Once again, the SEC has done the heavy lifting for Canadian investors by imposing, according to reports, a $100 million penalty on Nortel. Indeed, nothing could more graphically illustrate the contrast in approach toward the protection of the capital markets between the SEC and the OSC than this decision. For exactly the same kind of improprieties, the OSC thought just $1 million toward the costs of its investigation would be sufficient. Like us, the SEC was clearly not impressed with the OSC’s thinking and wanted to levy a penalty commensurate with the offense. We said at the time that the OSC hit Nortel with a wet noodle. The SEC’s action looks more like it threw the whole pot of pasta at them.
Nortel should move more aggressively to recoup these costs from the officers and directors on whose watch the wrongdoing occurred. But as long as the concept of limited liability exits, and companies have the right to sue and be sued as though they were legal persons, they will have to deal with fines and penalties. That’s why who is chosen to sit around the directors’ table and in the executive suite is important and needs to command more attention from shareholders than it often does —even when times seem so good, as they once did at Nortel.
Maybe Canadian investors should think about the added value they are getting with the SEC, which once again has acted true to its motto, “the investors’ advocate.” I’m open to suggestions as to what the OSC’s motto should be. They pay the OSC’s top level officials hundreds of thousands more than their SEC counterparts make. There are approximately 90 employees at the OSC who make as much or more than the head of the SEC. Yet time and again, it is the SEC who fills the void and makes the tough call when Canadian regulators fall short. Sort of makes you wonder what they have in mind for RIM next.
By the way, with this posting we have inaugurated a new category at Finlay ON Governance. Our Outrage of the Week has been published with regularity for a number of months each Friday and has become a popular feature. We think, however, that in the interests of encouraging a positive and balanced perspective, in those weeks where there has been a major breakthrough or step which we feel enhances the interests of transparency, accountability and sound governance, we will run that story. Outrage or Kudos? We don’t know which you will see more of on Fridays as time goes by, but it should be interesting.