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When I served as Commissioner of Corporations for the State of California, I was sometimes asked about the other Commissioners. However, I never concerned myself with the “other Commissioners” because there were no other Commissioners. Unlike some other states, California had no Securities Commission, just a Commissioner. In light of recent criticism of several instances of unilateral action on the part of Securities and Exchange Commission Chairman Mary Jo White (see Broad Coalition Delivers Blunt Rebuke To SEC Chairman), I undertook a review of the rules (or more accurately, the dearth of rules) governing how the Commissioners conduct business.
Πρῶτος Μεταξὺ Ἲσων?
As an initial matter, I was surprised that the Exchange Act has very little to say about the authority and role and authority of the Chairman. I could find only a handful of provisions of the Exchange Act that explicitly referred to the Chairman (Sections 4(g), 4(B), 4(E), 15(B) and 15(E)). I also learned that in 1950, President Harry S. Truman transferred to the Chairman the executive and administrative functions of the Commission, including functions of the Commission with respect to:
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the appointment and supervision of personnel employed under the Commission,
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the distribution of business among such personnel and among administrative units of the Commission, and
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the use and expenditure of funds.
See Reorganization Plan Numbered 10 of 1950, 15 F.R. 3175, 64 Stat. 1265 (May 24, 1950). Interestingly, President Truman also arrogated from the Commissioners to himself the authority to select the Chairman. Id. § 3. Although President Truman invested the Chairman with certain executive authority, he provided that in carrying out any these responsibilities, “the Chairman shall be governed by general policies of the Commission and by such regulatory decisions, findings, and determinations as the Commission may by law be authorized to make.” Id. § 1(b)(1). In addition, appointments by the Chairman of the heads of major administrative units under the Commission are subject to the approval of the Commission. Id. § 1(b)(2).
The Commission has also adopted rules governing the operation of the Commission. However, these are surprisingly sparse. For example, Rule 200.41 establishes a quorum rule for meetings of the Commissioners, but I didn’t see any general rule specifying the number of votes required for the Commission to take action (e.g., a majority of the entire membership or a majority of a quorum). However, there are several rules requiring a recorded vote of a majority of the entire membership of the Commission with respect to specific matters (Rules 200.403, 200.404, and 200.405).
The rules also contain a rather unusual provision for taking action without a meeting. This rule allows for seriatim voting, but seems to allow for action by less than unanimous written consent:
Any matter circulated for disposition pursuant to this subsection shall not be considered final until each Commission member has reported his or her vote to the Secretary or has reported to the Secretary that the Commissioner does not intend to participate in the matter.
Rule 200.42. In contrast, both California and Delaware permit directors to take action only by unanimous written consent. See, e.g., Cal. Corp. Code § 307(b) and 8 Del. Code § 141(f) (California’s statute does have a limited exception for abstentions by interested or common directors). It is unclear why the Commission should operate under a looser standard. Also, the rule inexplicably fails to specify what vote is necessary (e.g., a majority of the Commissioners voting or a majority of the entire Commission).
Ἰατρέ, Θεράπευσον Σεαυτόν!
All of this suggests that perhaps the Commissioners should steal a page from the corporations that they oversee and adopt governance guidelines. Here are a few suggested items:
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Defining (limiting) the authority of Commissioner’s to take unilateral action;
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Defining the vote required for action by the Commissioners at a meeting;
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Requiring that seriatim votes be unanimous; and
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Prohibiting the rewriting of an adopting release after the Commissioners have voted to approve the rule.
Recent events certainly suggest that the Commission would benefit from clearly defining the rules under which it operates.