For those of us who are unhappy or worse about the outcome of the 2024 presidential election, fearing (among other things) that we are about to enter a modern incarnation of the dark ages, I respectfully suggest that the time has come to light a candle rather than curse the darkness.
The candle is rather limited and simple: whatever else may happen during the next Trump administration, there’s a fair chance that those of us who practice securities law will find the SEC a lot more pleasant (or less unpleasant) to deal with.
Let’s face it – the SEC under Chair Gary Gensler has been difficult. I will try to take the high road by simply saying that under his leadership the SEC has been dismissive if not downright scornful of the issuer community when it comes to both rulemaking and enforcement.
There are many examples on the rulemaking side, but my favorite (so to speak) was the decision to require quarterly disclosure of corporate stock buybacks on each day during the preceding quarter. Perhaps we were supposed to be grateful that the original proposal – to file reports of each day’s buyback activity – was dropped in favor of the quarterly disclosure requirement. However, from my perspective there was no rational purpose to that disclosure, with the possible exception of giving academics the ability to conjure up correlations between buyback activity and other “nefarious” activities by corporations and their executives and directors. Fortunately, the final rules were thrown out by the federal courts.
But there are other examples, such as the climate disclosure rules. Of course, the rules are astonishingly broad and prescriptive (and in that regard I urge you to read the dissent written by Commissioner Hester Peirce, entitled “We are Not the Securities and Environment Commission”). But to make it even worse, as noted in an earlier posting, I cringed when an SEC official said, in response to an expression of concern with the broad scope of the rule proposal, that he believed investors “might” want those disclosures. There are few statements that annoy me as much as that one. Of course, investors “might” want those disclosures, but many companies 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 was the SEC listening to?
There are several or perhaps many other examples, but let’s move on.
On the enforcement side, I can point to a number of actions and trends that have caused me concern. For one thing, the SEC has focused on actions alleging failures to maintain adequate disclosure controls and procedures. I have no inside information, but I suspect that these became popular because no system of controls and procedures is perfect; find just one defect and get a cease-and-desist order and a civil penalty! In one such case the SEC imposed a $35 million civil penalty on a company charged with inadequate disclosure controls and procedures even though no disclosure deficiency was found. Another troubling enforcement decision cited a company for inadequate disclosure controls and procedures because unauthorized individuals were able to access the company’s information systems. There may have been a problem there, but why and how did that become a disclosure controls matter? The list goes on and on; a search of the phrase “Commissioner Peirce enforcement dissents” will pull up lots of them. (In case you haven’t guessed, I’m a fan, even when I disagree with her views.)
The current iteration of the SEC has made other questionable decisions, such as its refusal to consider an “Issuer Advisory Committee” (similar to the Investor Advisory Committee), a proposal that the Society for Corporate Governance has made year-in and year-out, and its reversal of actions taken by the Commission during the first Trump administration to level the playing field between companies (on the one hand) and investors and proxy advisory firms (on the other) in the shareholder proposal arena.
But let’s go back to lighting that candle….
I cannot guarantee that the SEC in Trump 2.0 will be great or even good, but it did pretty well in Trump 1.0. Aside from the aforementioned shareholder proposal rules, the Commission took a number of sound, practical actions that, to my mind at least, didn’t offend the principles of full and fair disclosure and were helpful. One example that comes to mind was the requirement to provide hyperlinks to previously filed exhibits; that’s one that benefited investors (and even securities lawyers) without placing undue burdens on companies.
I’ve seen the list of possible SEC chairs, and – to be honest – I’m not thrilled with some of them. But at this point, at least, I’m not prepared to favor the devil I know.