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From Securities Regulation Daily, August 4, 2015

With final speech, Gallagher once again lambastes Dodd-Frank Act

By Jacquelyn Lumb

Daniel Gallagher, in what he said was likely his last formal speech as an SEC commissioner, reported that he has cast an unprecedented 13 losing votes on SEC rulemaking initiatives. In remarks to the Chamber of Commerce Center for Capital Market Competitiveness, he also forecast his vote at tomorrow’s SEC open meeting at which the commissioners will vote on a pay ratio rule, by predicting that he may set a record for no votes.

Gallagher said there was no better audience for his final speech than the Chamber of Commerce, given its zealous advocacy for free markets. In providing the standard disclaimer that the views he expressed were his own, and not those of the Commission or his fellow commissioners, he added with the exception of fellow Commissioner Michael Piwowar.

Impact of Dodd-Frank. Gallagher advised that he has spent his entire five-year tenure at the SEC working on Dodd-Frank rulemaking. Rather than serving as the politically independent financial regulator it is intended to be, Gallagher said the SEC has become the implementing tool for liberal policy makers. Unlike previous major legislation affecting the SEC, the Dodd-Frank Act was rammed through Congress without bipartisan support. Bipartisan support would have required jettisoning many of the Act’s provisions, he said. He blamed the Act for politicizing the SEC and for impairing its work by putting the SEC at a disadvantage to the prudential regulators.

FSOC and FSB. Gallagher repeated his criticism of the Financial Stability Oversight Council and the Financial Stability Board whose memberships are weighted toward prudential regulators with little representation from capital markets regulators. Gallagher said the SEC must actively and publicly provide input to FSOC and must not rubber stamp its work. He added that change starts from within and called on the SEC to commit to a robust proactive agenda.

SEC’s agenda. Gallagher pointed to what he sees as incremental improvements in the SEC’s agenda such as the disclosure effectiveness review and the adoption of Regulation A+. However, he listed numerous items that should be addressed but have taken a backseat to Dodd-Frank initiatives. The SEC must focus on updating its current programs rather than continuing what he called the death march of Dodd-Frank rulemaking.

Pay ratio rule proposal. Following his prepared remarks, Gallagher responded to a number of questions. With respect to the pay ratio rule that will be voted on tomorrow, he said it continues a trend of federalizing corporate governance. It began with the Sarbanes-Oxley Act, he said, but has continued with increasing activism aimed at influencing companies’ behavior. Gallagher referred to the pay ratio rule as the fourth horseman of the executive compensation rules.

Conflict minerals. The SEC is not in control of its own agenda due to the ruthless and relentless onslaught of Dodd-Frank rulemaking, according to Gallagher. He noted that the SEC was working on conflict mineral rules when the Department of Labor was putting out its first fiduciary rule proposal. Gallagher added that he spent about 20 percent of his time on conflict minerals during his first 10 months at the Commission. With 100 mandates in the Act, Gallagher said someone should have said “this is impossible,” but no one did.

With respect to the DOL’s latest fiduciary rule proposal, Gallagher said that nothing the SEC does will stop it from going forward.

Shareholder activism. In response to a question about how to push back against activists whose proposals do not create any value for a company, Gallagher said the SEC should review the whole 14a-8 rule set. The thresholds need to be raised. In his view, the SEC should consider getting out of the administration of the rule altogether and leave such matters to the states.

For all of his concerns and criticisms, Gallagher said that he still sees glimmers of hope and he hopes that he has helped further the debate.

MainStory: TopStory SECNewsSpeeches CorporateGovernance DoddFrankAct SarbanesOxleyAct

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