SEC Commissioner Elad Roisman to Directors: ‘My Door Is Open’

Attendees at NACD Summit this year are all too familiar with the only constant of 2021: change. Commissioner Elad L. Roisman, who was appointed to the US Securities and Exchange Commission (SEC) in 2018, is eager to engage with directors about their experiences. To date, Roisman’s work on behalf of American investors has included service in two presidential administrations and one stint as interim chair of the SEC (from December 2020 to January 2021).

While no longer at the helm, he is no less occupied with his mission than he was at the beginning of this year—and he is eager to engage with you, our members, on rules that could shape the work to be done in the American boardroom.

In a fast-paced conversation with NACD president and CEO Peter R. Gleason that closed out the first day of general session programming, powered by AIG, Roisman provided thoughts to directors on a broad range of topics including cybersecurity; proxy rules; boardroom diversity; environmental, social, and governance (ESG) issues; special purpose acquisition companies (SPACs); and cryptocurrency, but undergirding each of his messages was an urgent, open invitation to provide feedback to the SEC as the agency crafts new rules and guidance. Roisman emphasized the criticality of directors’ input in informing new rules, stating that the Commission is “really interested in [directors’] viewpoints” and that his “door is open, even if only virtually at this point.” 

Anticipating New Cybersecurity Rules

Roisman and Gleason first discussed the potential for new SEC disclosure rules related to cyber-risk oversight. Roisman began by acknowledging that “cybersecurity is a major strategic and enterprise risk matter.” In line with the agency’s 2018 “Statement and Guidance on Public Company Cybersecurity Disclosures,” the Commission is still focused on ensuring that companies have adequate investor disclosure procedures in place in the event of a cyber breach and on enforcing insider trading prohibitions within a cybersecurity context. While the commissioner could offer neither specifics on what new cybersecurity disclosure rules will include, nor guidance on a time line, he did offer ideas for directors on what he believes are effective cyber-risk oversight practices that they can employ right now.

“I think boards should be focusing on whether management is taking stock of cyber threats, including what steps is management taking if there was an attack or infiltration of some kind,” Roisman said. Examples of what management and the board need to be aware of included who is on retainer to investigate cybersecurity incidents, which agency must receive a report and which regulatory reporting types are mandatory should there be an event, and what are the policies regarding public disclosure of cyber events where the company operates.

ESG Realism

Just as with cyber-risk rules, new climate disclosure rules are on the SEC’s agenda and anticipated to be released before the end of 2021. Roisman advised directors to monitor Chair Gary Gensler’s comments on climate and to engage in preemptive conversations with their organizations’ general counsel about what disclosure policies are in place and what ESG data the company has collected—and where they could obtain this information if necessary. Roisman added that he believes the Commission’s climate disclosure guidance from 2010 is still valid, and that evaluation of climate risks through the lens of materiality captures most, if not all, relevant climate risks that would require public disclosure.

Roisman then pivoted to a broader point concerning the push for the SEC to mandate ESG disclosures. He emphasized the need to be “realistic” about the argument that mandatory disclosures of ESG data would cut down on the bespoke requests organizations receive for this data. He highlighted the number of currently available ESG frameworks and stated that he does not believe that an SEC rule would displace these frameworks or that such a rule would truly cut down on the number of requests companies receive for this data.

On Regulating SPACs and Cryptocurrency

The commissioner also addressed the boom in SPACs and cryptocurrency activity in the marketplace and how he is evaluating each situation. He acknowledged that there is clear interest from investors in SPACs but said that he would like to see better disclosure of conflicts of interest and time lines, and more information on how SPAC founders determine whether their targets are ready to go public. These are areas Chair Gensler is evaluating to ensure that investors have the means necessary to make informed decisions regarding SPAC investments.

On cryptocurrencies, Roisman addressed the “decided lack of clarity for market participants around the application of securities laws to digital assets and their trading.” He praised the evolution of the crypto market to allow individuals to “invest in asset classes that they traditionally haven’t been able to,” seeing this as a positive. Ultimately, the main concerns with crypto assets are, in Roisman’s eyes, whether investors feel they have enough protection and clarity around regulations.

“The notional value of these markets is very high… and I think trying to ignore this market is going to be shortsighted,” Roisman said. “The more we can do to be more forward-leaning about what is needed to foster an important and safe market will ultimately pay huge dividends in the future.”

Rules Hanging in the Balance

Roisman elaborated on his positions on Nasdaq’s board diversity listing rule and the proxy advisor rule left hanging in the SEC’s balance. Noting his vote against Nasdaq’s new rule, Roisman stated that he supported the goal of increased board diversity, but worried about the SEC’s authority to approve a rule that makes a distinction on categories of race and gender. Addressing the question of whether the SEC will make its own rule on this matter in the future, he stated, “I don’t know, but I think it would be very difficult, and I think it would involve some very difficult Constitutional questions.”

Roisman then expressed dismay over the chair’s decision to prevent a 2020 proxy advisor rule from coming into effect until after undergoing a “thorough rulemaking process.” There currently is no concrete time line for releasing the proposed proxy advisor rule, as the SEC chair has discretion to advance or delay the finalization of rules.

Throughout the conversation, Roisman highlighted his open-minded approach to many of the new rule developments underway at the Commission and closed by reiterating his interest in directors’ input on these matters: “I’m looking forward to hopefully talking to many of you.”