Hagerty Calls for SEC Reforms to Prevent the Revolving Door between Public Service and Private Profit

Outlines reform measures in letter to Chairman Gensler, aiming to reassure the public that any climate and ESG regulations passed are not the result of the revolving door

NASHVILLE, TN– U.S. Senator Bill Hagerty (R-TN), a member of the Senate Banking Committee, today sent a letter to Securities & Exchange Commission (SEC) Chairman Gary Gensler urging him to review the rules and regulations of the Reform agency to address conflicts of interest and conflicts of interest Individuals use the revolving door between public service and private profit.

Hagerty demands that former SEC employees be prevented from reporting to a company, accounting firm, law firm, consulting firm, or other entity regarding compliance with the SEC’s new disclosure requirements on climate change or other environmental, social, and governance (ESG) for at least a year. Additionally, Hagerty is asking that former SEC employees be banned for two years from participating in the profits of companies that make profits from offering advice, services or products related to SEC climate change or ESG regulations going forward may be introduced or defenses against SEC enforcement actions that may affect such future regulations.

“With these restrictions, the public has some reassurance that all climate and ESG regulations passed by the SEC are free of the revolving door taint. Therefore, I request the SEC to promptly amend the SEC’s Code of Ethics to implement these limitations, which may be done without notice or comment under the Administrative Procedures Act exception for “rules of organization, procedure or practice of public authorities.” Hagerty wrote.

Hagerty’s letter to Chairman Gensler points to how recent media reports have revealed how large accounting firms send their employees to high-level positions in the federal government to set new tax policies, and reward those same employees with bigger paychecks and promotions upon their return. Hagerty is concerned the same thing is happening with this revolving door when it comes to climate change and other ESG regulations.

A copy of Hagerty’s letter can be found here and below:

Dear Chairman Gensler,

On September 19, 2021, The New York Times revealed how major accounting firms are sending their employees to high-level positions in the federal government to set new tax policies and reward those same employees with bigger paychecks and promotions upon their return. Last month, two members of Congress wrote to the Treasury Inspector General and the Inspector General for Tax Administration, noting that their own investigation had corroborated these claims and raised new concerns about the “accounting giants” exploiting “revolving door” schemes.”

I have similar concerns about whether accounting firms are exploiting the revolving door between public service and private profit in relation to the Securities and Exchange Commission (SEC), particularly in relation to their reported efforts to address climate change and other environmental requirements. Social and Governance (ESG) Disclosures. In response to then-Chairman Allison Herren Lee’s request for public contributions in 2021, the four largest accounting firms – Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP and PricewaterhouseCoopers LLP – have all campaigned for the introduction of climate change disclosure requirements on global standards.

Representatives from three of these firms are currently members of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures. These firms are among the largest contributors to the IFRS Foundation, which the International Sustainability Standards Board created to provide “a comprehensive global baseline for sustainability-related disclosure standards.” They are also among the top contributors to the Sustainability Accounting Standards Board.

Not surprisingly, the financial press has reported that the largest accounting firms are “hopping on the bandwagon” in relation to environmental, social and governance issues and have visions of these new regulatory requirements that open up significant business opportunities for these firms.

The general ethical standards for public employees are set out in laws and regulations issued by the US Office of Government Ethics. Recognizing the need to go further, the SEC has introduced additional restrictions on the practice of former members and employees that complement the government’s general ethics rules. However, the existing SEC rules are insufficient to address the conflicts of interest inherent in the revolving door on climate change and ESG. Recently, nominees to the Board of Governors of the Federal Reserve committed to a four-year suspension from matters they oversee, not to seek waivers of those suspensions, and not to seek employment or compensation from financial services firms four years after leaving government service.

Similarly, former SEC employees should be barred for at least one year from representing, assisting, or directing any corporation, accounting firm, law firm, consulting firm, or other entity with respect to compliance with the SEC’s new climate change disclosure requirements advise ESG. Former SEC employees should also be banned for two years from participating in the profits of for-profit companies (eg, as a partner in a law firm, consulting firm, or accounting firm) by providing advice, services, or products related to on or offering defenses against SEC enforcement actions related to SEC climate change or ESG regulations that may be implemented in the future.

With these caveats, the public has some reassurance that any climate protection and ESG regulations passed by the SEC are free of the revolving door taint.

Therefore, I urge the SEC to promptly amend the SEC’s Code of Ethics to implement these limitations, which may be done without notice or comment under the Administrative Procedures Act exception for “rules of organization, procedure or practice of public authorities.”

In addition, I request that you promptly answer the following questions regarding the revolving door between the nation’s leading accounting firms and the federal government and inform my office of your findings:

1. To what extent are large accounting, consulting and law firms hiring former SEC employees, and to what extent is the SEC hiring former employees of large accounting, consulting and law firms, creating a revolving door problem?

2. What is the role of such current SEC employees in relation to the types of firms they were formerly employed by, and what is the role of former SEC employees now employed by accounting, consulting and law firms in relation to SEC related matters?

3. Do these accounting, consulting, and law firms receive undue influence or information about departmental or agency policies through the employees hired by or hired by the SEC?

4. What SEC policies are in place to protect department and agency policymaking and regulatory actions from being unduly influenced by potential conflicts of interest of these employees?

5. Are the accounting, consulting and law firms’ codes of conduct and ethics policies sufficient to prevent revolving door abuse and conflicts of interest?

Thank you for your attention and I look forward to your reply.

sincerely,

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