Biden’s SEC Chair Must Hunt

By Bartlett Naylor

America’s Wall Street watchdog, namely the Securities and Exchange Commission, has spent the Trump administration snuggled on the laps of securities firms. In the Obama years, the SEC didn’t bark much either.

The Biden administration must ensure his or her canine pedigree.

Biden’s chair must bring hands-on experience with securities law policy, an investor perspective, and a willingness to engage stakeholders beyond the corporate sector. Much must be repaired from the Trump years.

Trump’s SEC Chair Jay Clayton led a frontal attack on investors, betraying the first mandate of the SEC. Over the abiding objections of the Democrat-aligned minority of commissioners, he approved new limits on the ability of shareholders to bring important resolutions before a corporation’s annual meeting. Clayton’s SEC has muzzled the advisors to institutional investors who vote on thousands of issues before those meetings, a move that ideally won’t survive a court challenge. And his commission approved a broker conduct standard that allows them to fleece investors under a gallingly titled rule called Regulation Best Interest.

The new chair must be experienced in the depravity of these policies and understand the Administrative Law complexities that can undo this damage and establish real reform.

Meanwhile, the new chair must address neglected urgencies, such as the need for disclosure on environmental, social and governance (ESG) issues. Climate change constitutes a sweeping material risk for every corporation. Consistent, comparable reporting metrics must be devised and required. Even the Federal Reserve acknowledges the gravity of climate change with its welcome decision to join the Network of Central Banks and Supervisors for Greening the Financial System.

Political spending disclosure, which received a record-breaking 1.2 million petition comments, must finally become a reality.  As Sen. Bob Menendez (D-N.J.) said, “Dark money infesting our democracy has gone on long enough. … Corporations and powerful special interests have been secretly spending huge sums of ‘other people’s money’ to influence our elections. . …Shareholders – not corporate executives – should be making the call about whether or not they want their money spent on political campaigns.”

The Biden SEC chair must also reverse the drift toward private capital. The SEC’s primary policy tool remains disclosure, but with most new capital going to private firms, investors are left in the dark about how these funds are deployed. Depriving investors and the public of essential information and rights is not only a recipe for fraud, but it is also leading to a massive misallocation of resources.

And the Biden SEC chair must insert teeth in its enforcement division. In 2019, for example, the SEC brought the fewest cases on insider trading since 1996. Penalties have dropped. Manipulations by firms during the pandemic dramatize the need for swift SEC response.

Finally, stock buybacks also demand reform. After relaxation of an anti-manipulation rule, corporations have spent far more on buybacks than the bailout funds approved by Congress to address the economic calamity caused by the pandemic. Why? Then SEC Commissioner Robert Jackson found “there is clear evidence that a substantial number of corporate executives today use buybacks as a chance to cash out the shares of the company they received as executive pay. We give stock to corporate managers to convince them to create the kind of long-term value that benefits American companies and the workers and communities they serve. Instead, what we are seeing is that executives are using buybacks as a chance to cash out their compensation at investor expense.”

America deserves capable, diverse leaders policing our securities markets, but the country does not deserve any chief who puts the interests of Wall Street ahead of Main street.