When senior government agency officials return to the private sector, they generally do so with a minimum of controversial comment. Whether this is due to concerns over the ways that overtly partisan statements might impact the person’s future endeavors, or simply the nature of the agency process, which often requires collegiality and cooperation even among those with strongly disparate viewpoints, departures are usually moments for reflection on what was achieved during the person’s tenure, and opportunities to declare how much she or he appreciates the opportunity to have been involved in matters of significant importance to the public at large, or at least a particular segment thereof.
Departing SEC Commissioner Daniel Gallagher, however, seems to be taking a different approach. Rather than simply saying how much he enjoyed his tenure as a public servant, and perhaps lobbying gently for a few unfinished matters he considers important, Commissioner Gallagher has expressed his views on several key issues with unusual candor.
For example, in April, just a few weeks before his departure was announced, Commissioner Gallagher gave a speech at a University of Virginia School of Law symposium in which he discussed efforts to “reform” regulation of the asset management industry. He said: “For more than seven decades, the 1940 Acts have enabled the SEC to fairly and effectively oversee the asset management industry in a manner consistent with our statutory mission. Unfortunately, as is so often the case, Washington hates a good success story.” He went on to warn that “the asset management industry has become a target of both the prudential regulators who performed so poorly—and the policymakers who kept their foot on the credit bubble gas pedal—in the years leading up to the crisis.” A week later, he referred to the Dodd-Frank Act as “a single party, runaway train of legislation” that “policymakers and special interest groups backed up their dump trucks to fill…with decades’ worth of pent-up wish list items,” and “laden with ill-defined, socially and politically motivated rulemaking mandates.”
In a July speech Commissioner Gallagher warned that SEC shareholder proposal rules were “being abused by special interest groups to advance idiosyncratic goals” through proposals “which can touch on any of a wide range of issues, including immaterial social and political matters.” He even likened the SEC to Bill Murray’s groundskeeper character in the movie Caddyshack, musing that “[m]aybe this is due to our relentless pursuit of the many gophers in the Dodd-Frank Act over the last five years!”
Later that month, he sent a letter to the Department of Labor commenting on its proposed conflict of interest requirements for retirement investment advice, declaring that the DOL rulemaking was a “fait accompli,” the comment process “merely perfunctory,” and the proposal itself proof “that the nanny-state is alive and well.” He accused the DOL of “brazenly” dismissing “suitability as a proper standard of care for brokers and the FINRA arbitration system as a mechanism to resolve disputes” and called the rule “good for plaintiffs’ lawyers, bad for investors.”
So it was no surprise that just yesterday, at an SEC open meeting, Commissioner Gallagher announced his opposition in no uncertain terms to the SEC’s adoption of a Dodd-Frank mandated rule requiring public companies to disclose the ratio of annual total compensation of CEOs to the median annual total compensation of all employees. In a scathing criticism, he characterized the new rule as “nakedly political,” hijacking SEC disclosure rules to effect social change desired by ideologues and special interests. He even borrowed a phrase from Supreme Court Justice Antonin Scalia, referring to the rule as “pure applesauce.”
Perhaps the reference to Justice Scalia is appropriate. Justice Scalia’s dissents have long been known for the blunt, forthright manner in which they criticize Court opinions with which he disagrees. In a similar vein, Commissioner Gallagher noted that some supporters of the new disclosure rule openly stated that their goal was “shaming” companies into lowering CEO pay, and called it “the most useless of all of our Dodd-Frank mandates, and this is saying something.” He even suggested that the rule, as drafted, raises Constitutional issues.
Commissioner Gallagher closed by noting that every Commissioner hopes to leave things a little better than they were when they joined; however, because of matters he characterized as “outside my control,” he was not able to say that. He noted his 16 “NO” votes to Commission proposals over his four-year tenure, “which I think is a Commission record.” He saw this as a “hollow legacy” but nonetheless defended his actions by pointing out that many of those rules “degraded the capital markets” and were driven by considerations outside the SEC’s mission.
It will be interesting to see if this kind of public frankness will catch on at the SEC, or with other agencies. In yesterday’s meeting, Commissioner Michael Piwowar’s comments were only slightly more politic than Commissioner Gallagher’s. He characterized the rule as a “[s]ad example of surrendering the Commission’s mission” to “special interests” and noted that giving in to “bullies” only makes them bolder.
Perhaps this level of sturdy commentary will continue, and perhaps it will lead to regulations more closely attuned to the SEC’s mission: “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” Only time will tell. There is a risk, of course, that if the comments become too caustic, they will detract from the message being delivered; but it certainly isn’t a bad thing to know where the country’s chief policy makers stand on critical issues.