Iceboxes and Soapboxes: Remarks at the Meeting of the SEC Investor Advisory Committee

Good morning and thank you, Brian [Schorr]. And good morning to all of today's panelists and members of the Committee. Thank you for your participation in this last Investor Advisory Committee meeting of the year.

Before discussing today's agenda, I want to thank Cristina Martin Firvida whose dedication and passion for her job and commitment to investors has greatly benefited this Committee, the Commission, and investors. Today is Cristina's last IAC meeting as the Commission's Investor Advocate. Cristina has served as the Commission's second Investor Advocate for the last three years. I have enjoyed working with her and particularly have appreciated her willingness to brainstorm on any issue of concern to investors, even the hard ones that nobody else wants to discuss.

We are a week past Thanksgiving, and I am wondering if I will ever reclaim my refrigerator. Leftovers still occupy every shelf and have spilled into my backup refrigerator, aka my balcony. I am paying for my overly ambitious menu planning. Maybe if I had concentrated on making fewer dishes of higher quality, my guests would have eaten more, and I would not be eating mashed potatoes, stuffing, and cranberry sauce for breakfast for the foreseeable future. This experience got me thinking about corporate governance and shareholder engagement, which happen to be on the menu for our first panel today.

When it comes to shareholder engagement with corporations, some people seem to believe that more is always better and that quality does not matter. In this view, every shareholder deserves-as often as she likes-to have her concerns-as many as she has-aired on the corporate ballot, discussed in corporate boardrooms, and reflected in corporate budgets. But, as my former colleague Elad Roisman noted, "While we all have a right to get on our soapboxes, we have no right to force others to pay for them."[1] Where the SEC has a role to play in shaping corporate governance, those rules should recognize both the benefits and the costs of shareholder engagement. Rules should provide avenues for shareholders to be heard when they speak to the mutual interests of the company and its shareholders writ large. On the other hand, rules should dissuade shareholders that seek to de-prioritize financial return as the sine qua non of corporate purpose. Amplifying those voices could drive companies into the treacherous terrain of catering to shareholders' idiosyncratic objectives, which may undermine rather than enhance corporate value.

A well-calibrated ruleset gives shareholders a voice in proportion to their alignment with the corporation. Therefore, I support broad shareholder engagement by enabling all shareholders to enter standing proxy voting instructions. Mechanisms that facilitate shareholder voting make sense and may save the company money that would otherwise have been spent on drumming up votes to meet quorum requirements. I also supported the Commission's recent acknowledgment that mandatory arbitration provisions do not run afoul of the federal securities laws. Shareholder litigation-even when it is baseless-costs companies a lot of money and time, so some companies and their shareholders may prefer resolving their disputes through arbitration. The SEC should not override their preferences. Finally, eligibility to submit a shareholder proposal under Rule 14a-8 should be limited to shareholders whose interests align with those of the corporation. Otherwise, shareholders, to extract special interest concessions from the company, will submit shareholder proposals, which divert company time, attention, and resources.

The second panel is linked to the first because, among other benefits, tokenization could facilitate informed shareholder engagement by making it easier for companies to communicate with shareholders and for shareholders to vote. More generally, the tokenization of equity securities has the potential to transform how securities are issued, traded, and settled and empower investors by giving them more direct control over their assets. Investors will benefit from near-instantaneous settlement, reduced counterparty risk, enhanced transparency through immutable ledgers, and lower transaction costs.

At the same time, tokenization raises a host of interesting legal and policy questions. For example, tokenization models vary widely. On the one hand, issuer-sponsored securities issued directly on blockchain networks maintain full integration with master security holder files; they preserve traditional ownership rights while enabling direct ownership. Conversely, third-party sponsored tokens, depending on how they are structured, may provide synthetic exposure to an equity's price movements though derivative instruments, such as through tokenized structured notes or security-based swaps, but offer no ownership or voting interest in the issuer.

Additional questions arise because technologically savvy investors will be able to buy, sell, and hold assets without a traditional intermediary (or without any intermediary at all). Determining how to fit this activity into our rulebook, which is built around intermediaries, is challenging. Some rules may not be necessary to advance the regulatory objective they ostensibly serve given distributed ledger technology's ability to reduce certain risks and enhance transparency.

We do not have the luxury of time in tackling these questions. Tokenization of U.S. equities is already happening: Anybody can spin up a liquidity pool or launch a trading protocol that enables investors to get exposure to our equities markets. Only the quick, careful, and creative development of a workable regulatory framework for the issuance and trading of tokenized securities will provide American investors with the protections they have come to expect when trading U.S. equities. Otherwise, American investors will buy tokenized securities overseas. Commission staff is working on a tailored innovation exemption that would permit this activity in the United States, with strong investor protection guardrails, including Commission oversight.

As we embark on this important discussion, I encourage our panelists to consider several key questions that will help shape our path forward. These questions do not have easy answers, but addressing them thoughtfully will be essential as we work to create a regulatory framework that both protects investors and allows innovation to flourish.

1. Are we adequately considering the full range of emerging tokenization models, and are there additional benefits or drawbacks the Commission should consider that are unique to certain models?
2. What are the broader implications for fundamental market mechanics like settlement processes and short selling?
3. What parts of our existing rulebook simply do not work for this emerging market structure? For instance, should Regulation NMS apply to tokenized equities in its current form?
4. How do we ensure interoperability across different blockchain networks while maintaining the market integrity on which investors depend?
5. What might an appropriately tailored innovation exemption look like? What type of activity should it permit? What conditions would be both necessary and workable?
6. Looking longer term, how can we build a regulatory framework that is fit for a future where intermediaries have less sway and investors exercise more autonomy as they move through our markets?

Another captivating technology is the subject of the final discussion of the day: artificial intelligence ("AI"). The Committee will discuss a draft recommendation about public company disclosures related to AI.[2] In some ways, the Committee's discussion is timely. AI has been a theme of 2025: eye-popping valuations of AI companies, hopes for AI's ability to increase productivity, questions about how AI will affect companies' hiring needs, and fears about AI's ability to turbocharge cybercriminals. But, in other ways, today's discussion is just the latest iteration of the evergreen tug-of-war between principles-based rules and prescriptive rules responding to the hottest issue du jour. Principles-based disclosure rules allow companies to tell investors how they are approaching challenges and opportunities, while companies following prescriptive disclosure mandates merely fill in the blanks of the SEC's script.

I look forward to your discussion and have several questions for your consideration before you finalize the draft recommendation:

1. The draft recommendation laments that current disclosures related to AI are "uneven and inconsistent"[3] and that practices "var[y] significantly among industries."[4] But are such differences problematic? A small, recently-public company with only a handful of employees, for example, certainly has a different relationship with AI than mature, global companies with thousands of employees. If company and industry adoption of AI is not entirely homogenous why should our disclosure regime force conformity? Would any attempt to do so open the Commission up to critiques similar to those leveled against the SEC for its predictive data analytics proposal, which critics feared would chill advisers' and broker-dealers' use of AI and other technologies?[5]
2. Is this an area where prescriptive disclosure requirements would shape corporate behavior, which is not a proper role for merit-neutral SEC disclosure rules? For example, a requirement to disclose board oversight, if any, of AI implementation and utilization could nudge companies to set up a superfluous AI oversight function.
3. Why did the Committee include a materiality qualifier in only the third prong of the draft recommendation? Such a qualifier is entirely sensible here as it is with our existing disclosure rules. In fact, I would contend that absent a Congressional directive to the contrary, the SEC does not have the authority to mandate immaterial disclosure.
4. The Committee notes that participants from a prior panel held by the Committee agreed that the Commission should give guidance on the definition of AI so that "issuers know whether they are using AI in the first place."[6] Even if we draw on a definition drafted by another agency, why should the Commission attempt to define the limits of emerging technologies? Why not leave that task to the companies using the technologies?

Thank you all once more for your willingness to dedicate so much of your time to the Investor Advisory Committee. Thank you also to Cristina Martin-Firvida, Marc Sharma, and Adam Moore for their work with the Committee.