From the moment the SEC was charged with drafting disclosure regulations to implement Dodd-Frank Section 1502 (the conflict minerals provision) members of the agency have voiced their unhappiness with being handed the task. At a recent speech at Fordham University School of Law SEC Commissioner Gallagher once again bemoaned the mandate, along with others.
- To be blunt, many, if not most, of the 100 mandates imposed upon the Commission by the Dodd-Frank Act do not by any measure represent the best use of the Commission’s time and resources. Most obviously, whether one views the SEC as a disclosure agency or an enforcement agency, sociopolitical issues such as conflict minerals and extractive resources, while perhaps worthy of attention by the right entities, should not be part of the SEC’s agenda. Rulemakings for such issues contribute neither to the maintenance of fair, orderly, and efficient markets, nor the facilitation of capital formation, nor investor protection. They are the creations of special interest groups every bit as strong as K Street lobbyists, and they severely sap the finite bandwidth of the SEC. As Chair White rightfully noted in this very same venue last year, “[T]he independence of the agency . . . should be respected by those outside, including the industry, other agencies, Congress and the courts. 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.”
Commissioner Gallagher suggests that “[c]ritics of the SEC should focus their attention on whether the SEC is tasked with the right duties.” But is isn’t criticism of the SEC that leads many, myself included, to argue that conflict minerals disclosure should not be regulated by that agency. As noted by Commissioner Gallagher “the SEC faces a crushing burden of Congressional mandates that will interfere with our blocking-and-tackling work for years to come if we let them….“Why isn’t there more scrutiny of how we spend our time?”
The real question is one of allocational efficiency and agency competency. Why do all the vast majority of disclosure regulations seeming automatically get placed on the SEC’s agenda? It is certainly true that the agency has strong competencies in the disclosure realm—but only when such disclosures pertain to its core mission—that of maintaining free and fair markets. Social and political issues are not with the purview of the SEC and they are not the best suited to regulate them—despite constant pressure on the agency to do so—pressure that is currently being strongly exerted in the area of corporate political spending.
Commissioner Gallagher proposes some solutions to the problem of overburdening the SEC.
- First, we need to affirmatively engage Congress and the Administration and work with them to remove the useless or counterproductive elements of the Dodd-Frank Act. The emphasis is on affirmatively engaging – we cannot remain passive observers, speaking only when spoken to by policymakers, and expect to succeed in reforming Dodd-Frank. Second, we need to become a savvier agency – specifically, an agency that serves as an efficient overseer of the capital markets and an aggregator and analyzer of critical market information through the better use of technology. Finally, we need to affirmatively engage other regulators and relevant policymakers in the critical policy debates of the day – and for that matter, of the past five years. I have been doing so since the beginning of my term and have found that most stakeholders are receptive to our participation in such debates. We can learn from their perspective, and they from ours.
These are not radical suggestions—but if the convolute history of the conflict minerals rule is any indication, they are not likely to come to fruition any time soon.