Previous posts have discussed in detail the conflict minerals rule promulgated by the SEC in order to implement Section 1502 of Dodd-Frank. I noted in those posts that the SEC did not want to take on the task of crafting disclosure regulations aimed at ended conflict in the DRC, not because it in anyway disagreed with the aim of the regulations but because it questioned whether the SEC is the appropriate body to be tasked with that mission. At the time the rule was under consideration then SEC Chair Mary Shapiro acknowledged that the Commission lacked expertise on the mining of conflict minerals and the disclosure matters mandated by the statute.
Now Chair Mary Jo White is sounding the same note. In a speech at Fordham the Chairwomen contrasted the method of implementation of the conflict minerals provision with an attempt in the 1970’s by the SEC to implement a Congressional mandate that federal agencies consider environmental values as part of their regulatory missions. The SEC responded by requiring certain environmental disclosures by way of a lengthy implementation process. What is critical is that thought the process the SEC maintained flexibility to respond to comments and concerns because the Congressional directive the SEC was acting under left discretion to the SEC to act creatively and in a manner it felt best accomplished the statute’s general goal. In contrast, according to Chairwoman White Section 1502 of Dodd-Frank was “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.”
In addition to noting the lack of flexibility recent Congressional mandates have afforded the SEC, Chair White voiced a broader concern that this author and many others have long been stating. She recognizes that the SEC cannot ignore statutory mandates directing the agency to engage in rule-making.
As a prosecutor, I recognize that when Congress and the President enact a statute mandating such a rule, neither I nor the Commission has the right to just say “no.” We cannot say that a law does not comport with our mission as we see it, and ignore a Congressional mandate. We cannot put it in a drawer or tuck it away. That would be impermissible nullification of the law and independence run amok.
However, she questions the wisdom of placing such a responsibility on the shoulders of the SEC, noting that the Congressional mandate in regard to conflict minerals seems
“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.
I could not agree more. The SEC is being charged with ever expanding disclosure regulation obligations, some of which relate closely to the stated mission of the agency and seem logical for the agency to take on. Others, like conflict minerals as well as others, have little to do with the core mission and would be better handled by other entities. More disclosure is not the answer to all societal problems—instead, as noted by former SEC Commissioner Troy Paredes, it can lead to information overload and investor ennui. Congress should be more thoughtful when considering disclosure as a panacea and if it concludes that disclosure is the answer, should more carefully allocate responsibility for it.