SEC Chair Frets About Foreign-Owned Firms

Christopher Cox, the chairman of the Securities and Exchange Commission (SEC), told a small audience at the Institute of Politics last night he is wary of the increasing role of government-controlled corporations and sovereign wealth funds in U.S. markets.

Speaking in honor of the 25th anniversary of the Mossavar-Rahmani Center for Business and Government at the Kennedy School of Government (KSG), Cox said such corporations and wealth funds are growing relative to their private counterparts. He added that foreign governments pose the greatest risk, citing government-controlled firms in which private investors hold a minority stake.

“When the government becomes both referee and player,” he said, “the game changes rather dramatically for all participants.”

Sovereign wealth funds allow states to invest their savings in private markets.

“Unchecked, this could be the ultimate insider-trading tool,” Cox added.

Before he became chairman of the SEC in 2005, Cox represented California’s 48th district in the House of Representatives, most recently chairing the Committee on Homeland Security. Before that, he served as senior associate counsel to the president from 1986 to 1988, representing Ronald Reagan during the Iran-Contra scandal.

While Cox, who received degrees from Harvard Business School and Harvard Law School in 1977, said it was “not self-evident” that the incursion of government-controlled firms and funds into capital markets would bring negative results, he said U.S. policy should be based on the “normative assumption that markets are good” as long as they remain efficient and transparent.

“It’s in our DNA,” he said.

Cox said that even under the administration of Franklin D. Roosevelt, during which Congress created the SEC, the role of government in markets remained limited.

“The essential approach of the Roosevelt administration was to regulate business, not own it,” he said.

He added that the SEC will continue to treat foreign-owned firms and fund “as we would any similarly situated private entity.”

Yet he added that he remained concerned about conflicts of interest.

“The track record of many sovereign wealth funds does not inspire confidence,” he said.

Cox made his remarks as part of a two-day conference, hosted by the Mossavar-Rahmani Center, on recent developments in corporate governance. The conference, titled “New Directions in Regulatory Policy,” aimed to examine the regulatory impact of recent corporate scandals, including the Enron and WorldCom debacles.

John G. Ruggie, director of the Mossavar-Rahmani Center, said the conference has been a great success, raising more questions than it has answered.

“My head is spinning,” he said.

The Mossavar-Rahmani Center carries its name as a result of a $15 million gift from a prominent business couple—Sharmin Mossavar-Rahmani, who is Managing Director of Goldman-Sachs, and her husband Bijan, a KSG alumnus who heads Mondoil Corporation, an international petroleum firm.

The Mossavar-Rahmani Center runs a wide range of programs, including initiatives on corporate social policy, regulatory policy, and environmental economics.

—Staff writer David K. Hausman can be reached at dhausman@fas.harvard.edu.