By Cydney Posner
Yesterday, SEC Chair Mary Jo White gave the 14th annual A. A. Sommer, Jr. lecture at Fordham Law School. http://www.sec.gov/News/Speech/Detail/Speech/1370539864016#.Uk7jN4amiSo Her selected topic was "The Importance of Independence." As part of lecture, she walks us through the decades, providing various illustrations of the SEC's maintaining its independence from political influence. What was most striking, however, was her call for respect for the SEC's independence from those outside the agency -- industry, other agencies, Congress and the courts – particularly with directives from Congress and others that require the SEC to stray from its core mission and expertise:
"That independence – and the agency's unique expertise – should be, for example, respected by those who seek to effectuate social policy or political change through the SEC's powers of mandatory disclosure. Disclosure is indeed a key ingredient in the securities arena. It gives investors the information they need about their investments. It provides them with information about the operations, management and financial condition of the companies they invest in. And, it allows informed investors to participate in a free and fair market."
However, she agreed with others that "there are also costs associated with mandatory disclosure and ‘too much disclosure can be counterproductive.' Commissioner Sommer also frequently expressed concern about the increasing ‘quantity and complexity' of disclosure. Their concerns resonate with me. When disclosure gets to be too much or strays from its core purposes, it can lead to "information overload" – a phenomenon in which ever-increasing amounts of disclosure make it difficult for investors to focus on the information that is material and most relevant to their decision-making as investors in our financial markets. To safeguard the benefits of this ‘signature mandate,' the SEC needs to maintain the ability to exercise its own independent judgment and expertise when deciding whether and how best to impose new disclosure requirements. For, it is the SEC that is best able to shape disclosure rules consistent with the federal securities laws and its core mission. But from time to time, the SEC is directed by Congress or asked by interest groups to issue rules requiring disclosure that does not fit within our core mission." [emphasis added]
It appears that White views Dodd-Frank, and some of its more prescriptive mandates, as just such an example: "some more recent disclosure directives from Congress have been quite prescriptive, essentially leaving no room for the SEC to exercise its independent expertise and judgment in deciding whether or not to make the specified mandated disclosures…. The Dodd-Frank Act is, of course, a landmark piece of legislation that is designed to address the causes of the financial crisis and reduce the likelihood it will happen again. And most of the more than 90 rulemakings and studies required of the SEC relate to that overarching purpose and our core mission…. But other mandates, which invoke the Commission's mandatory disclosure powers, seem more directed at exerting societal pressure on companies to change behavior, rather than to disclose financial information that primarily informs investment decisions. That is not to say that the goals of such mandates are not laudable. Indeed, most are. Seeking to improve safety in mines for workers or to end horrible human rights atrocities in the Democratic Republic of the Congo are compelling objectives, which, as a citizen, I wholeheartedly share. But, as the Chair of the SEC, I must question, as a policy matter, using the federal securities laws and the SEC's powers of mandatory disclosure to accomplish these goals." [emphasis added.]
Clearly, however, when a federal statute mandates rulemaking, the SEC cannot just "say that a law does not comport with our mission as we see it, and ignore a Congressional mandate." Instead, in that case, the SEC must "write the rule in a way that best comports with our view of our mission and tries to mitigate the costs, so long as we faithfully carry out Congress' mandate."
Nothing to stop her from making speeches about it though. Here, she urges that the SEC, "as an independent and expert agency, … be accorded the freedom and respect by Congress to fully exercise our disclosure authority to further the mission that is so vital to the capital markets and investors."