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Source: Securities and Exchange Commission

Aug. 5, 2020

The Investor Advisory Committee (IAC) plays a crucial role in ensuring that the Commission keeps the interests of investors front and center. As an initial matter, one might wonder why Congress thought the SEC needed an Investor Advisory Committee given that investor protection is our core mission. Time and again, however, I see that we do. Indeed in the last year the Commission has made numerous policy choices that investors have emphatically opposed.[1] That makes the IAC—an independent voice representing the interests of investors—more important now than ever.

Unfortunately, the process that the Commission approves today could undermine the effectiveness of the IAC. The Commission purports to implement simple governance changes, consistent with the processes that govern other advisory committees. In fact, we are singling out the IAC, which has at times been critical of the Commission, and subjecting it to a process unlike that for any other committee. The new process marginalizes participation by the office best situated to handle the process—the Office of the Investor Advocate—and restricts functional membership categories in a way that fails to prioritize the most pressing needs of investors.

Let’s take a look at the facts.

First, the IAC nominating process is not broken. The Commissioners have worked together in the past to ensure that each has a voice in the selection and appointment of IAC members, an approach that ensured unanimous agreement on nominees. That process has resulted in an IAC with tremendous experience and expertise, a wide spectrum of views, and the ability to engage with policy issues critical to our mission. In reliance on this deep well of knowledge, the IAC has produced a remarkable number of serious and substantive policy recommendations. Specifically, it has produced 28 such recommendation in less than ten years, notable in number, in range of topics, and in the sophistication of their content. These recommendations have at times offered criticism of the Commission’s regulatory agenda and policy choices.[2] In other words, the Committee has functioned just as it should, as an independent voice that pushes us to do better, not one that just tells us what we want to hear and reinforces what we’re already doing.

The IAC has functioned well, and no one has been able to identify for me any problem with the current Committee or the nominating process that produced it. There is one notable exception: as members of Congress have noted, our advisory committees all have a diversity problem.[3] That is important, salient criticism that we should take to heart and swiftly address across all committees. Addressing that issue, however, does not necessitate the process before us, or sidelining the Investor Advocate and restricting functional membership categories to exclude issues of importance to investors.

Second, we are singling out the IAC. Our other advisory committees are not subject to the process we are adopting today. And I wouldn’t want them to be. We do not select members for any other advisory committee through a formal and rigid process, imposed and alterable only from above, like this one. Most importantly, we do not sideline the office or division that is best positioned to understand the needs and operations of that committee.

Our Advocate for Small Business Capital Formation, for example, very ably selects nominees for the Small Business Capital Formation Advisory Committee. The Division of Investment Management likewise capably shepherds the nominating process for the Asset Management Advisory Committee. The functional categories that exist for the other committees were formulated by those offices, not by the Commission, and they don’t require a Commission vote to change.[4] It makes sense for those offices to drive the nominating processes for those committees because they are the ones with the relevant knowledge and expertise.

And yet for the IAC, our Investor Advocate has been pushed to the side. That office is not making the recommendation before us today, and it did not formulate the functional categories this process dictates. The final version of these procedures now includes the Investor Advocate on the nominating committee, but he is affirmatively excluded him from a leadership position, except once every nine years. Even then, his views could be simply overridden by a majority of members from other offices—unlike any construct we have in place for any other advisory committee. In fact, that office was not even initially included on this new staff nominating committee.

To be clear, the staff members who have been working on this committee for the past several months are not responsible in any way for the issues I raise today. They are simply doing the work that was asked of them. They have worked diligently, resourcefully, and in good faith, and I have no criticism of them whatsoever.

But, if the Commission is going to dictate a new, formal nominating process, it’s just plain common sense that our Investor Advocate should lead that process, consistent with the way we treat other advisory committees.

Third, this process excludes some of the most pressing current issues for investors. Under the process adopted today, nominees must fall within rigid, narrow, and inadequate categories. These categories fail to include ESG investing, climate change expertise, proxy, shareholder rights, or even corporate governance broadly. These issues have prompted tens of thousands of letters from investors in recent years. Thus we fail to ensure that the IAC can speak to some of the most significant issues facing investors today. That’s not a process I can support.

I’m hopeful that staff will find a way to transcend these problems. I hope they will prove my concerns to be unwarranted, that they will find a way to work hand-in-glove with our Investor Advocate, and work within the functional categories to ensure the IAC still includes representation that can speak to the most critical issues facing investors. I hope they will ensure that the IAC continues to function as an independent voice, capable of, and willing to offer, meaningful and constructive criticism of the Commission. But we are not making that an easy task, and I must respectfully dissent.


[1] See Commissioner Allison Herren Lee, Statement on the Rollback of Auditor Attestation Requirements (Mar. 12, 2020) (compiling recent releases where there has been a clear division of views between investors and other commenters, and the Commission has disfavored or even disregarded investor views); see also Commissioner Allison Herren Lee, Paying More For Less: Higher Costs for Shareholders, Less Accountability for Management (July 22, 2020) (noting that recent changes affecting proxy advisors were adopted over near universal opposition from investors).

[2] For example, the IAC recently recommended that the Commission revise and re-propose the proposals regarding proxy advisors and the shareholder proposal process put out for comment last November. See Recommendation of the SEC Investor Advisory Committee (IAC) Relating to SEC Guidance and Rule Proposals on Proxy Advisors and Shareholder Proposals (Jan. 24, 2020).

[4] Similarly, the other committees are not restricted in the nominating process by member terms limits such as those we impose today on the IAC, which do not take into account whether it may be in the best interests of the committee for a member to serve a successive term.

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