At Boardroom Summit, SEC Commissioner Crenshaw Lays Out Risk Agenda For Directors

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Cyber will be a major focus for the agency in the coming months, she said, topping a list of governance risks boards should be paying close attention to now.

Amid a sea-change in the relationship between Washington and the business community under the Biden administration, SEC Commissioner Caroline Crenshaw told directors assembled virtually for our 17th annual Boardroom Summit on Thursday that the issue of cyber would be a major focus for the agency in the coming months, topping a list of governance risks boards should be paying close attention to now.

“It’s a critical issue,” she said. “We’ve seen it come to the fore recently, but it’s something that the White House put out under the Trump administration, saying that we needed to think about it, something that Biden administration has put out saying we need to think about. It’s just going to be a critical governance issue.

“Do you have the expertise on your board that’s going to help you prepare in advance? This is one I really do think if you’ve put the thought into—no plan is foolproof—but you can really assess ahead of time what the risks are and implement a good program to help mitigate those risks,” said Crenshaw.

But if cyber is going to be one of the top topics for the SEC under new Chairman Gary Gensler, it is far from the only one of critical importance for directors. From environmental issues to figuring out what the SEC is going to require companies to disclose about so-called “human capital issues,” America’s boardrooms are struggling to understand what they need to do to satisfy demands of both investors and regulators in this new era.

Crenshaw, a Democrat who was appointed to her seat during the last year of the Trump administration, said Gensler had already signaled much of what he planned to put on the agenda for the months ahead. But she also added some color to the discussion on key issues, including:

• Environmental Risk Disclosure. As companies continue to struggle with a gaggle of varying reporting standards here, and the SEC works to figure out what it may require companies to disclose in the future, “I think you will see in the comment file some consensus around a specific metrics,” she said. Among them: greenhouse gas emissions, physical risks to real assets that are going to be vulnerable to changing weather patterns and severe events, disclosures around impairment, and soon-to-be-stranded assets “and deeper disclosure around targets so that investors can understand how issuers are managing self-identified risks. I think those are all going to be things that we’re thinking about as we are considering how best to move forward.”

• Human Capital Disclosure. Gensler has said the SEC might be looking to require disclosure on skills and development training, compensation, benefits, workforce demographics, health and safety. “From my perspective,” said Crenshaw, “when it comes to human capital, I really think the goal should again be to come up with a regime that yields comparable and consistent disclosure, much like the climate ‘E’ piece. Investors are telling us that they view human capital management as linked to financial performance.”

• Enforcement. “Every time we see an administration change at the SEC folks really want to focus on how enforcement will change. And I think the public messaging will change, but underlying it, the commission’s enforcement division’s priorities don’t really change that much. The enforcement divisions priority is investor protection and making sure that our markets are functioning as they should with that investor confidence.”

• Cryptocurrency. “From just an enforcement perspective, there are investors losing money every day on frauds—and that’s not going to help a market grow. One of the things we need to think about as this is gaining traction is, how does it really continue to grow? Because the underlying technology is really interesting and I’m certainly pro-innovation. But how do we continue to allow the market to grow?

“A lot of the intermediaries that used to be there that were in place—the rules put into effect and our system really for securities laws—might not be there. So how do we think about it in that context and how do we protect investors when a lot of our protections are based on sort of these intermediaries that might not be there.”

Amid the historic bull market, and a system which remained “the envy of the world,” there was plenty to be optimistic about, said Crenshaw. But she also cautioned directors to use this time to think more deeply—and broadly—about risk.

“What are the areas of growth, where do we need to be paying attention to interconnectedness? Where do we need to be paying attention to leverage? Where do we need to be paying attention to geopolitical concerns? Where do we need to be paying attention to innovation that’s going to create challenges, or questions at least? Where do we need to be paying attention to cyber?

“It’s no easy feat,” she said. “It’s certainly a lot of things that people need to be thinking about and assessing. But if we can think about those questions ahead of time, that’s only going to better prepare us for the future.”

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