In a series of recent speeches, Mary Jo White provided a window into how she is approaching her relatively new job as head of the Securities and Exchange Commission. These speeches--one on market structure, one on SEC independence, and one on enforcement--signal some good and some not-so-good developments at the SEC.
On the positive side, Ms. White has shown an understanding for the limits of her agency and a sensitivity to its failures. She raised questions about the propriety of using SEC disclosure as a means for "exerting societal pressure on companies to change behavior, rather than to disclose financial information that primarily informs investment decisions." She noted the troubling trends of decreasing numbers of public companies and falling participation in the equity markets by U.S. households and called for an evidence-based, transparent rethinking of structural and regulatory issues that might be contributing to those trends.
Now for some of the negatives. First, the speeches suggest that the enforcement division may play an outsized role in Ms. White's SEC--a revelation that might not be surprising in light of her background as a prosecutor and defense lawyer. The SEC is not a law enforcement agency, but a regulatory agency and must take care not to make regulatory policy through enforcement actions. Ms. White advocated "creative" enforcement, which too often in the agency's past has been a euphemism for making up regulatory requirements through an after-the-fact enforcement action. Second, while Ms. White correctly underscored the independence of SEC commissioners, she did not take the concept far enough. Specifically, SEC commissioners, as the agency's decision-makers, have an obligation to test the rigor of the staff's work and to reject the staff's recommendations when better courses of action exist. In the context of enforcement cases, that means an end to rubber-stamping staff-crafted settlements. On a related note, Ms. White goes too far in arguing that courts should exercise nearly complete deference to the SEC in reviewing enforcement settlements. Courts ought to scrutinize SEC settlements, particularly if those settlements are intended, as Ms. White suggests, to send "a strong deterrent message" to third parties.
Time will tell whether the vision Ms. White laid out in her speeches comes to pass. As former SEC chairmen have learned, events can overtake even well-crafted plans. But, Ms. White's efforts to lay out her intentions for the SEC are a commendable step.