The research to date has been inconclusive as to whether personnel revolving door practices have weakened the SEC's diligence. The research to date has been inconclusive as to whether such revolving door practices have weakened the SEC's ingenuity.
BACKGROUND TO THE PROBLEM
Such high-profile events have certainly fueled debate about the revolving door at the SEC. Therefore, the question of exactly how the revolving door affects the SEC remains unresolved.
THEORETICAL ATTEMPTS AT EXPLAINING THE REVOLVING DOOR
See Glaeser et al., supra note 61, at 263 ("Professional capital is intended to include building a reputation (which has value in both the public and private sectors), exposure to private attorneys, and increasing skill."). Zheng, supra note 1, at In the enforcement environment, the market expansion incentive may lead to more enforcement actions, expanded jurisdictional reach of the enforcement actions, and higher penalties in the enforcement actions."); see also Zachary J.
COST AND BENEFITS OF THE REVOLVING DOOR
Zaring, supra note 11, at 507 ("But the explanatory power of the revolving door is remarkably exaggerated, especially when the subject is law enforcement."). The basis for this contention is that SEC experiences lend greater credibility to attorneys who presumably share their well-founded knowledge of securities regulation and “encourage firms to adopt a culture of compliance.”99 In other words, SEC experience can “promote that [] enforcing the law in the private sector by sprinkling it with former government officials. Likewise, the revolving door can result in improved communication between the SEC and regulated industries. Experience and knowledge brought to the private sector through SEC alumni will lead to open communication and an environment of compliance.0 2.
CONTEMPORARY EMPIRICAL Focus
Incoming revolvers are "lawyers who join the SEC after working for private law firms." Id. The foregoing review of empirical studies has made important strides in measuring the impact of the revolving door at the SEC.
THE OVERLOOKED THREAT: DIVISION HEADS
What we develop in the remainder of this article is that the rent-seeking hypothesis by SEC staff—the dominant focus of the discussion thus far—has distracted attention from subtle forces that may bias the SEC's management team. Senate, but most of its work is done through its five divisions: corporate finance, enforcement, investment management, economic and risk analysis, and trading and markets.15 7 In addition to these five main divisions, there are twenty-five offices, including the Office of Inspections and Compliance Reviews, Office of the General Counsel and Office of the Chief Accountant. The overall operation of the SEC involves a large staff in eleven regional offices.5 8 One of the appointed Commissioners is appointed by the President as the Chairman of the Commission, who has additional responsibility for overseeing the administration of the agency; the president appoints heads of departments and directors of offices.
As a practical matter, with so many annexes housing the Agency's 4,794 full-time personnel, most decision-making is highly decentralized so that a good deal of management, including staff supervision and priority setting, occurs within five its main divisions.5 9 .
DOCUMENTING THE SEC'S HIRING PRACTICES AND THE RECENT
To determine the employment history of pre-SEC division directors, we used the SEC Historical Society website and various secondary sources, as well as a series of online searches. The relatively recent development of the Internet has made information more widely available for recent department directors than for older appointments. First, to calculate the number of revolvers and the total number of directors for each of the twenty-year time periods, we counted each individual as a director only in the first time period in which he was a director.
We consider such a series division head to be a revolver in each of the two divisions.
THE SHIFTING SOURCE OF DIRECTORS AND ITS IMPACTS
Explaining the Shift from Internal Promotions to
The discussion was synthesized into a "white paper" that included the analysis of the structure and contributions of the SEC Special Study discussed in this paragraph. Greene was a partner at the law firm Willkie Farr & Gallagher LLP before moving to the SEC. Greene later became General Counsel for the SEC from 1981 to 1982.178 He then returned to private practice as a partner at the law firm Cleary Gottlieb Steen & Hamilton LLP.179.
To test this hypothesis, we first compiled Appendix II, a historical summary of SEC chairmen and their experience in the eighteen months prior to their appointment.
Explaining the Shift from Internal Promotions to
discusses how, beginning in 2002, Congress transferred direct substantive authority over many aspects of the corporate governance process to the SEC, so that the SEC was increasingly called upon to develop substantive standards and to balance the often incompatible positions of interest groups competing to influence governance arbitrate process). Such concerns, and the continuing ideological divide, are ultimately consistent with the dramatic shift toward hiring division heads from outside the SEC. Looking at Table 1 and the overall averages over time, there is a slow creep in the percentage of revolvers hired as division directors and general counsel from the inception of the SEC to the period from 1976 to 1996.
If we consider the two theories explaining the rise of revolvers we discussed earlier—the SEC's need for increased expertise beginning in the 1980s (as evidenced by the appointment of Ed Greene) and the SEC's increasing politicization during and after the Reagan - these data seem more consistent with the history of politics.
Explaining the Shift from Internal Promotions to
Note, however, that while this raises the likelihood of agenda-control motives for SEC directors, the types of agenda-control issues we might be more likely to expect are those arising from political differences (left vs. right battles) as opposed to those involving more mundane financial clashes of interests, that is, the traditional revolving door issues.20 7. The net result of these financial factors was to make it difficult for SEC attorneys to maintain a reasonable standard of living and to encourage them to move into the private sector.
THE EFFECTS OF INCREASED REVOLVER APPOINTMENTS ON STAFF
CULTURAL ROOTS AND ADMINISTRATIVE REACH OF DIVISION HEAD'S
THE CULTURAL CAPTURE HYPOTHESIS
Gormley provides a seminal study of cognitive and cultural capture that includes his analysis of the backgrounds of the commissioners of the Federal Communications Commission (FCC) and their voting behavior as commissioners. 17 Overall, the study found that commissioners appointed from industry were more likely to vote on matters supporting industry interests218 and that voting on certain issues that could be defined as pro-regulatory or de-regulatory was explained by whether case helps the industry and regardless of whether the commissioner was philosophically consistent.21 9 Cohen's later, more extensive study of the voting behavior of FCC commissioners provided important qualifications to Gormley's findings.220 Using many more variables, Cohen found that although those with experience in industry prior to becoming commissioners were fourteen percent more supportive of industry positions than commissioners without any prior industry experience,221 a factor that is much more predictive of commissioner voting than industry-preferred position is the president's party , who appoints, and how dominant the controlling party in the U.S. House of Representatives is when the commissioner votes.222 Of particular interest, a strong predictor of industry support positions appears in the case of the commissioner's votes in his final year of office, when the commissioner, regardless of the trade association, once appointed, assumes employment in the industry at the end of the commissioner's term of office.223.
Regardless, the "creeping colonization of ideas"224 is particularly dangerous when dealing with financial regulation because of the close relationship between regulators and regulated.225 Financial regulation is often both.
THE SEC'S COLLABORATIVE CULTURE
MODERATING THE RISK OF COGNITIVE-CULTURAL CAPTURE
The transition from the Carter to the Reagan administrations resulted in changes to the SEC, with John Shad replacing Harold Williams as chairman. What distinguishes Williams from Shad is that Williams believed that the SEC's mission could best be advanced by private sector leaders who had a deep understanding of the rapidly evolving changes in capital markets. Williams and Shad's illustrations reflect how two entirely different goals can be achieved when the SEC chairman eschews career staff and appoints department heads from private practice; Williams and Shad's illustrations actually invite us to consider what kind of legal or organizational structure exists or can be put in place to lead to outcomes that further the SEC's tasks of protecting investors and nurturing capital markets.
Again, what can be done to prevent this unexplored dimension of the SEC's revolving door from providing a wide entrance through which the regulated can capture its regulator.
JUDICIAL REVIEW
An adversarial approach involving the SEC was adopted thirty years earlier by the Ninth Circuit in SEC v . The data support the view that the SEC pursues weaker cases that have lower enforcement priority before its administrative tribunal. See Steven Choi & Adam Pritchard, The SEC's Shift to Administrative Proceedings: An Empirical Assessment, 34 YALE J .
Believing that the SEC's rulemaking in response to NEPA was weak, the Natural Resources Defense Council requested a review of the SEC's actions.
MOVE AGENDA SETTING OUTSIDE THE SEC
SEC,266 the court faulted the SEC for failing to develop an adequate record supporting the modest regulatory changes it adopted in response to NEPA and ordered the SEC to undertake additional rulemaking. Moreover, the SEC never again returned to exercising the express statutory authority to allow shareholders of public companies to nominate directors. Dodd-Frank introduced three initiatives that can be seen as Congress' concern with the industry capturing the SEC: the creation of an Investor Advocacy Committee, the Office of the Investor Advocate and an ombudsman who is.
Each of the reports is sent directly to Congress, so none are subject to review by the SEC chairman or her designee.
SUPPORTING REVOLVER DIRECTORS WITH INTERNAL DEPUTY
GENERAL COUNSEL
No-action letters are focused on compliance and typically reflect only the position of the SEC staff, with the effect that they are binding only on the party requesting the transaction specifically identified in the request. Although the SEC's collaborative culture should greatly reduce staff-induced anger. Directly reporting to the next gunman, David Martin, the two served at the SEC for more than fourteen years before Martin appointed them to their positions.
To explain this further, the work of the SEC works closely with the work of the junior staff, involving multiple levels of review by different managers. This factor is especially important within the collegial, collaborative culture that permeates the SEC's work. Additionally, we are encouraged by the dialogue within the SEC resulting from a vibrant, well-staffed Office of the Investor Advocate, as previously discussed.
SEC DIVISION HEADS (CORPORATION FINANCE)
SEC DIVISION HEADS (TRADING AND MARKETS)
1991 Managing Director and Head of Arbitrage Division - Heyman Smith Barney (now part of Morgan Stanley Wealth . Management).
SEC DIVISION HEADS (CORPORATE REGULATION)
SEC DIVISION HEADS (INVESTMENT MANAGEMENT)
SEC DIVISION HEADS (ENFORCEMENT)
SEC DIVISION HEADS (ECONOMIC AND RISK ANALYSIS)
SEC CHAIRS OVER TIME
Caffrey Heads SEC Regional Office, N.Y. nytimes.com archives/james-j-caffrey-heads-regional-office-of-sec.html?smid=pl- [https://. Assistant, dies; Former Chairman of SEC also led RFC, N.Y. Historical summary of SEC chairmen291. Committee on Naval Affairs, Executive Assistant to the Attorney General of the United States and Director of the Office of Alien Property in the Justice. Mary Daily, In Memoriam: Harold Williams, former dean of UCLA Anderson, philanthropist and arts advocate, UCLA NEWSROOM (Aug. http://newsroom.ucla.edu/stories/in-memoriam-harold-williams-formal-dean-of- ucla-anderson-philanthropist-and-arts-advocate [https://perma.cc/.
Jenrette; Chairman and Chief Executive Officer of the New York Stock Exchange; Chairman, President and Chief Executive Officer of Aetna; Chairman and Chief Executive Officer of Donaldson Enterprises, Inc.; and co-founder of the Yale University School of Management.3 18 Christoph Chairman of the United.
SEC CHAIRS AND THEIR GENERAL COUNSELS
