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Going Big! with Kevin Gentry
Going Big with Paul Atkins: Why Public Companies Have Been Disappearing—and What Comes Next
00:34:26
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A
We in the United States shouldn't discount what a good type of ethos we have here for people in the marketplace and who are willing to take a risk as long as they get good information, solid, and they can make a reasoned decision. And that's what other people around the world really envy.
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Welcome to the Going Big Podcast. I'm your host, Kevin Gentry, and this is the place where we celebrate bold moves and big ideas. Each week I sit down with inspiring leaders, entrepreneurs and change makers who are making a significant impact in their careers and in their communities. Whether you're looking to level up your leadership, pursue your passion, or just get inspired to take your next big leap, this is where those stories come to life. Now, if you're listening on iTunes, YouTube or anywhere else you tune into podcasts, be sure to hit that subscribe button so you'll never miss an episode. Now let's dive in to what it means to truly go big. Well, welcome back to another episode of the Going Big Podcast. I'm your host, Kevin Gentry, where we invite guests who are at the confluence of things at a very high level, high stakes, dynamic stuff going on and what we could learn from people who are going big. And I'm so pleased to have as my guest today Paul Atkins, who is the Chairman of the U.S. securities and Exchange Commission, the SEC. Paul has been part of this world first many years ago as a staffer at the SEC and the outside world seeing it from that perspective, later as a commissioner about 20 years ago and then recently as its chairman. So he has a tremendous perspective at a time of tremendous dynamism in the markets, lots of innovation. So, Paul Atkins, it's great to have you on the Going Big podcast today.
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A
Thank you, Kevin. It's great to be with you today.
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B
Well, here's the kickoff question. So for the sec, for people who hear that they may think regulation, rules enforcement, what do you see as your role as the chairman of the SEC and the role of the sec when you get things right, what's good for us and if things go wrong, what breaks?
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A
Well, I think, Kevin, actually, I'm not sure that most people in the here SEC think of financial markets or Washington or regulation. I think they think of Southeastern Conference and football and basketball and can you get me a ticket? But I always say you don't want the kind of ticket that I can give you. So anyway. No, but seriously, the SEC is an organization that was created by Congress back in the 1930s, 1934 to be precise, in the wake of the big Great Depression and The market crash of October 1929. And so it's been obviously in existence still then. And it is a government agency. A lot of people ask me, oh, well, is it in New York or where is it? It's. No, it's in D.C. it's a government agency. I'm appointed by the president, as are the other commissioners. There are five commissioners in all. And then we have about a total employee account of about 4,100 people. And there we have about 10 regional offices and 20 Dallas and New York and Boston and Chicago and Los Angeles, San Francisco and elsewhere, Philly, Miami, Atlanta. So they are important parts of our program. Congress has tasked us with keeping an eye on the stock markets and stock exchanges and options exchanges and then all the different regulated entities that operate in them. So broker dealers and asset managers and mutual funds and credit rating agencies. I mean, there are whole. There's a whole list of firms like that. So it's, it's basically to make sure that our securities markets are, have integrity and that are not ripping people off and that. But we're not what we call a merit regulator. We don't, we don't decide what's a good investment. That's completely up to the investor. But the, our governing statutes basically tell us that, you know, disclosure is the watchword. And so that is, you know, our goal is to get material information to investors so they can decide whether to buy, sell, or hold a particular security. And, and they can still put everything on Red32 and spin the roulette wheel. That's up to them. But we're out to try to have people be smart and take advice and that they get good, honest advice from people who are responsible and have liability if they veer off and have conflicts of interest and whatnot that they haven't disclosed. And that way get people down the wrong. The wrong track as far as their investments go.
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B
All right, so we're at a moment of enormous dynamic innovation. You've got artificial intelligence, you've got cryptocurrencies, you've got all kinds of new market structures. As you mentioned, SEC was founded 100 years ago after the crash, or almost 100 years ago after the 1929 stock market crash. Today, how do you balance between over regulating or under regulating? I mean, how do you know in a very dynamic world how to step in and do what you do?
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Well, so I believe that we need the minimum dose of regulation to achieve effectiveness. And so it's true. If you look around the world, there are a lot of countries that have very onerous regulations, and there's really no where for entrepreneurs or innovators or investors to find good investments. And so what we are trying to do, especially after I've come aboard, is for the first time, really ever, the SEC is now looking at our whole rule book, especially with respect to disclosure by corporations that are listed on stock exchanges in the United States and traded here, with a view towards, you know, where, have what. What is now sort of not really relevant anymore. What is too much like some particular aspects of disclosure requirements. I just hear all the time from all sorts of people that it's way too much. They can't understand what it's about. And so, like, one of the crucial disclosure documents that public companies issue is called the annual report, or it's on form 10k to be precise, of what the SEC demands. And so, just for example, one company, and it's a complex company, it's a power company down in Louisiana and Arkansas called Entergy. So its annual report this year is 970 some pages long. Yes. So it's this huge stack of paper. And I challenge anyone to get through that and try to figure out what's going on with the company. And so, you know, the trouble is that more is not necessarily better. And so that's why the Supreme Court has said, and this is Thurgood Marshall, when he wrote for the court back in 1976, he said that one of the real problems of disclosing information that is not material, and if the company discloses that or if the government requires that, then people get drowned in information overload. And so that's really the point. They can't separate the wheat from the chaff.
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B
Okay, well, you've given us a sense of your philosophy. Thank you. And how you see your role and the SEC's role. And you mentioned 1976. So much has changed. I want to actually reference how it's changed since you were just a commissioner 20 years ago. But let's go back to 1976, because when you said that, it reminded me. My dad worked at AT&T. And because he saw the bureaucracy, he said, you should buy some MCI stock. And I bought some stock. I was raising beef cattle in the spring and selling them in the fall. And I took the proceeds and bought. And. And I had a stock certificate. It was a piece of paper. It was this cool piece of paper. And it said that I own 400 shares, I think is what it was. I don't have them anymore. I sold it too soon. But anyway, that's different today. I mean, I don't know how many individual owners there are. You have these massive owners of retirement funds or institutional investors. How has that, that changed? And how do you think, sort of from a standpoint of almost democratization, how we should see our role in owning a stake in public companies in the United States today?
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A
Yeah, well, you've hit on a very good topic that is being debated even now and today. But it's true the makeup of the marketplace has changed a lot over the last, well, certainly 50 years. But even the last 15 years, back in as late as like 1990 or so, individual investors like your father and my father owned more than 50% directly of the total market capitalization of the United States, so meaning that they held stocks in paper form of companies that are listed on the stock markets in the United States. So that's changed a lot. People have gone to investing in, say, index funds like the S&P 500 index and ETFs and mutual funds and things like that. So the, the holding holdings by institutions, meaning asset managers or insurance companies or, you know, all of that pension funds now accounts for like 80% of the marketplace and individuals down at something like 20. And so that has shifted a lot of focus of public companies and how the market works. And then you also have what's happened in the last 30 years anyway, the number of public companies in the United States listed on the stock exchanges has fallen by 50%. So we have 50% of the companies listed on exchanges as we had 30 years ago.
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B
And why is that?
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And well, because you have. Yes, so you have bankruptcies and mergers and acquisitions and things like that. So your population goes down. But if you don't have an inflow of new companies that have initial public offerings and then become public, your population necessarily goes down. And so what's happened is right now I'm on a campaign to make IPOs great again. And so we've identified basically three reasons why the number of public companies has not kept pace and that they're more it's more decreasing in number rather than increasing. And that's One is because of the cost of regulation, the amount of disclosure and all that, that 900 some odd page 10k. Second is all the litigation that we have in the United States and steps that, you know, the SEC has taken in the past and others to, you know, make it, let's just say, to not discourage lawsuits, but basically to make them, you know, to basically encourage them. And then finally is what I call the weaponization of corporate Governance, meaning that if you own a share of stock in a company and the company has its annual general shareholder meeting, you know, once a year, then there are resolutions that shareholders propose to be put before the all the other shareholders for all sorts of things. And unfortunately these, the SEC kind of created this mechanism to have people be able to pose those questions and make those proposals. And it's just being now weaponized by what I call politicized shareholder activists who have a particular axe to grind and they want to either embarrass the company or get the company to agree to disclose particular things that then they jump on and say, oh, you know, the company's not looking out for our special interest rather than for the interests of the company as a whole, which is mainly how do we make money, how do we pay dividends to our stockholders and how do we keep the machine going? So there's been a lot of distraction over the years I'd say. So we're trying to take steps on that. So I think if we can make headway with those three parts there of rationalizing our rule book and modernizing it, looking at how we don't have a lot of authority in this area, but where we can, we can remove constraints for things like arbitration instead of a lawsuit. Or there's some companies have bylaw that says if you sue and you lose, then you pay the law fees of the lawyer fees of the winning party. And so that is also a deterrent, especially for lawsuits that may just be kind of just a Hail Mary pass that are not really well grounded.
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B
Well, good for you. And as long as I've known you, you've always been very positive and, and optimistic, but you're kind of depressing me. But then all the more you're saying that we're still the best in the world in terms of the vibrancy and dynamism of the market. So I hate to think what all these other places are like.
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No, that's true. So whenever I go overseas to see my counterparts in Europe, including the UK and then in Japan and elsewhere, I always get the comments like how can we, meaning the Europeans or whomever, how can we build more of an investment culture where people are not so risk averse as they are in Europe or elsewhere, but they actually are risk on. They try to understand their risks and invest accordingly in things like equity securities which is could go up, could go down, versus a bank account which doesn't have very much income, that it comes out of it. But obviously with a share of stock, you have capital appreciation, plus also if it pays dividends, that sort of thing. So anyway, so we in the United States shouldn't discount what a good type of ethos we have here for people in the marketplace and who are willing to take a risk as long as they get good information, solid, and they can make a reasoned decision. And that's what other people around the world really envy.
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B
Well, here, here. And there are a couple of things you're bringing up that I want to dive into more. But to your point about wanting to make IPOs great again, I mean, it's a great thing that people can own a piece of Costco or a piece of Walmart or a piece of McDonald's or Starbucks or, or whatever and see it. It's just gotta be good for society when you have a personal stake in that. And the more people that are investing, the better it sure seems to me. And there's gotta be some evidence of that as, as well. But things change too, over time. I mean, you've mentioned the regulation stuff, but attitudes and things in the dynamism of the market. So you mentioned ETFs a little while ago. Did ETFs have to be approved by the SEC? And what is the appropriate approval process? I mean, we know about sort of the FDA takes a long time to approve new drugs and things. What is the SEC's role in a new device? Because in a minute, I want to come to crypto, right?
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Well, it all depends on the type of product and the type of area that it's in. And so there are, there's a set of rules that outline what needs to be disclosed and how the product can be set up and then marketed. And so there is a registration filing process where our corporation finance division, or for things like mutual funds and ETFs, also our investment management division that looks after different statutes that Congress has adopted over the years. But basically the staff reviews the disclosure regarding these particular products and then has comments on the registration statement. And there's kind of a back and forth with the company. And, and then things, you know, then the company goes ahead and starts to market its securities. And so that's where, in fact, crypto, I believe, you know, had, you know, an unfortunate experience here in the United States because in the past few years, basically the SEC was not, let's just say, in the mood to consider any of those things. And they were. The SEC was demanding that these digital assets conform to disclosure forms and registration statements, forms that apply to other, just say, bricks and mortar companies or old fashioned manufacturing companies and that sort of thing, rather than a tokenized asset that would be difficult to describe in these and difficult to have it fit into something that's not adapted for the new type of product. So we're changing that. We are embracing innovation and we are, you know, changing our rules accordingly. And the one thing that, you know, most of your listeners probably have heard about ftx, you know, Sam Bankman Fried's operation. Well, so he went offshore to escape this. He couldn't do it here, right, because he couldn't do it here, but he had. And so there Americans, you know, went abroad and or you know, sent their money abroad to him. And we all know what happened there. But he invested in a company called LedgerX, which is a swaps trading platform for digital assets. And it was here onshore. And so Sam Bankman Fried bought it here in the United States, but it was registered under CFTC rules, the Commodity Futures Trading Commission, which is a sister agency of ours and that. And so with the implosion of ftx, you know, all that happened in the Bahamas, Ledger X just continued on. And because it was audited by auditors and examined by the National Futures association, which is under the CFTC's oversight. And so they had segregated accounts, meaning that you had your investments as a customer of LedgerX. I had mine. And it's all separately accounted for, segregated, not all just put into one big pot. And so customers were whole at the end of the day there. And so LedgerX is still in existence now still, you know, as far as I know, making money and doing a good job for their investors. It's under different ownership of course. But anyway, it, that's, I think an example of effective regulation that was targeted against some of the hanky panky that went on with, you know, at ftx. So you can see how investors can really be harmed by things that if it's too inflexible regime in the United States, causing people to go abroad to do things not under a whole process with integrity, then ultimately American investors are harmed. So our goal is to attract entrepreneurs back to the United States. So build it here under American laws with American, American investment and then with American oversight. And so that is getting a huge pickup in the digital asset industry. And so I'm very excited about that. I think that's good for our markets, good for investors and good for the country.
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B
Well, that's a good illustration that you offered too. So here's one. So crypto is not going away, right? So why, I mean, I don't understand the sort of, you know, sticking the head in the sand to say, maybe it'll go away. I mean, there have been other countries obviously, that have said, you know, we're not going to acknowledge this, we're not going to. And thank goodness that you've stepped forward in the way that you have. When new market innovations happen, part of the role of an agency is to figure out how to embrace it, but under the right conditions. Is that right?
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Exactly. And so we're seeing now, so the Europeans were unlike in the United States, the Europeans embraced it in a way early on, but they can't really help themselves. They just made things so restrictive and so codified that it became inflexible. And so entrepreneurs kind of fled Europe and didn't do anything thing there as well. So they could go somewhere that's less, you know, less regulated. But obviously that has its detriments too, like we saw with ftx. So anyway, so our you, we have to remember that again, American investment ethos is really powerful. And that's why we have, you know, the best economy in the world. And that's how, you know, people were able to raise money to build railroads and canals and all that here in the United States. And when you think about it, the United States was founded basically as an investment. So you had the Virginia Company in England that raised money to send settlers to Virginia and elsewhere. You had in New York the Dutch West India company that founded New Amsterdam, which became New York. So all of those examples are of investors in public markets that invested and then helped have all of that come about. And so that's the same thing here in the United states, investing in AT&T or whatever company your father invested in or others, where even if they're established companies, they still need capital, obviously to build factories and hire people and invest in research and development and all of that. So all of this is why investment really matters. Investing for the long term, it helps build our economy and builds the life and all the new innovative products from cell phones to, you know, whatever that we enjoy today.
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B
Yeah. All right. Well, that's a perfect segue into two follow up questions. First, you mentioned again making IPOs great. Again, what are two or three of your priorities as the chairman of the securities and Exchange Commission?
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A
Well, I think one is to get well grounded. Again, focus on the basics. And that is effective disclosure. That's not inundating people with immaterial information. So they just kind of have no clue what to focus on, but ask to demand of companies that they disclose material information and keep it current for investors to refocus on innovation and to allow people to come back to the United States and develop their products here. Those are the basic things. And then also to have fairness when it comes to our enforcement decisions and our enforcement actions where we go after people who have broken the rules. And so we need to not regulate by enforcement, for example, where we go ahead and sue somebody even though we don't really have a rule that gives that person the knowledge of, well, how do I comply with what you want me to do? But we, so that's too often what happened here in the last few years. So to, to recalibrate and to go after the basics. You know, there are a lot of Ponzi schemes out there. There are, you know, people get ripped off. There are heart wrenching stories of where, you know, foreign actors even use, we think, use artificial intelligence to mimic voices and telephone calls and things like that. To like just old con artists, confidence men who, you know, to reel somebody in and then believe in the person saying, oh, well, you know, here if your bank account is threatened to be, you know, have money taken away from it because your bank doesn't have sufficient controls and guards around it. And we know, and so why don't you transfer all your money into this other account and it'll be really secure. And so that's happened over and over. And even a friend of mine had his mother in law lost a huge amount of money by believing that. And so that's why it's important for your listeners to know, don't fall for these sorts of things. Never give your personal information to somebody who's asking it over the phone. You should be the one instigating it. If you're placing an order so you know whom you're calling and make sure that it's a correct number and that sort of thing. So that's sort of what we're focusing on now, investor education and these other things that I mentioned as far as building the integrity for our markets.
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B
Wow, good advice. Did you always want to be a member of the securities and Exchange Commission? I mean, at what point in your life did you get kind of interested in, in financial markets and securities and regulations? Just give us a little sense of the path that you took.
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A
Well, when I came out of law school, I was interested in the markets and finance and I went to work for a law firm up in New York City which was very active in the securities markets. And so that was very, you know, very interesting and had a, you know, a Good experience, great experience there. And then I got engaged. My wife said, I'm not moving to New York, you need to find a new job. So that's when I first came to Washington and my resume wound up with the new chairman of the sec and so I got a job there and we were in Washington, which was a good compromise for, for us from New York and elsewhere. And so that was really how everything got started.
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B
Well, we've known each other for about 20 years. You're awesome family. And I remember when President George W. Bush of course nominated you as a commissioner way back then. What sort of has guided your philosophy? Were there any particular mentors? Are there other influences, things that, that you read or studied? What can help us understand how we might better be influenced to think about how to embrace innovation and support it the way that you do?
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A
Well, so I've been in and out of the SEC now three times. So I mentioned that first time back in the early 90s and then came back in the aughts as you mentioned, as a commissioner and then left again to start own business and then came back just last year. I'm almost at my year mark, it'll be in mid April, April 21. And so those three times in government and then back out and whatnot is really, I think it was very informative to me as to how to look at things differently from inside the government and then, you know, outside as well, but to really cherish what we have in the United States as far as our investment ethos, our entrepreneurial spirit and then our free market philosophy, which tends to be under attack sometimes, but you know, anyway. But now I think it's, you know, coming back roaring back and. But I, but my formative years were under Ronald Reagan. So you know, those years were a great time for, in the, for America in the 80s. And you know, that's when I cut my teeth and all that. And so that was very, I thought that was very influential. And then other market oriented thought leaders of the past, like Friedrich and, and Ludwig Mises and others on the economic side that really capture I think, the human spirit and what drives people. And of course, Adam Smith, it was you who pointed out to me the other day that last week was the 250th anniversary of wealth of nations being published. So that's a good time. It was 1776, just like the, the America revolution. So what a great year that was for individual liberty and sort of getting back to not being constrained by dictatorship and tyrants and things like that.
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B
Yeah, Indeed. It's funny you mentioned Ronald Reagan and remember Robert Bartley, the editor, great editor of the Wall Street Journal editorial page, had that book seven Fat Years, which was just a great example of what happens when we facilitate the conditions to bring about prosperity and human flourishing. Well, here's the closing question, Paul. I always ask this to our audience around the world. That part, curious about the role of the sec, curious about what the chairman does, curious about your philosophy, curious about markets, anything. But really also curious about how to live a life of meaning and purpose in the manner that in my judgment, you have in many ways. What advice, what closing out advice would you give us, those listening to think about how we can pursue this in a similar way?
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Well, I mean, I guess just basic Lee is, well, my wife always gets on me because I work a lot, but I enjoy that. But, you know, leave time for your family. Obviously time goes by quickly and, you know, children grow up and whatnot. So you need to, you know, have a balance there and make sure that, you know, weekends and other things count and time spent so there's nothing that substitutes for that.
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B
Well, thank you for your sense of service. Thank you for your exceptional dedication and leadership. Thanks for all that you're doing. Thanks for joining us today on the Going Big Podcast.
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Paul atkins, well, thank you very much, Kevin. Good to see you again.
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B
Good to see you. Thanks for tuning in to the Going Big Podcast. I hope today's conversation left you feeling energized and ready to tackle your biggest goals. Don't forget to subscribe and leave us a review on iTunes, YouTube or wherever you listen to podcasts. It really helps spread the word and it gets these inspiring stories out to more people. You can also find more content, content, resources and updates at our website, goingbigpodcast.com Remember, the only limits are the ones you don't challenge, the limits that you impose on yourself. Keep pushing, keep growing, and above all, keep going big. See you next time on the Going Big Podcast.