01 Dec 2021 Gary Gensler’s Politicized, Biased & Rigged SEC
Gary Gensler, the relatively new chairman of the U.S. Securities & Exchange Commission (SEC), is reputedly a thrustingly ambitious political climber who ultimately has his eyes on Treasury, and so is using the SEC spot to audition for party leaders. He’s also without question a wild partisan of the hard left. The result, already, has been an SEC that consistently takes steps that will render it – and securities regulation in America – more politicized, biased and rigged.
Recall, as has been considered in this space before, that even before his arrival, the SEC staff had demonstrated comprehensive bias against the relatively few right-of-center shareholder proposals that are submitted each year. For instance, it ruled without any explanation at all that companies could not omit shareholder proposals that sought information about company efforts to ensure diversity based on race, sex and sexual orientation, but could omit proposals that sought the very same information about viewpoint diversity. It forbid companies to avoid left-wing proposals that asked about political and trade-group spending, but allowed the exclusion of substantially similar right-of-center proposals asking about charitable giving – apparently agreeing that while left-wing proposals may criticize right-of-center organizations, the reverse was impermissible. And so on, and so on.
Then, almost as soon as Gensler arrived, he announced that the SEC would not enforce a rule passed in 2020 that would have required just a minimal amount of disclosure and reporting from firms that advise investment houses about how to vote the proxies that they control on behalf of their investors – the people whose money bought the stocks and the proxies. The two big proxy advisors are ISS and Glass Lewis. They uniformly make left-wing, politically informed recommendations. Though the SEC’s remit is to mandate disclosures of information for the benefit of investors, such disclosures in this instance would reveal that the proxy advisors are acting to help left-wing political causes, not to advance the financial interests of investors. And so politics again came before duty, and the valid rule was ignored.
Next Gensler and his left-wing commissioner majority approved the Nasdaq-proposed rule that requires Nasdaq-listed companies either to set aside board seats on the basis of race, sex and sexual orientation – which violates the Constitution – or to explain why they decided to stick with merit instead of adopting racism and sexism. The rule also violates the authority of both the SEC and Nasdaq, but that failed to slow down Gensler at all.
And now Gensler’s SEC majority has proposed a rule that would increase the reporting requirements for investment houses when those houses vote the proxies of shares whose ultimate beneficial owners are not the houses themselves, but the people who invest in their mutual funds or exchange-traded funds (ETFs).
This could have been a very good rule indeed. Investors who use mutual funds and ETFs should know the way that investment houses are voting the proxies attached to their investments, and they should know the grounds on which those proxies are being cast. A sensible, unbiased rule that fit within the SEC’s mandate to provide information for investors would be grounded in the concerns of those investors, and the information provided would be organized in a way that responded to those concerns. The mandatory disclosures would require investment houses to explain the basis on which they concluded that casting the proxy as they did works in the best financial interests of the relevant company, and the research on which they relied to make that decision.
After all, the people who run investment houses are not permitted to substitute their personal policy preferences for the best interests of investors – whatever Larry Fink (BlackRock) and Ron O’Hanley (State Street) may think. So they should prove their fidelity to their fiduciary responsibility, and the SEC would be right to require such disclosure.
The rule could be capacious enough to account for ESG-specific investing. An exception could be made for explicitly ESG-related funds, so that, say, the proxies arising from an explicitly zero-carbon fund could be voted in favor of climate-hysteric proposals without regard to the long-term pecuniary effects likely to arise from those proposals. And that sort of carve-out and reporting could also ultimately account for funds committed to right-of-center priorities, as investors found themselves able to understand investment-house thinking and demand investment options that fit their desires, too.
But, of course, exactly because that is the rule that an unbiased and honest SEC would promulgate, it’s nearly the reverse of what Gensler’s majority has proposed. Rather, his rule doesn’t require the investment houses to reveal anything at all about how they concluded that the way they exercised their investors’ proxies comported with their fiduciary duty. And the mandatory reporting categories don’t spring from an honest study of ultimate investor concerns, but rather look back only at a single year of shareholder proposals, and investment-house responses to those proposals. And the year the SEC picked is 2020, a year in which it employed its then-new, opaque, discretion-laden evaluation process to corruptly exclude every right-of-center shareholder proposal that came before it.
As written, the rule would not provide investors with the valuable information they need, but would just offer the woke mob more opportunities to threaten yet more targets into toeing its discriminatory, socialist line. Hard to conclude that’s not exactly the point.
If you’d like to comment on this rule, the text of which is here, you can do so here. The more honest comments are submitted, the harder it will be for this partisan, ineffective rule to survive judicial review.
The comment period closes on December 14th.