My Crypto Lawyer
Thank you, Ed (Magee), and good afternoon. It is a pleasure to be here with the NACD Nashville Chapter.
Before I begin, let me give our standard disclaimer. My remarks are provided in my official capacity as the Chief Economist and Director of the Division of Economic and Risk Analysis but do not necessarily reflect the views of the Commission, the Commissioners, or other members of the staff.
It is good to be back in Middle Tennessee.
Some of the research I want to talk about today was done just up I-65 at Vanderbilt.
However, I want to start with something from NACD’s own research.
In its 2026 Governance Outlook survey, directors were asked which trends they expected to have the greatest impact on their companies over the next year. The top three were shifting economic conditions, “artificial intelligence” (also known as superintelligence or SI), and regulatory requirements.
I am not going to try to cover the economy this afternoon. But I am an economist, so I thought I would talk about the economics of the other two.
Regulation and SI may seem very different. But they have something important in common: both can change how companies use scarce resources. They can change what things cost, how people spend their time, and ultimately where capital and attention go.
And for a board, attention may be the scarcest resource of all.
As Dolly Parton reminded us in “9 to 5,” the workday has limits. Directors, of course, work well past five. But the day itself does not get any longer. There are still only 24 hours, and every hour spent on one thing is an hour that cannot be spent on something else.
Economists call that opportunity cost. And the more things competing for a board’s attention, the more that cost matters.
That is really what I want to talk about today: the economics of attention. I will talk about how we think about those tradeoffs at the SEC, what we can learn from one regulatory experiment, and what SI might change.
The JOBS Act
Let me start with the biotech companies.
Imagine a small biotech startup with a promising drug candidate and no revenue.
It may be years before that company has a product to sell. In the meantime, nearly everything it does depends on outside capital.
It has to hire scientists. Build laboratories. Run clinical trials. Develop intellectual property. Navigate the FDA approval process.
Those things are expensive.
And that means every dollar the company spends on something else, like compliance, is a dollar that cannot be spent on the science.
In 2012, Congress passed the JOBS Act. Among other things, it created an on-ramp for emerging growth companies entering the public markets.
For a period after going public, eligible companies could use scaled disclosure requirements and were exempt from auditor attestation of internal controls under Section 404(b) of Sarbanes-Oxley.
For an economist, this created somewhat of a natural experiment to ask what biotech companies did with the compliance relief?
The answer was interesting.
Biotech IPO activity increased after the JOBS Act. The companies coming public were earlier in the FDA approval process, and they were more likely to pursue treatments for cancer and rare diseases.
But what happened after the IPO was even more interesting.
Research has found that these companies produced more patents. They conducted more clinical trials. They staffed more laboratories. Their drug candidates were more likely to reach important milestones in the FDA approval process. And the companies failed at lower rates.
In a survey, biotech executives themselves were pretty straightforward about what they did with the savings: they said they invested more in research and development.
In other words, reducing one use of resources allowed companies to put more resources somewhere else.
And in this case, somewhere else was science.
There is one other result that matters. The research did not find evidence that financial reporting quality declined.
That is important because reducing a regulatory cost is not much of a gain if it simply creates a larger cost somewhere else.
Here, the evidence suggests the opposite: the relief freed up resources that these young companies put back into the science.
SEC Cost-Benefit Analysis
And that brings me to how economists at the SEC think about these tradeoffs.
Every significant rule the Commission considers comes with an economic analysis.
At a basic level, the Commission asks a few questions that will sound familiar to anyone who has sat through a capital allocation discussion.
What problem are we trying to solve?
What does the world look like today?
What alternatives are available?
And what benefits and costs could follow if the Commission acts?
Congress has also directed the Commission to consider, alongside investor protection, whether its rules promote efficiency, competition, and capital formation.
Let me spend a minute on efficiency, because that connects to board attention.
Economists use the term productive efficiency to describe getting more value from the resources you have. And those resources include more than money. They include people, management time, technology, and board attention.
Companies can use all of these when complying with regulation.
A compliance requirement may require new systems, outside advisers, additional employees, management meetings, and board oversight. And those resources can produce something valuable. Disclosure can reduce information gaps between companies and investors and help investors better evaluate risk and allocate capital.
And companies can benefit from that too. Better information can reduce uncertainty and, in some cases, lower the cost of raising capital. So the economic question is not whether disclosure has value. It clearly can. The question is whether the value of the information produced justifies the resources and other costs required to produce it.
And that balance can change as technology and markets evolve. And, in those cases, simplifying or eliminating a requirement can reduce the resources devoted to compliance and free them for other uses.
That is an efficiency gain.
And what happens to the resources that are freed up matters. A dollar no longer spent on a requirement that can be simplified or eliminated can be invested in a new product, a new store, better technology, or a more efficient supply chain.
An hour that management no longer spends on a compliance process can be spent running the business. And an hour the board no longer spends overseeing that process can be spent on strategy, capital allocation, succession, or risk.
If those resources create more value in their new use, the company is getting more from the same dollars and the same hours. That is productive efficiency in a very practical sense.
It is also why the opportunity cost of regulation matters. Compliance does not just have a price tag. It occupies resources that could have been used somewhere else.
For directors, that resource is often time and attention.
A board can devote substantial time to compliance and have too little time left for other important decisions.
Many of the rules the Commission is considering today are deregulatory. The potential benefit is not deregulation for its own sake. It is freeing resources so they can be put to better use somewhere else.
But the economic analysis the Division of Economic and Risk Analysis produces still has to consider what the requirement was doing.
If removing it reduces investor protection, eliminates information investors value, or requires firms to unwind systems they have already built, those effects matter too.
Deregulation is subject to the same economic discipline as a new regulation.
And efficiency is only one part of that analysis. The same regulatory costs can also affect competition and capital formation. Fixed compliance costs can fall more heavily on smaller firms and affect entry and competition.
And the cost of regulation can affect whether companies raise capital, where they raise it, and whether becoming or remaining a public company makes economic sense.
Which brings us back to biotech.
The study I mentioned earlier gives us a concrete example of what productive efficiency can look like. The JOBS Act reduced some of the resources these young companies had to devote to compliance. They did not simply pocket the savings. They redeployed resources into the business, hiring scientists, running clinical trials, and developing drugs. And we did not find a detectable decline in financial reporting quality.
In other words, they spent less on compliance and more on their science. Their investors benefited. And if those additional investments ultimately produce therapies that reach patients, society may benefit as well.
Commenters
Let me make one more point about the Commission’s own work.
The SEC has access to an enormous amount of information. But we cannot observe everything.
People in this room know things about operating companies that we cannot readily learn from a filing.
You know which compliance costs involve a one-time build and which recur every year.
You know which requirements can be incorporated into an existing system and which require building something new.
You know which issues consume management attention.
You know which ones reach the board.
That kind of information can be enormously valuable to economic analysis.
So I encourage you, your companies, and your trade groups to comment on Commission proposals. When you do, data help.
Tell us what something costs.
Tell us what drives the cost.
Tell us who ultimately bears it.
And tell us how behavior is likely to change.
That is the kind of information that makes the Commission’s analysis better.
SuperIntelligence
That brings me to the other disruptor on today’s agenda: super intelligence.
SI brings us right back to efficiency.
NACD’s survey found that 76 percent of directors expect SI to factor into their companies’ growth strategies. But so far, most companies report only slight or moderate success in achieving operational efficiencies from those investments.
SI can lower the cost of processing information. It can search, summarize, compare, and analyze enormous amounts of information much faster than people can. And it may lower some of the costs of producing information as well.
But lower costs do not mean the answer is simply to produce more of everything.
I made this point in September when I spoke to fund compliance professionals. If SI makes disclosure easier to process, it can be tempting to conclude that companies should simply disclose more.
But information still has to be collected, verified, reconciled, and ultimately stood behind. SI may reduce the cost of processing information. It does not make reliable information free to produce.
And there is an opportunity cost to producing it.
Every hour management spends collecting and verifying immaterial information that investors do not need is an hour that cannot be spent running the business. Every hour a board spends overseeing that process is an hour that cannot be spent on strategy, capital allocation, succession, or risk.
That is one reason a principles-based standard like materiality matters so much. Materiality focuses disclosure on the information that matters to investors. It does not ask them to disclose something simply because technology has made it possible to produce it.
The SEC’s disclosure framework has long treated materiality as a central organizing principle, and SI does not eliminate the economic considerations behind it.
In fact, you can make an efficiency argument for keeping that discipline.
If SI allows a management team to produce a disclosure in three days instead of three weeks, the goal should not necessarily be to fill the other two and a half weeks producing more disclosure. There is an opportunity to give some of that time back to the people running the company if that is a better use of the resources.
Let them spend it developing a new product. Improving the supply chain. Talking to customers. Finding a better investment. Talking to investors. Or doing whatever else creates value for that particular company.
That is the same reallocation we saw in the JOBS Act study: resources freed from one use could be put to use somewhere else.
SI creates the same possibility.
So for a board, I think there are two important questions.
Is SI allowing the company to do necessary work more efficiently?
And, just as important, what is the company doing with the time and resources it gets back?
Because the promise of SI is not an endless amount of output. It is the opportunity to devote scarce resources, especially human attention, to the things that matter most.
Closing
And it brings me back to where I started.
Boards face a scarce-resource problem every time they set an agenda.
So do companies every time they decide where to invest.
And regulators face one whenever a rule causes resources to move from one use to another.
The question is not simply whether something has a cost.
The better question is what we are getting for that cost, and what those resources could be doing instead.
For the biotech companies, some of the answer was science.
For every company represented in this room, the answer will be different.
Figuring out where those scarce resources should go is an important job for boards, and for regulators trying to get the rules right.
Thank you.
I look forward to the conversation with Jan, Kurt, and Kim.
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