously. These directors should have nothing to fear from the SEC."
Aguilar's comments echoed remarks made by SEC Chair Mary Jo White in a June 2014 speech at the Twentieth Annual Stanford Directors’ College. Chair White stated that while the SEC does bring some cases against directors, "these cases should not strike fear in the heart of a conscientious, diligent director." Chair White cited two cases in which there were "clear lines crossed by directors not doing their jobs, and then some." She added that "service as a director is not for the faint of heart, but nor should it be a role where you fear a game of 'gotcha' is being played by the SEC."