SEC’s New Chief Has a Thing for High Tech
As software enthusiasts convene in Tokyo this week to ponder the possibilities of something called eXtensible Business Reporting Language, Securities and Exchange Commission Chairman Christopher Cox wishes he were there to join in.
The so-called XBRL software makes it easier for computer users to grab financial data and analyze it. Most high-ranking regulators might deem this just another detail for the in-house techies to worry about, but to Cox such issues are part of the big picture itself.
“The opportunity that we have is to put the data to work for us,” said Cox, who hopes one day to overhaul the SEC’s website so people won’t have to slog through data one form at a time. With the right technology, he said, “We can make the numbers jump off the page.”
Cox, who has been known to read books about mathematicians in his spare time, ultimately decided that he had too much work in Washington right now to get away for a trip to Japan.
The former Republican congressman from Newport Beach is still trying to fill major job openings at the SEC, which regulates publicly traded companies and mutual funds. He took over as chairman in August, succeeding William H. Donaldson, a former Wall Street and corporate executive.
Cox must still appoint an SEC chief accountant and a director for its mutual funds division. He also must name a chairman of the Public Company Accounting Oversight Board, the nonprofit corporation that oversees auditing of companies whose shares are publicly traded.
He also is trying to be a diplomat, having entered a commission that was polarized over high-profile issues of enforcement and corporate governance. He has held only one public meeting and has kept inflammatory issues off the agenda.
To ease the concerns of shareholder activists, he has declared his “unstinting support” for the agency’s enforcement division. He also has stood by earlier SEC decisions that upset many in business, such as forcing companies to count stock options as an expense and requiring hedge funds to register with the agency.
It is still unclear, however, how tough he plans to be on corporate wrongdoers, or the sorts of rules he would endorse to protect the public from misconduct in the marketplace.
“He’s kept such a low profile, I don’t have any impression of him at all,” said Nell Minow, editor of the Corporate Library, a pro-investor research firm. Cox, she joked, has been “the stealth chairman.”
Said David Hirschmann, senior vice president at the U.S. Chamber of Commerce, which bitterly opposed some of Donaldson’s policies: “I think what [Cox has] tried to do is reassure his fellow commissioners and the staff that he isn’t going to revisit everything the commission has done recently. That’s probably a smart choice on his part.”
On one matter, however, there is little mystery -- Cox’s fascination with the Internet. As a member of Congress, he sought to restrict the taxation of cyberspace and championed the legislative agenda of Silicon Valley, including its opposition to the expensing of stock options.
Now he would like the SEC to enhance its use of the Internet in ways that have implications for corporate disclosure, transparency of data and even rule making.
A key to the plans is the XBRL software that encodes data with a computer-readable “tag.” Currently, an investor or analyst who is interested in SEC filings must look up the forms one at a time. Further analysis requires the user to re-type data into a spreadsheet program, such as Excel.
In the future, however, that could change. The SEC began formally looking into the newer technology last year and invited companies to participate. A few have volunteered, including Adobe Systems Inc., Microsoft Corp., R.R. Donnelley & Sons Co. and United Technologies Corp. In October, the SEC asked the software industry to help in its effort to identify ways “to receive, store, view and analyze interactive financial data.”
Under the emerging vision, members of the public one day might be able to retrieve SEC information filed by companies, such as income and cash flow, and conduct various kinds of comparison and analysis at their own desks with far fewer steps than are required today.
“If the data is tagged, then it can be grabbed,” explained Corey Booth, the SEC’s chief information officer.
Ultimately, Booth said, software providers could emerge with products that help the public make use of the tagged data.
Cox maintains that the approach also would free up energy inside the agency.
“If we can make the data do the work for us, we can get immediately to the work of hunting for fraud, looking for trends and anomalies that is our main business,” he said.
The Internet, he believes, may even help the SEC solve one of its most intractable policy issues -- the role of shareholders in nominating board members.
Currently, those who seek to challenge an official corporate nominee for the board must bear the postage costs for sending election materials to shareholders, a financial burden that often discourages independent candidacies.
“The Internet should render most of that moot,” Cox said. Although he has yet to offer a proposal, he said: “We probably will be able to do something in electronic proxy delivery this year to get a little bit down the Internet road.”
Cox also believes new technologies eventually could smooth over international differences over accounting standards. Advanced software, he said, might one day enable investors and regulators to look at financial data in the manner they prefer.
“That issue, which is very difficult, might someday be rendered moot by the ability of you and me to use one software to render the data in any system we like,” he said.
Hirschmann of the chamber says Cox’s digitization campaign is long overdue.
“Financial services are so technology driven ... it’s hard to be the regulator of the market if you’re three steps behind technologically,” he said.
But others have only limited enthusiasm. Although the Internet holds promise in such areas as greater transparency of corporate disclosures, “it’s not a substitute for enforcement or better regulation,” said Richard Ferlauto, director of pension and benefit policy at the American Federation of State, County and Municipal Employees, a government workers’ union.
Barbara Roper, director of investor protection at the Consumer Federation of America, noted the public’s affinity for mutual funds over individual stocks and questioned how many people wished to engage in careful analysis of companies.
Cox would like to change that. Although he isn’t traveling to the XBRL conference in Tokyo, he recorded a speech, which is scheduled for delivery today.
“Continue with your enthusiastic contributions to the global development of the XBRL standard,” Cox exhorts the true believers. “Have no doubt -- you are changing the world -- for the better.”