Gary Gensler Defends New Clawback Rule Over Executive Compensation

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Gary Gensler

Following is the unofficial transcript of a CNBC interview with SEC Chair Gary Gensler on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Friday, October 28th.

SEC Chair Gary Gensler Breaksdown New Clawback Rule Over Executive Compensation

ANDREW ROSS SORKIN: I want to welcome SEC Chair, Gary Gensler. Gary, it’s great to see you Mr. Chairman this morning. Let’s walk through this this new rule and and what you’re hoping it will achieve.

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CHAIR GARY GENSLER: Well, as you said Andrew, it is a congressional mandate so first, we at the SEC like to follow what Congress mandates us to do and it was after the financial crisis and it’s a simple idea that executives, current and former executives, should not keep compensation that’s based on errors in their financials.

It was a simple concept and that’s what we did if there’s a material misstatement in the accounting numbers, the money goes back to the company.

SORKIN: Right. How do you balance this idea against the idea that that companies and we’ve talked about this probably for more than a decade now, a lot of companies don’t want to go public. And one of the reasons they don’t want to go public is to have to deal with various rules and regulations that come with going public.

GENSLER: Well look, when you when you reach out to the public market, you get greater liquidity, greater depth in the markets. Those are independent decisions. We have vibrant private capital markets and vibrant public markets and I think both benefit our economic system, as we’ve seen.

But this was straightforward thing that Congress was that if you’ve got the wrong faulty financials and somebody’s getting paid on those faulty financials, then they ought not keep the money. I think it’s pretty straightforward and I think your viewers understand that.

SORKIN: Let me ask you separately, we’ve had a lot of tech companies come in with earnings reports recently, a number of which were we’ve seen the stock drop some cases 20%, 30% or more.

There have been some calls by investors that there should be more preannouncing. When do you think a company should quote preannounce?

GENSLER: Our framework is that you make full, fair and truthful disclosures to your investors and that’s not just in your annual and quarterly reports, but there’s certain updates and current reporting.

And particularly if you tell anybody, if that senior management teams tells anybody outside they can be treading on it, we have rules in the books for over 20 years about fair disclosure that then you’ve got to tell the broader market.

SORKIN: So when when a company and I don’t want to I know that you don’t like to talk about individual stocks, but I’m here—

GENSLER: No, you remember that. Thank you.

SORKIN: I know, I know. But I get or you look at like a Meta Platforms Inc (NASDAQ:META) which came out with its earnings and boy did that stock drop.

And then there were investors and others, commentators and the like who said, look, this is a company if they were going to do this kind of thing, they needed to tell the market in a different way than they did so it wasn’t the kind of surprise that it was.

GENSLER: You know, you raise a good point. 20 years ago, we had a lot of challenges around accounting, around Enron, around WorldCom, and others and then Congress passed a law then called Sarbanes-Oxley, an earlier law and in that said that we the SEC should update our rules back then around this very issue about current reporting.

Some of your viewers might know it about a form 8-K And we did that and it lays out very detailed times when you have to put information out but particularly if you’re sharing any material nonpublic information with part of the market, you got to share it with the whole market.

But there’s also a key set a list of things that you have to do and share with your shareholders on a current basis.

SORKIN: Again, I know you’re not gonna like to talk about individual companies, but I’ll just I’m gonna tell you an anecdote and then you can try to react to it. Elon Musk, of course, in the news, just taking Twitter private.

I got a couple of calls yesterday, and I’m a big fan of Elon Musk and everything that he’s trying to do but I got a couple of calls from people who are Tesla Inc (NASDAQ:TSLA) investors, which of course, a publicly traded company.

There were reports that he was bringing some engineers from Tesla over to to help him at Twitter. And they said to me, well, is he using Tesla resources for now what is going to be his private company?

Without speaking necessarily, specifically to that issue, how do you think about folks that have multiple interests at multiple different companies some private some public?

GENSLER: Again, you’re right, I’m not going to talk about any specifics, but it’s, it’s back to that basic tenant about full fair and truthful disclosures and senior executives disclose their other involvements and any potential conflicts and and then investors get to decide with regard to that investment decision.

SORKIN: Separately, I have a question for you about the SEC directly. There was an Inspector General’s report recently that disclosed or at least revealed that there have been a lot more departing senior staffers than what I think would it be expected or considered normal historically. What’s happening?

GENSLER: I, let me just say this if I can, our turnover and it’s a really talented staff, but our turnover also reflects that it’s a very talented staff. You talk about this on other parts of your show about tight labor markets, but there’s also tight legal labor markets for the talent of the SEC.

Our turnover did go up to approximately 6%, which is the norm for the US government across the US government. You’re right that it was lower during my predecessor’s time, maybe not as tight a labor market for securities law talent.

SORKIN: So those that have critiqued this or at least maybe speculated that you may be a tougher boss than others or something else, not true?

GENSLER: Look, I think that it’s a great privilege to serve the American public and we’ve got an agenda to help bring greater efficiency that means lower cost in our capital markets, greater resiliency in our capital markets.

This remarkable, talented staff at the SEC has many contributions, but some of them, 6% you said was the number of turnover, that’s that’s the average staff stays 16 years, Andrew.

BECKY QUICK: Hey Gary, earlier this week, I think it was just yesterday, the Wall Street Journal had an op-ed or actually an opinion piece suggesting that the fast rulemaking pace that you’ve been putting forth is potentially damaging.

I guess there was an SEC Office of Inspector General this month that had a review of the leadership that was pretty difficult and pretty tough.

Move fast and break things agenda is overwhelming staff and taking resources from investor protection. What do you, what do you say to those charges?

GENSLER: I, look, we’ve got 4,500, 4,600 people at the agency. They’re talented, they’re dedicated. Our rulemaking agenda is approximately the same size as Jay Clayton’s. He finalized about 60, 65 rules. We have about 50 or 55 on our agenda.

And I think that it’s really important that we at the SEC be a cop on the beat, have a robust oversight that you mentioned, robust examination enforcement, that’s over half our staff by the way.

But also move forward to try to find places where we can make our capital markets work better for regular folks watching this show.

QUICK: They they go on to say though that what happened under Jay Clayton is most of those rules were focused on investor protection, that most of yours are focused on other regulatory things that can’t make their way through Congress. And they say at least the Wall Street Journal that—

GENSLER: I, I—

QUICK: That investor protection is an afterthought.

GENSLER: I beg, I beg to sort of focus. We have a three-part mission. It’s about investor protection. It’s about capital formation.

And it’s about the markets the efficient orderly and fair markets in the middle and that’s what we’re doing, whether it’s around equity market structure, whether it’s about Treasury market structure, whether it’s about private funds across the market.

This rule that Andrew talked about Clawbacks, eight of our, parts of our regulatory agenda are still long ago mandated by Congress 12 years ago in that Dodd Frank Act.

We actually had another couple of mandates as well. So we had nine or 10 of our agenda Congress mandating. But our agenda is about investor protection and the other parts of our mission.

SORKIN: Okay, Gary before I let you go, you read William Cohan in Puck?

GENSLER: Occasionally. Occasionally.

SORKIN: You know, he has a fascinating piece. It’s a very speculative piece you might have, you might have read it.

GENSLER: I don’t know. I don’t read them on a regular basis. But I—

SORKIN: Well, he had a piece about who might take over from Janet Yellen, who might want that job in the future if for some reason she would step down. Who might be waiting in the wings and there’s a—

GENSLER: Andrew, I’ve got the job of a lifetime. I can’t believe that I’ve got this privilege to chair this great agency to serve the, my third president and try to make our capital markets just a bit better.

I mean, you can’t maintain a gold standard without trying to lean, yes, lean in a bit and try to make the capital markets less costly, more resilient. It’s a job of a lifetime I’m in now but Andrew, if you’re asking whether you’re going to be considered by the White House, I’m happy for you.

SORKIN: I appreciate it, Gary. Thanks so much for joining us this morning. We’ll see you soon.