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Regulating the Regulators: The Executive Branch and the SEC, 1981-2008

An Independent Agency

Appointments to the Commission

“I got a call saying, ‘Would you be interested in an appointment at the SEC.’ I had learned to say ‘yes,’ because a few years earlier, I had received a similar call from the Carter Administration and responded, ‘I’ll think about it.’ Of course, that opportunity dissolved immediately.”

- November 7, 2005 Interview with Aulana Peters

A Presidential Administration has limited tools in which it can effectuate change inside an independent agency such as the U.S. Securities and Exchange Commission. An Administration’s impact primarily focuses on the appointment of SEC Chairmen and Commissioners, and budget recommendations.

The selection of SEC Chairmen and Commissioners is controlled by the current Administration. Cynthia Glassman recalled, “I had never heard of Christopher Cox until he was nominated. But the White House wouldn’t have asked us anyway. The White House never talked to me about Bill Donaldson.”⁴ A White House practice was to canvass for likely prospects, as in the case of Steven Wallman: “The initial contact from the Office of White House Personnel was a woman who was in charge of the vetting for the position. She called and said quite candidly, ‘I don’t know you. We’ve never met, we’ve never talked, and nobody seems to know that much about you, except a number of people keep mentioning your name and it keeps showing up from a number of different places … Quite honestly, we have never seen somebody who seems to be high on the list from labor and corporate and investor communities all at the same time.’”⁵

A challenge for Administrations – Republican or Democrat – was to find SEC Commissioners who could fill the seats designated for the minority party, and yet still be in accord with White House policy. Joseph Grundfest remembered, “[The White House] said, ‘Where in the world are we going to find a Democrat that the Reagan White House could support for a seat on the SEC?’ They looked around and said, ‘You know that crazy bearded guy over at the Council of Economic Advisors? He’s a Democrat. We all know that. He really is authentically a Democrat. All of this other stuff that we feel strongly about, he thinks we’re nuts, but on everything related to the SEC, he’s the guy that has helped pull our policy together. He’s the one that’s helped us herd the cats, and we don’t have to tell him how to think like a free-market-oriented regulator. That’s what he thinks.’”⁶

Once the White House made its selection and vetted the candidate, s/he would come to the White House to discuss the position. Harvey Pitt recalled his meeting with President George W. Bush: “I got to meet with the President on April 24th. There were five people in the room: it was the President; Vice-President Cheney; the chief of staff, Andy Card; the head of personnel – his name was Johnston; and the head of the financial services sector of the personnel office, Dina Powell. But the only person who spoke in the meeting was the President. He did all the questioning, and none of his people did. It was clear; he was in charge. If I was going to be appointed, it was because of him.”⁷

The White House controlled all news concerning SEC appointments. Edward Fleischman was informed, “We picked you. It’s going to be you. Congratulations. Now, you can’t tell anybody. When we’re ready to tell people, we will. You have no right to tell anybody anything.” Both David Ruder and Harvey Pitt, after being instructed to keep silent, read about their candidacies in The New York Times.⁸

Once the candidate was formally announced, the SEC Chairman or Commissioner-designate prepared for the confirmation hearing. Richard Breeden, who was serving in the George H.W. Bush White House, met privately with U.S. Senator George Mitchell prior to his hearing, at the Senator’s request, to confirm that Breeden would respect the independence of the SEC. Breeden had already been prepared by the White House for his hearing. “The administration had a very astute, skillful guy come in and arrange meetings between Richard and senior staff members at the Commission to brief him on what the Commission agenda was, what was happening. I will never forget, he sat down with Richard and said, ‘The first thing you do at your confirmation hearing, you say you want to thank the President of the United States. I can’t tell you how many confirmation hearings I’ve seen where a Presidential appointee comes in and forgets to thank the President for appointing him.’” ⁹

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