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US Securities and Exchange Commission

Senate Set to Approve Gary Gensler Nomination for SEC Chairman, but Likely for Brief Term

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

The Senate on April 12, 2021, will consider approving the nomination of Gary Gensler for SEC chairman.

This comes about a month after the Senate Banking Committee voted 14 to 10 to advance his nomination. President Joseph Biden in January named Gensler SEC chair, who has a reputation for being a tough regulator when he led the Commodity Futures Trading Commission (CFTC) during the Obama administration.

A source familiar with the matter said the plan is for Gensler to be sworn in and seated on April 19 if the full Senate agrees by unanimous consent on April 12. Observers believe his nomination will be approved.

Only for Term Ending in June?

However, the Senate is indicating that it will vote for Gensler to serve only the remainder of former SEC chairman Jay Clayton’s term, which ends on June 5 this year, even though the banking committee had also cleared the reappointment for the second five-year term ending on June 5, 2026.

The office of Senate Banking Committee Chairman Sherrod Brown, a Democrat from Ohio, did not immediately respond to a request for comment.

It is unclear why the full Senate—according to its executive calendar dated April 5—is not voting for both terms on April 12, given that the first term ends in two months. SEC commissioners can serve up to 18 additional months, following expiration of their terms if their successors are not named.

Some observers speculated that the Senate at this juncture may have unanimous consent only for the brief first term, but not for the next term. If there is no unanimous consent, the Senate has to schedule floor time to vote on the nomination. This is expected to take more time.

There is also a possibility that Gensler would face another full Senate confirmation vote after the 2022 elections. Some believe that Republicans could take back control of the Senate. And if they do, they can wield more power over the commission, including its annual budget request. Democrats took control of the Senate after they swept the Georgia runoff elections in January.

SEC’s New Agenda Not Supported by Republicans

In the meantime, SEC Acting Chair Allison Herren Lee has been carrying out the Biden administration’s policy agenda related to climate change. And the two Republicans on the commission, as well as Republicans on the Hill, have been unhappy with the move. Gensler is likely to pursue President Biden’s policy goals.

Under Lee’s direction, the SEC has issued a slew of statements intended to tackle environmental, social, governance (ESG) issues, especially on climate change matters.

The SEC staff was instructed to enhance its review of climate-related disclosure in public company filings. Lee also directed the staff to work on updating a 2010 disclosure guidance on climate change risks. Further, examiners will also put a heightened focus on climate-related risks when reviewing investment advisers and investment companies for compliance with SEC rules. In addition, the commission created a separate enforcement task force on ESG and climate issues.

The commission’s recent actions in part respond to demands by investors for more prescriptive disclosure requirements on ESG issues. They believe the information is important for their investing and voting decisions. But the current principles-based disclosure rules go only so far as it leaves up to the companies to decide what is material for investors, they have argued.

Democrats are willing to write stricter rules, but Republicans have resisted. They say the principles-based rules rooted in the concept of materiality have worked well as each company has its own unique set of facts and circumstances. Further, they pointed out that there is no agreement on what E or S really stands for. Moreover, business lobbyists believe ESG has little to do with company’s financial performance, and providing disclosures take up a lot of time and money just for a handful of activist shareholders.

Sen. Pat Toomey, the ranking Republican on the Senate Banking Committee, has been concerned with the SEC’s push on ESG matters and asked for a briefing from Acting Chair Lee.

During the Senate Banking Committee hearing a month ago, Gensler indicated that he would consider climate risk and political spending disclosure rulemaking. Lee in a speech also said that the SEC should take up political spending disclosure rule, which is vehemently opposed by businesses, who successfully convinced Republican lawmakers to put a budget rider prohibiting the commission from writing a rule.

Business groups say the disclosure requirement is outside the SEC’s legal authority and call it an arbitrary attempt to interfere with company First Amendment rights. The rule would also impose substantial costs without justification, they say.

However, over 1.2 million individuals sent form comment letters to the commission, saying they support a 2011 rulemaking petition by 10 academics. The petition was filed following the 2010 Supreme Court decision in Citizens United v. Federal Election Commission that removed most restrictions on corporate spending on political activities.

Investor groups believe that shareholders, the actual owners of the companies, should be informed about decisions to spend their money on politics. Moreover, they pointed out that Justice Anthony Kennedy voted with the majority because he expected shareholders to be informed about corporate spending decisions.

“A campaign finance system that pairs corporate independent expenditures with effective disclosure has not existed before today,” Kennedy wrote for the high court. “With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions.”

 

This article originally appeared in the April 2, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.

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