The Role of the U.S. Securities and Exchange Commission

Although governance for all types of corporations is largely determined by state corporation law, the U.S. Securities and Exchange Commission (SEC) nonetheless plays a significant governance role in public companies—namely, those that register to issue securities (stocks and notes) to the public. The SEC affects these firms—called issuers or registrants— mainly in two ways.

First, the SEC promulgates and enforces rules under U.S. securities laws. Second, the Commission influences the standards of other entities, including the audit standards set by the Public Company Accounting Oversight Board (PCAOB) and the listing requirements of the U.S. stock exchanges.

Many of the rules and requirements set or approved by the SEC have a direct impact on corporate governance.

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.