Mary Jo White Comments on Deregulation and the Securities Lawyer

Mary Jo White Blog

Former SEC Chair Mary Jo White, in remarks to The Florida Bar's 36th Annual Federal Securities Institute, commented on the unmistakable deregulatory tone in Washington since she left the Commission at the beginning of 2017. She referred to an October 2017 report from the Treasury Department, which calls for the rollback of several Dodd-Frank Act provisions and the easing of other regulatory requirements, as a “useful roadmap” for use in assessing the administration’s priorities in the oversight of the capital markets.

Ms. White, now a litigation partner and Senior Chair of Debevoise & Plimpton, described the administration’s use of the Congressional Review Act to invalidate regulatory actions by administrative agencies, including the SEC’s rule on disclosure of payments made by resource extraction issuers, as “unprecedented.” The House of Representatives also passed the Financial Choice Act, a measure that the former SEC chair said would “revolutionize” financial regulation. Although a few pieces of the bill have advanced, the larger measure stalled in the Senate.

The Pushback Against Deregulation

Despite the trend toward deregulation in Washington, Ms. White suggested that there are countervailing forces to the current. She noted that state regulators have “loudly” declared their intent to step into any gaps created by a federal regulatory pullback. Institutional investors also have “considerable muscle,” she observed, and have significant input in establishing corporate governance norms beyond those required by statute or regulation. The same is true of activists, who may be more likely to target issues who take advantage of regulatory rollbacks to join in on a race to the bottom.

Despite the sound and fury of the attempts to repeal the Dodd-Frank Act, Ms. White expects the major regulatory reforms of the 2010 legislation to remain intact, with some winnowing around the edges. While it is unlikely that her signature “broken windows” approach to enforcement, which involved prosecuting and penalizing lower-level non-fraud based regulatory violations, will continue, for both strategic as well as resource allocation reasons, she remains optimistic that the SEC will maintain an aggressive enforcement program.

Informal Actions

Ms. White observed that the most significant changes in financial regulation in the near future will likely come through informal means rather than through legislation or notice and comment rulemaking. She noted that the SEC has several tools at its disposal to shape market practices in the absence of formal action. These actions include: 

  • guidance, either at the staff or Commission level, which can define the agency’s views on complex or controversial issues;
  • speeches, the “bully pulpit” where commissioners and senior staff can highlight issues and define agency positions;
  • alerts, in which the agency can inform investors of risks and threats, and avert or lessen the need for enforcement actions; and
  • §21(a) Reports of Investigation, which reflect the views of the division’s leadership on significant topics of interest to the SEC. 

As an example of effective informal action, former Chair White referred to Staff Legal Bulletin No. 14I (CF) dealing with the “ordinary business” exception for exclusion of a shareholder proposal under Rule 14a-8. 

The Role of Securities Lawyers

According to former Chair White, in a deregulatory environment, it is incumbent upon private sector lawyers to step up and be “the adults in the room.” She urged practitioners to focus on what is best in terms of disclosure and business, and not just on what is permissible. It is important to “step up the quality of lawyering” and advise as to what the optimal is, not just what the client can and cannot do. These steps will reduce the risk of reputational loss to both client and counsel, she noted. She closed by suggesting that attorneys should follow the counsel of the late Archibald Cox, long-time law professor and Watergate special prosecutor, who urged lawyers to have the confidence to tell their clients that “’yes, the law lets you do that, but don't do it—it's a rotten thing to do.’”