Mary Jo White is an excellent nominee to keep the Securities and Exchange Commission on the same path it has been following for the last four years. Unfortunately for Corporate America, that path is actually twofold: vigorous enforcement of securities law on one hand, and uncertainty about everything else on the other.
Now, I don't have much sympathy for those complaining about vigorous enforcement of the law. The SEC's paramount mission is investor protection, after all, and enforcing the law reassures investors that the capital markets are a safe place to conduct business.
In fact, when you look at the details of SEC operations, at first glance White's background as a federal prosecutor makes her seem like an excellent choice. The Enforcement Division is the SEC's largest, employing more people and more budget than any other part of the agency. When SEC enforcement does spill into criminal matters, it most often works with either the Fraud Section of the Justice Department or the U.S. attorney's office of Manhattan, which White ran for 10 years. Her experience is excellent for SEC enforcement.
The problem for compliance officers is that enforcement is only one way that the SEC protects investors, and the worst possible way to do it. The ideal is to prevent abuses in the first place, which involves all manner of rules about corporate conduct and disclosure, which involves you the compliance executives. And that's where I have more worries about White's success.
We've already seen the SEC woefully far behind in its rulemaking schedule for the Dodd-Frank Act, and some of the hardest issues—about executive compensation, proprietary trading, and more—are still ahead of us. I've heard some compliance officers in the financial sector describe the proposed Volcker Rule (to separate banks' proprietary trading and commercial banking businesses) as one of the most bewildering rules they've ever seen. Is White really the best person to lead the SEC's debate on a subject like that?
Or let's take the question of whether the United States will ever adopt International Financial Reporting Standards. Former SEC Chairman Mary Schapiro managed to evade a clear stance on that issue for four years, and she had far more exposure to IFRS policy questions than a federal prosecutor. Or take the question of XBRL, which apparently nobody in the whole financial reporting community wants to use. Still, you could make a good argument that perhaps the Office of Financial Research at Treasury could make use of the data, so perhaps we should keep the XBRL compliance mandate intact. What about the ill-conceived, totally useless JOBS Act; or restoring the uptick rule, or streamlined proxy disclosures, or social media risks?
The list is endless, and we simply don't yet know that White has an appreciation for those types of issues—which are what compliance executives still worry about, day after day. Perhaps some of her views will come out during her Senate confirmation hearings, but that's doubtful. Then follows a long period of compliance officers waiting, waiting, and waiting for some sign of what's to come.
My other concern is how well White will run an agency as large as the SEC. Its budget ($1.3 billion) and manpower (4,470 full-time staffers) dwarf the U.S. attorney's office for Manhattan today, let alone 15 years ago when White was in charge. What's more, a U.S. attorney's office has one job: to catch wrongdoers and bring them to justice. The SEC has many more divisions, doing many different tasks, and the chairman must balance them all as he or she steers the Commission forward—with four other commissioners sitting alongside, and we shouldn't forget the personal politics involved in successful SEC leadership, either.
Those are the questions that compliance executives should be pondering as we all wonder whether White will lead the SEC: Can she articulate solid positions on policy questions? Can she run the agency well? We have no evidence to suggest that she can't; we've just seen no evidence yet to suggest she can, either.
White does have a great confidant in these matters: her husband, John White, who ran the Division of Corporation Finance in the mid-2000s. Still, one can't help but think that White is far better-suited to replace Lanny Breuer, another Washington official who wields enormous influence over the corporate compliance community. Breuer has been assistant attorney general in charge of the Criminal Division at the Justice Department since 2009, and is leaving any day now.
Breuer is the person responsible for raising enforcement of the Foreign Corrupt Practices Act to a high art form. He'll be replaced sometime soon, too. So just remember, as unclear as this moment of Washington drama may be for compliance executives, we'll be going through it all again shortly.