WASHINGTON—United States Senator Bill Hagerty (R-TN), Ranking Member of the Senate Appropriations Subcommittee on Financial Services and General Government (FSGG), today delivered opening remarks at a hearing reviewing the Fiscal Year 2024 Budget for the U.S. Securities and Exchange Commission (SEC).
Opening remarks as prepared for delivery:
Chairman Van Hollen, I want to start by thanking you and your staff for our partnership so far in the Appropriations process and for holding this important hearing today.
Chairman Gensler, welcome, and I look forward to your opening statement.
Last week the full Committee approved the Fiscal Year 2024 Financial Services and General Government Appropriations bill by a vote of 29-0, which is no small feat. The last time the Committee unanimously approved the FSGG bill was September 2019. Interestingly, 2019 was also the last time the SEC Chairman appeared before this Subcommittee.
As I mentioned the last time this Subcommittee met, my top priority as Ranking Member is to work with my colleagues to conduct rigorous oversight, strengthen U.S. financial markets, and ensure that taxpayer dollars are spent responsibly.
The American financial system is one of our greatest assets and advantages, and having access to deep, liquid markets has been critical to our role as the world leader in innovation and economic prosperity.
Congress is currently debating the SEC’s budget for fiscal year 2024, which is significant.
I am familiar with the day-to-day administrative work of the agency and have great respect for the career staff. We need to fund that work. My concern, however, is when the agency diverts those resources and spends these dollars on initiatives not even within the authority of the SEC. Here are a few examples:
Your climate change proposal. Many sophisticated commentators believe this is well beyond the SEC’s authority. We know it is costly—meaning tens of billions of dollars, or more, as companies struggle to comply. We know small firms particularly will be hurt. We also know it is unlikely to provide meaningful insight for return-oriented investors, but it will be a bonanza for the lawyers who will have a new cottage industry. Yet, the SEC blindly pushes ahead, consuming vast resources now, and that will be compounded when the inevitable lawsuits come pouring in.
Then there are your actions concerning shareholder proposals and proxy advisors. A study from Harvard Law School showed that five individuals account for roughly 40% of shareholder proposals. That is a remarkable concentration of power: 50 million households have to consider the whims of just 5 people.
The SEC had made progress on limiting this abuse of power, but this was reflexively undone in 2021 with no study, increasing the number of “pet” proposals, and even allowing shareholder proposals that would require companies to break the law.
Because shareholder proposals are so inexpensive to create, investors turn to so-called “proxy advisors” for voting recommendations – many in effect outsource their voting. The two leading firms are a duopoly, both foreign-owned, wielding vast influence over American public companies, which creates many obvious conflicts.
Mr. Chairman, your predecessor Jay Clayton, after lengthy public comment, made changes to the regulation of these proxy advisor firms, requiring them to be more transparent and to give companies time to correct proposals’ errors – including recommending votes “for” proposals that would be illegal if enacted.
You took away that transparency and the opportunity for better information. So by virtue of your actions, you increased the business of the proxy firms, made them less accountable, and reduced the quality of information available to shareholders. This too is now being litigated over whether you failed to follow the Administrative Procedure Act. Regardless of the outcome, I can tell you these so-called advisors are making our financial markets significantly weaker and less democratic.
There are other examples – shortened comment periods, treating related proposals as separate to avoid considering the cumulative and combined effects, and introducing new “final” rules that include key points not in the proposal subject to public comment. The list goes on.
This issue is not unique to the SEC. Like Lina Khan at the FTC, ignoring procedural requirements and losing in court seems to be worth the price to push our markets to the left. In fact, in the enforcement area, you seem to be willing to bring cases that you know have very high odds of losing. Perhaps you think making a statement is worth the loss?
Well, what do you say to the person who has to defend themselves in one of your statement cases? Do you apologize? Do you thank them? There is no good answer here. Because in America we should never use our law enforcement authority on innocent people to make statements. And we certainly shouldn’t hamper the efficiency and competitiveness of our capital markets to score political points.
While we need referees that enforce the market rules and punish bad actors, I am concerned that the SEC has moved well beyond its role as a market regulator and is seeking to make policies that are both beyond its authority and destructive to our economy.
In summary, this Committee’s job is to ensure the SEC has the resources it needs to fulfill its statutory duties and that it is using those resources appropriately. Your job, Mr. Chairman, is to be a responsible steward of those resources and stay within your boundaries. I am concerned that is not happening. That requires accountability. Yet, inadequate responses to Congressional directives and questions, including many I have sent myself, suggest a resistance to accountability, and that makes today’s hearing all the more important.
I look forward to your opening statement and the opportunity to discuss these matters further.