I have long thought that the SEC is among the best, if not the best, government agency. Over the years, I’ve worked with and gotten to know many folks on the SEC’s staff, who have consistently impressed me as bright, hard-working, serious about the SEC’s mission, and very nice people. I am sure that most people on the staff continue to possess these and other great attributes.
As with most organizations, the tone at the top is critical. And, at least from outward appearances, the tone at the top of the SEC is at best dismissive, if not hostile, towards business, and disingenuous. I’m not saying that the SEC should bow to corporate America’s wishes and do its bidding. But it’s in the interest of our capital markets and the participants in those markets that the SEC consider a wide range of views and engage in thorough and thoughtful deliberation (part of what is known in the corporate world as the fiduciary duty of due care) before making decisions.
That does not seem to be the case. In the last year or so, the SEC has repeatedly demonstrated fealty to the institutional investor community by such things as announcing, early in Chair Gensler’s tenure, that the SEC would not enforce rules providing for a more level playing field between companies and proxy advisory firms, adopted by the SEC barely two years earlier, and then formally rescinding those rules (see here). I’m not saying those rules were perfect – far from it; in fact, they met the classic definition of compromise, in that all sides were dissatisfied with the outcome. However, they were a start, and instead of getting rid of them the SEC could and, IMHO, should have worked to improve them.
Another example of dismissiveness or hostility towards the corporate community is a statement made by an SEC official in response to an expression of concern with the broad scope of the climate change rule proposal. The response was that he believes investors “might” want those disclosures. There are few statements that make me cringe as much as that one. Of course, investors “might” want those disclosures, but many companies have reacted by pointing out that none of their investors have ever asked for them. Why didn’t the SEC speak to the issuer community before those rules were proposed? And if the investors that engage with companies are not asking issuers for those disclosures, which investors is the SEC listening to?
One more example (and my last – I promise). For at least the last five years I have asked someone from the SEC at every opportunity if he or she can provide any information on the status of EDGAR reauthorization. I have yet to get any answer other than “no.” I’m not asking out of idle curiosity; aside from the fact that EDGAR was antiquated when it was first implemented, it could help companies to improve the quality and effectiveness of disclosures — something that I and many who do what I do care about greatly. It would be great if the SEC would work with the issuer community as well as the investor community to achieve that goal. Instead, the most I’ve ever heard is “why don’t you follow up on that?” When I have, the answer has still been “no” or, more frequently, silence.
Instead, the SEC has been on something of a regulatory rampage, sending out a constant stream of significant rule changes on a variety of issues that generally followed the recommendations of the institutional investor community, and – as if no one would notice – providing minimal periods for public comment, such that Congress weighed in to force the extension of the comment periods.
As for “disingenuous,” let me give you some examples:
- An SEC official has stated that the recent proposal on climate change disclosure was not intended to change the definition of materiality. It seems to me, and to a number of smarter people I’ve spoken to on the subject, that the proposal seeks to do precisely that.
- The same official also said that the proposal is not intended to change conduct. My response is the same.
- The SEC has reopened comment periods on a number of rules, including some required under Sarbanes-Oxley, that have yet to be adopted. However, the reference to reopening comment periods is disingenuous, as a number of the proposals in question have been significantly modified (i.e., expanded) rather than merely reproposed. As was the case with those miniscule comment periods, did they think no one would notice?
Over the years, I have had issues with organizations like the US Chamber of Commerce because, even when I’ve agreed with their positions, their approaches have often not been constructive. However, the Chamber, along with the National Association of Manufacturers, the Natural Gas Services Group, the Business Roundtable (accused of being “woke”), and the Tennessee Chamber of Commerce and industry have recently filed lawsuits to prevent the SEC from rescinding the proxy advisory firm rules referred to above. I have no doubt that these and/or other organizations will initiate similar litigation if the SEC adopts the climate change disclosure requirements proposed earlier this year. And this time, I’m rooting for them.