One of the things this Blog will do (and so will a paper I am in the process of completing) is to chronicle and discuss the role of the SEC in the corporate governance process. To many, this is a non-starter. The SEC does not regulate corporate governance; it merely regulates disclosure. The two are, of course, inseparable and, as we will develop, one cannot succeed without the other. Moreover, in the aftermath of SOX, the SEC received direct governance responsibility. Section 301 (requirements for audit committees) is only one illustration.

What is the primary role of the Commission? It has often been described primarily as the “protection of investors.” See Statement by SEC Chairman Arthur Levitt, Litigation Under the Federal Securities Laws: Hearings Before the Subcomm. on Telecommunications and Finance of the House Comm. on Energy and Commerce, 103d Cong., 2d Sess. (1994)( "The Commission's primary responsibility is the protection of investors."). As a result, whether one likes it or not, the Commission is squarely in the middle of the governance process, with the protection of investors at the core.

It seems, however, that this purpose somehow got lost in the approval process for the merger between the NYSE Group and Euronext. As the series of posts this week have shown, the merger resulted in the abandonment by the NYSE Group of some tenets of director independence; tenets previously described as necessary for the protection of investors. The NYSE Group has every incentive to do this. It is a profit making entity that wants to complete a merger with another company with a conflicting independence policy. Altering its independence policy makes good business sense.

It is the role of the SEC to make sure that the interests of investors are protected. It is hard to see how investors benefit from the presence of CEOs of listed companies and employees of foreign broker dealers on the board of NYSE Euronext. It is hard to see how investors benefit from CEOs of companies listed on Euronext or employees of foreign broker-dealers on the board of NYSE Regulation, the regulatory subsidiary.  In any event, the SEC had an obligation to at least make sure that the NYSE Group justified the abandonment of a policy that had previously been described as necessary for investors. On this, the agency failed.