Stakeholder Inclusion and Shareholder Protection: New Governance and the Changing Landscape of American Securities Regulation
Kingsbery, Paul Curran, Fordham Urban Law Journal
Introduction I. Background on New Governance Theory and U.S. Securities Regulation A. Defining and Understanding New Governance B. Aspects of New Governance in Current U.S. Securities Regulation II. Avenues for Change A. Executive Compensation Regulation 1. Shareholder Voting Rights 2. Direct Federal Control under the "Reasonability" Test 3. New Governance and the Shift from State to Federal Regulation B. Financial Reporting Regulation 1. International Financial Reporting Standards 2. The SEC's XBRL Initiative III. Weighing the Costs and Benefits of New Governance Programs A. Applying a New Governance Framework B. External Costs/Costs to Legal Principles C. The Use of New Governance Strategies Is Crucial in the Financial Reporting Context Conclusion
According to regulation experts, the United States securities regulation system is due for a complete overhaul. (1) Although the regulatory scheme is not the sole source of recent economic turmoil, Americans watching their investments decline in value may blame those regulators who have assumed the mantle of investor protection. (2) The precise level of reform that is to come is still uncertain and sweeping new legislative programs could have unexpected consequences going forward. Simultaneous with calls for reform of the securities laws and regulations, there is growing attention among scholars of administrative law towards a school of thought called "New Governance." (3) This Note analyzes a few potential avenues for change in United States securities regulation in light of the descriptive and normative claims of New Governance theory. (4)
This Note analyzes the implications of New Governance theory as it relates to a group of proposals to reform U.S. securities regulation. New Governance does not have one definition, and alternate terms such as "reflexive law, soft law, collaborative governance, democratic experimentalism, responsive regulation, outsourcing regulation ... [and] metaregulation" (5) are used to describe similar phenomena. Unless specifically used in the context of Securities and Exchange Commission policy determinations, "securities regulation" in this Note is intended to indicate the aggregate of all legal protections of the interests of securities holders, under federal and state laws and regulations, as well as case law and emerging international norms. The only way to apply and evaluate New Governance theory is to contextualize the rules governing securities issuance and exchange in light of all stakeholders and policymakers.
Part I of this Note describes New Governance theory in both descriptive and normative terms and gives an account of how New Governance solutions are already integrated into the U.S. securities regulation regime. Part II of this Note describes reform proposals in two important securities regulation areas: executive compensation and financial reporting. Part III of this Note analyzes the extent to which the discussed reforms incorporate New Governance principles, weighs these reforms against traditional legal and policy values, and advocates, in particular, for expanded application of New Governance in the field of financial reporting.
I. BACKGROUND ON NEW GOVERNANCE THEORY AND U.S. SECURITIES REGULATION
Part I of this Note explores the common core of a group of theories collectively referred to as New Governance. These theories are united in questioning "the false dilemma between centralized regulation and deregulatory devolution." (6) Part I.A proposes that these theories are best understood in the most general terms, applying to novel non- and quasi-governmental organizations, federal and state governments, and the stakeholders themselves. Part I.B argues that New Governance is best understood as a general theory of norm formation by giving examples of how the so-called command-and-control regulatory systems that comprise U. …