In a recent speech at the Stanford Directors’ College, SEC Chair Mary Jo White discussed several “things that directors should know about the SEC.” Her speech focused on directors as gatekeepers, self-reporting of wrongdoing, and the SEC’s whistleblower program. Chair White was formerly a director and member of a public company’s audit committee and, thus, as SEC Chair, she offers a unique perspective on the role of directors. In her speech, she made the following observations:

Gatekeeper and Oversight Role

• Directors play a critically important role as gatekeepers in which they are charged with overseeing the company; preventing, detecting, and stopping violations of the federal securities laws at the company; and responding to any problems that occur.

• Directors in their gatekeeper role need to establish expectations for senior management and the company as a whole, exercise appropriate oversight to ensure that those expectations are met, and set the right “tone at the top” for the entire company.

• One of the most important director responsibilities is to select the right CEO and make sure he or she understands the importance of the “tone at the top” and a strong corporate culture.

• “Setting the standard in the boardroom that good corporate governance and rigorous compliance are essential goes a long way toward engendering a strong corporate culture throughout an organization.”

• Directors should foster a culture that affirmatively encourages and empowers employees to report wrongdoing internally without fear of being harassed, demoted, or fired.

• Directors must understand a company’s business model and the associated risks, its financial condition, its industry, its competitors, and the broader market.

• Directors must pay attention to what senior managers say but also listen for the things they do not say.

• Directors need to ask the difficult questions, particularly if they see something suspicious or problematic, or simply when they do not understand something. They should always insist on obtaining answers when questions arise.

• Audit committees, in particular, have an extraordinarily important role in creating a culture of compliance through their oversight of financial reporting; handling complaints regarding accounting, internal controls, and auditing matters (as well as whistleblower tips concerning questionable accounting or auditing practices); and selecting and overseeing the company’s auditors.

Interaction with Shareholders

• Directors should know what the company’s shareholders think by having an open and constructive dialogue with them.

• Directors should look thoughtfully at shareholder proposals and ask the company’s management team about them and about the proposals that other companies are receiving.

Relationship with Regulators

• Directors should consider the view of their regulators by listening to what regulators say publicly is important and problematic to them and also perhaps by visiting with them.

• Directors play a critical role in determining whether a company should self-report identified serious wrongdoing and the level of cooperation with SEC investigations.

• The SEC brings cases against directors, but these cases should not strike fear in the heart of a conscientious, diligent director.

• The SEC sees directors as its partners in the effort to ensure that investors in U.S. capital markets can invest with confidence.