This site is a big fan of SEC Commissioner Hester Peirce and has occasionally highlighted her informed and candid commentary on various aspects of SEC enforcement.

In this recent speech, Peirce rightly noted that the SEC has a “limited mission.” She stated that the “mission is serving the investors who entrust their money to other people by facilitating the provision of disclosure necessary for investment decisions” and ensuring “that investors have the information they need to channel funds to the companies that can put that money to the best use by delivering the products and services people demand.”

Peirce then offered various steps as a “path toward more level, predictable terrain” for public companies.

One step “would be for the SEC to refrain from using enforcement actions to override managerial decision-making.” She stated:

“These actions may seem benign and unassailable at first glance—tighter corporate controls are good, right? But, if replicated, they will become a subtle mechanism for the Commission to insinuate itself into corporate management. Some might well argue that this has already occurred. For example, the Commission has taken an aggressively broad interpretation of Exchange Act Section 13(b)(2)(B)’s internal accounting controls provision. As Acting Chairman Uyeda and I noted in a dissent to one case, “The Commission’s attempts to convert an internal accounting controls provision into an ever-unfolding utility tool that magically converts every corporate activity into something the Commission regulates are inappropriate extensions of the agency’s authority.” In another recent example of management through enforcement, the Commission used Rule 13a-15(a), which requires companies to have “disclosure controls and procedures,” to punish a company for “lacking controls and procedures . . . to collect or analyze employee complaints of workplace misconduct” given that it disclosed a risk factor “related to its workforce and how its ability to attract, retain, and motivate skilled personnel might materially impact its business.” The Commission did not charge the company with making misleading disclosures. By requiring companies to establish disclosure controls for information that is not important for disclosure purposes, the Commission “seeks to nudge companies to manage themselves according to the metrics the SEC finds interesting at the moment.” As one law firm explained, this enforcement action “may signal continued and increased SEC effort to use internal controls requirements to address workplace activity not commonly associated with the business and financial performance at the heart of SEC disclosure rules.” Restoring the internal accounting controls and disclosure controls and procedures requirements to their important, but limited intended purposes is a change in the right direction to rein in the scope of enforcement actions.”