06 Apr 2023 Scott Shepard: A Failed SEC Must Be Wholly Rebuilt From the Ground Up
It’s hardly news that Gary Gensler’s Securities & Exchange Commission (SEC) is partisan and corrupt in ways that resemble other Biden-era agencies, such as Lina Khan’s Federal Trade Commission (FTC) and the blackshirted FBI goon squad led by the execrable Merrick Garland, but that are otherwise rarities of egregiousness in American history. Today, with your forbearance, I’ll shed a little light on the little part of the SEC I know best, to let you see its partisan corruption, aided and abetted by opaque and lawless processes and absolute insouciance about fidelity to duty.
Scott Shepard
The relevant area is the SEC staff’s review of shareholder proposals – proposals submitted by shareholders of corporations for inclusion on those companies’ annual proxy statements, to be voted on by the rest of the shareholders. Technically the process is one in which the staff issues letters saying whether the SEC will or will not sue a company if it excludes from its proxy statement the proposal under review. In fact, it is the process by which the SEC staff approves or rejects shareholder proposals, since suing companies to force them to include shareholder proposals on ballots is cost-prohibitive in all but extraordinary cases.
So how does the SEC staff conduct this process? Illegally and with partisanship, of course!
Shareholder activism has been almost entirely the province of the left for the last forty years. The old corporate-hating, union-loving left “demanded” that companies increase wages and reduce productivity in the name of protecting the working man at the expense of the “greedy” investors – you know, the ones who had worked and saved in order to create the capital that the companies needed to function, and thus to provide employment for those working men.
In more recent times, the left has shed its interest in working people in general in favor of instituting the New Discrimination, crushing the living standards of the working and middle classes in quixotic pursuit of decarbonization, and destroying society by enacting wokeness. And so modern day leftist shareholder activists submit proposals demanding that companies conform themselves to the ever-tightening decarbonization schedules of the UN and related leftwing organizations; discriminate on the basis of race and sex to achieve artificial equalities of outcomes; stop funding politicians who had the temerity to expect Antifa terrorists to be treated at least as severely as the January 6th dimwits; and so much more.
The SEC staff, sharing the woke neuroses of these leftwing activists, has done everything it can to open the floodgates to these sort of proposals. In late 2021 it changed the rules to greenlight any proposals that raised a matter of “significant public policy concern,” without defining at all how it would determine what constituted such matters. Since then virtually all leftwing shareholder proposals have swept through to make it on proxy ballots.
Not so for the relatively few right-of-center shareholder proposals. Just this year the staff has declared that banks and credit-card companies tracking legal gun-store purchases doesn’t constitute a matter of significant public policy concern, despite the fact that Amalgamated Bank came right out and declared its intention to collude with government to use this tracking facility to target legal gun purchasers, while at always-dishonest Bank of America a whistleblower revealed that the same thing was going on secretly. This tracking and unconstitutional collusion set off a firestorm that under any conceivable definition qualified as a demonstration of significant public policy concern. Unless the decision were made illegally, as it was by the SEC staff. To make the corruption starker: just a year before, the staff had waved through a proposal from the left that was focused on potential corporate complicity in creating ghost guns. What?
Similarly, the nation has been convulsed by concern, horror and revulsion at the ways in which corporations are discriminating on the basis of viewpoint: censorship by social and traditional media companies against conservatives; technologies rigged to favor leftwing views over those of the center/right; banks refusing to do business with right-of-center groups or people; leftwing political positions celebrated throughout corporations while center/right ones are verboten. This is, in fact, one of the single most significant and heated public policy concerns of the last half decade and more. Unless you’re the corrupt SEC staff, of course. According to them, nothing to do with viewpoint discrimination raises any issue of public policy significance, whether it be raised in the context of employment discrimination, debanking, company censorship, collusion with government, or in any format.
According to the SEC staff, something isn’t a public policy concern unless the loons at MSNBC are concerned. Then it’s of the highest national importance.
The staff’s processes are entirely designed to abet and to hide, so far as possible, this coruscating bias. When it makes its decisions, the staff does not provide a decision and explanation, the way courts do and that administrative tribunals acting within the law are supposed to. Rather, it offers simply a one sentence declaration of the ground on which it has approved or rejected the proposal. Hence, when the staff reaches obviously false conclusions such as that viewpoint discrimination isn’t a policy concern for vast swathes of the public, it doesn’t even try to justify its position. And while review by the SEC Commissioners is theoretically available, the SEC staff has arrogated to itself the power to decide who may be granted that review. Of course it denies review in any proceeding in which it has decided on biased grounds, even when the questions at issue in the proceeding include whether the staff has the legal authority to be making these sorts of exclusion decisions at all.
An administrative agency’s staff making decisions without any explanation and then barring any higher review of its obviously biased and illegally opaque process: sheer and blatant corruption.
Civil-service reform late in the 19th century and the progressive fetishization of administrative expertise in the early 20th depended on the notion that the administrative state could be filled with unbiased actors who were genuine experts in their fields. Instead, we’ve gotten political hacks posing as experts while breaking every rule, regulation and standard in sight to intrude their policy preferences throughout American life. And since the calamity of public-sector unionization has intruded, these hacks – who above all want to increase their own power to run other people’s lives according to their own policy preferences – have become horribly hard to remove.
This is a failed system. It has to be demolished – root and core and brains. Gary Gensler had the temerity to go to Congress recently to ask for billions more in funding for the agency so that it can begin a new partisan crusade against crypto. Um, no. In fact, no further funding for the SEC should issue at all until it has been effectively abolished and rebuilt from the ground up. That, of course, will take some time and probably a different distribution of power in the elected branches in Washington.
In the meantime, though, the House should at least zero out any funding for any SEC staff review of shareholder proposals. Corporate law is properly a state-law issue, not a federal one. The House can, and should stop this corrupt SEC intrusion into state business entirely, especially given how thoroughly the SEC staff has proven that it can’t be trusted with it.
Scott Shepard is a fellow at the National Center for Public Policy Research and Director of its Free Enterprise Project. This first appeared at RealClearMarkets.