With the Georgia runoff elections concluded, President-elect Biden has begun to round out his nominations for the upcoming administration. Reuters has reported that Biden will nominate Gary Gensler to be Chairman of the SEC following the departure of Jay Clayton, though as yet, the Biden team has not confirmed the story.
Gensler is viewed as a more progressive pick for the economic team and has a reputation for strict enforcement actions and imposing tougher regulations. He previously served as the head of the Commodity Futures Trading Commission under President Obama, implemented many derivative market reforms following the 2008-09 financial crisis and is currently advising the Biden transition team on financial industry oversight.
The SEC under Chairman Clayton took a laissez-faire approach, trusting corporate management and boards to communicate responsibly with shareholders. The incoming administration is likely to take a firmer hand, implementing more prescriptive rules on disclosure and stronger enforcement. Gensler would likely seek to undo several rules finalized under the Trump administration including shareholder proposal eligibility requirements and principles-based human capital disclosure rules. Progressive advocates will strongly encourage the SEC to mandate companies disclose more information about risks related to climate change (greenhouse gas emissions), workforce diversity, and corporate political spending/contributions.
So far, unwinding the proxy advisory reform rules has not been highlighted, though we believe the new rules are at risk. Specifically, the House and Senate could use the Congressional Review Act to unwind recently finalized rules (as well as Department of Labor rules on the use of ESG investments in retirement accounts). Senate Republicans would be unable to filibuster CRA actions. The Democratic Senate leadership would need to ensure their full caucus votes for the CRA and VP-elect Harris can break any tie. However, using the CRA could expend some political capital. As such, Democratic leaders could pick and choose which specific regulations to unwind and which to leave in place in order to push for higher priorities elsewhere.
The Center will have a busy schedule engaging with Congress and the SEC this year and will welcome and encourage participation by companies as we move forward.