The Securities and Exchange Commission’s partisan divide appears to be widening after the regulator’s two Republicans commissioners issued a strong statement in opposition to Democratic Chairman Gary Gensler’s regulatory agenda for the coming year.
Gensler prioritized new corporate disclosure rules on climate change risks, the diversity of board members and nominees, human capital and rules regulating the use of gamification techniques, with the goal of having proposals released by October.
Republicans in Congress are staunchly opposed to new rules that they say advance a liberal social agenda, and it’s unlikely either Republican commissioners — Hester Peirce and Elad Roisman — would vote in favor of new disclosure rules on climate, diversity or company workforce policies. But what most upsets the commission’s Republicans are plans to revisit rules adopted during the Trump administration under the leadership of former Chairman Jay Clayton.
“While there are important and timely items on the list…the agenda is missing some other important rulemakings, including rules to provide clarity for digital assets, allowing companies to compensate gig workers,” and updating rules on shareholders voting on company policies through third parties called proxies, the two wrote in a statement Monday. “Perhaps the absence of these rules is attributable to the regrettable decision to spend our scarce resources to undo a number of rules the Commission just adopted.”
Indeed, the agenda contains several proposals to revise rules adopted less than a year ago, including rules reigning in companies that provide advice on how institutional shareholders should vote on shareholder proposals, a rule mandated by the Dodd-Frank legislation that resource-extraction firms disclose payments made to foreign governments in countries where they operate and a rule that limited payments to whistleblowers that alert the SEC of wrongdoing at private companies.
The two Republicans complained that revisiting recently adopted rules creates uncertainty for the private sector around how long a controversial rule will remain on the books, which they said will stifle economic activity.
“As far as we can tell, the agency has received no new information which would warrant opening up any of these rules for further changes at this time. We are disappointed that the Commission would dedicate our scarce resources to rehashing newly completed rules,” they wrote. “Past Commissions have generally refrained from engaging in a game of seesaw with our rulebook. The inclusion of these rules in the Agenda undermines the Commission’s reputation as a steady regulatory hand.”
Concern over partisanship at the SEC has been growing since at least the Obama administration. According to a May paper by Joseph Engelberg, a professor of finance and accounting at UC San Diego’s Rady School of management, a textual analysis of all public statements of SEC commissioners since its founding shows “partisanship among SEC Commissioners is rising and is at an all-time high in the most recent period.”
The three Democratic commissioners may be emboldened to act on a partisan basis after former Chairman Clayton was able to pass his most important rules on with 3-2 party-line votes, including rules that said stock brokers needn’t meet a fiduciary standard for their clients and a rule that expanded access to private markets, which critics said lessens the incentive for companies to go public and therefore weakened SEC oversight broadly.