Today, the Senate, by a vote of 53 to 45, confirmed Gary Gensler as SEC Chair—for a little while anyway. Presumably, he will be sworn in in the next several days. The current SEC Commissioners offered their congratulations here. The pivot from the approach taken by former SEC Chair Jay Clayton on issues such as adoption of standardized mandatory climate disclosure and other ESG disclosure issues could be head-spinning, so stay tuned.
Interestingly, the confirmation was only for the remainder of Clayton’s term, which ends June 5, 2021. Hmmm? That’s only a couple of months (although, under current SEC rules, he would be able to hold over for approximately 18 months after his term expired if he were not replaced before then). Are they just giving him a try-out? No, rest assured, there is a separate calendar item for his “reappointment” for a term expiring June 5, 2026, which was the duration approved 14 to 10 by the Senate Committee on Banking, Housing and Urban Affairs. But that does mean that there will need to be a separate vote to confirm his reappointment, which apparently is the current plan. Hopefully, wiser heads than mine will be able to explain the significance of confirmation for only this abbreviated term. [Update: the Senate has now confirmed his reappointment.]
Preceding the vote, yesterday, there was a brief debate about the nomination. Senator Pat Toomey reiterated his concern, expressed at length during Gensler’s hearing before the Senate Committee, that Gensler’s view of materiality was divorced from Toomey’s concept of “financial” materiality (see discussion below). He was also concerned that Gensler would lead the SEC to use its regulatory authority to advance a liberal social agenda. He voted against confirmation. Senator Sherrod Brown, an advocate for Gensler’s confirmation, said that Gensler was “an experienced public servant with a strong record of holding Wall Street accountable. And he will lead the SEC at a time when it’s become more and more obvious to most people that the stock market is detached from the reality of working families’ lives.” In addition, Brown said that Gensler “has shown he will take on bad actors—no matter how big and powerful they are—and hold them accountable.”
What to look for in the next two months? Five years? Gensler’s testimony at his hearing may provide useful insight into what to expect. For example, at the hearing, Toomey asked, if a large public company reported revenues of hundreds of billions of dollars, and it spent a million dollars on political issue ads, should disclosure be required? Gensler responded that the question is what information reasonable investors are seeking to make voting or investment decisions, and last year, in their proxy votes on shareholder proposals, a large proportion of shareholders said that political spending information would be material. So, even though the amount of spending is completely insignificant, Toomey asked, did he think it could be appropriate to mandate that disclosure? Gensler replied that he would be grounded in economic analysis and the courts’ views of materiality as the information reasonable investors want to see as part of the total mix of information. Why not leave it up to the companies to decide, Toomey asked? Gensler repeated that it’s a really a question of investors making the choice about the information they want. He later reiterated that he considered the 80 shareholder proposals submitted last year on the topic and the 40% vote in favor as a strong indicator. In light of that level of investor interest, political spending disclosure was something he thought the SEC should consider. (Note, however, that Section 631 of the most recent appropriations act, the ‘‘Consolidated Appropriations Act, 2021,’’ prohibits the SEC from using any of the funds made available “to finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions, contributions to tax exempt organizations, or dues paid to trade associations.” Accordingly, some action by Congress would be necessary to enable the SEC to adopt political spending disclosure requirements.)
In addition to addressing political spending disclosure, Gensler indicated during his Committee hearing that investors with tens of trillions of invested assets are seeking information about climate risk, and the SEC has a role to play to bring comparability and consistency. In addition, issuers could benefit from standardization and the clarity of guidance. Gensler said that, based on good economic analysis and public feedback, he would work with the staff on a rulemaking on climate.
With regard to diversity, Gensler noted that diversity enhances decision-making and that information about human capital was important to investors. The SEC previously adopted amendments for human capital disclosure, but, he noted, the information that investors want to see in human capital is evolving.
Given that Gensler has taught courses about digital assets at M.I.T. in the last few years, cryptocurrency is also a topic likely to be on the table. In the digital asset space, Gensler said he would be “technology neutral,” but recognized the challenge of ensuring investor protection in that context. Gensler said that he thought more guidance would be helpful to provide clarity to market participants, even if sometimes it’s a “thumbs down.”
Other possible issues relate to market structure, conflicts of interest and payment for order flow. (See this PubCo post.)