Gary Gensler in Line to Chair the SEC Under Biden: Implications for Issuers
By Steve Soter
These days in Washington, every policy announcement and appointment is dissected as hugely significant if not revolutionary. It’s just a fact of life in this seemingly endless pandemic, in this hammered economy, after this presidential election.
Amid that hyper-analysis, it’s nonetheless time for reporting professionals to take a deep breath and put President Biden’s nomination of Gary Gensler as SEC chair in realistic context. If you take early press coverage as gospel, Gensler is nothing less than the tough-as-nails new sheriff riding into town with a Dodd-Frank style of lawmaking.
Well, maybe. But it’s worth remembering how often presidential nominees believe popular expectations once they actually start doing their jobs and running their department bureaucracies. Only a couple of years ago, some Republicans were surprised when then-SEC Chair Jay Clayton did not pursue President Trump’s agenda as aggressively as they had expected.
Hopefully I’ve made my point that predictions are very difficult, especially when it comes to the future. Let’s look at the implications for rulemaking professionals of the Gensler appointment (and remember, Senate confirmation hearings still await).
What Stands Out On Gensler’s Resume
First, some relevant facts from Gensler’s background:
- He’s an ex-Goldman Sachs top partner who chaired the Commodity Futures Trading Commission (CFTC) from mid-2009 until early 2014, during the Obama administration. He also served as a Treasury under secretary and assistant secretary during President Clinton’s second term.
- As an Obama-era regulator, Gensler helped craft the Dodd-Frank financial reform law and swiftly implement it through rulemaking. Still, the Obama administration took a lot of public heat for not responding to the financial crisis with enough toughness.
- He was known as a demanding boss at the CFTC, and his management style was a factor in a staff unionization push.
- Lately Gensler has headed the Biden transition team’s Federal Reserve, Banking and Securities Regulators agency review team.
Popular Expectations For Gensler’s Priorities
Given Gensler’s reputation as a regulator who rides Corporate America hard because he knows how it operates, and given Biden’s progressive support, expectations are the (likely) new SEC chief wants the agency to:
- Approve rules calling for more detailed company disclosures, in contrast to Clayton’s preference for principles-based reporting
- Unwind various principles-based rules implemented under Clayton
- Mandate new Environmental, Social and Governance (ESG) disclosures using a widely accepted framework, such as the Sustainability Accounting Standards Board’s (SASB)
Domino Effect From The SEC To The PCAOB
Also, don’t forget that the SEC names the PCAOB’s board and approves its rules, and the two staffs try to move in lockstep on audit and corporate regulation whenever possible. If a Gensler-led SEC emphasizes, say, climate change disclosures, then it’s logical to expect the PCAOB’s agenda will reflect those priorities, too. If the SEC opts to relax corporate reporting requirements in any area, again, that viewpoint will probably find its way to the PCAOB.
Prepare For The Worst Even If You Don’t Expect It
Taking all that information into consideration, what is a logical response right now from a corporate reporting team to a Gensler regime at the SEC?
You could opt to stay the course, but complacency comes with risks, especially when you consider Gensler will appoint successors for key positions within the Division of Corporation Finance, including the director and deputy director. These new regulators will certainly reflect Gensler’s approach and philosophy.
The more prudent course is to prepare your team for potentially more rigorous SEC reviews of your filings. Similarly, start to plan for how your team would comply with mandated ESG disclosures. (It might be a good time to identify who in the company can provide reliable tonnage figures for greenhouse gas emissions!)
It’s easier to dial back an upgraded compliance effort later than to hastily react to a new SEC rule.
Giving Your Viewpoint On The SEC’s Direction
New regimes come and go at the SEC. It’s smart to consider the new chair’s history, but don’t assume predictions will be perfect.
What do you think the future holds with Gary Gensler at the helm of the SEC? Make sure you are logged in as a member of SEC Professionals Group and then join the discussion at the bottom of this blog. Our voices and practical experiences can help shape rules and their application.