Piwowar’s Term Ends in Controversy

You’ve heard of activist investors: those highly engaged shareholders who seek to control the actions of the companies in which they invest, sometimes pushing a socially conscious agenda. But what about an activist SEC Commissioner? Until recent years, the concept would have hardly made sense. But departing SEC Commissioner Michael Piwowar, who served as the Commission’s acting chair from January-May 2017, arguably embodied the term during his SEC tenure. That tenure will end by July, mired in controversy.

The latest contretemps involving Commissioner Piwowar is an explosive one. It illustrates the lengths to which he was apparently willing to involve the SEC in the ESG (environmental, social, governance) issues that are increasingly defining investor-issuer relations. The specific issue had to do with gun sales and how large banks responded to the deadly school shooting in Parkland, Florida, as well as the drumbeat of shooting deaths that preceded and followed it. With Congress unmoved to action, some banks took matters into their own hands. Citigroup, the first to announce a firearms policy, said in March that it would deny its credit card or banking services to retailers that sell firearms to customers who are younger than 21 or have not passed a background check, among other measures.

The banks’ actions didn’t sit well with some Republicans. Sen. John Kennedy (R-LA) threatened legislation that would stop banks from discriminating against gun buyers. But Commissioner Piwowar took things further. According to Bloomberg News, when Citigroup executives arrived at Piwowar’s office to talk about a pet project to ease derivative regulations, they got a tongue-lashing instead. “Glowering and speaking emphatically,” Piwowar implied that they would get no Republican support on derivatives as punishment for their stance on gun safety. Now, Senate Democrats want the SEC’s inspector general to investigate this reported abuse of Piwowar’s position.

It wouldn’t be the first time the IG examined his actions. During his time as acting SEC chair, Piwowar dove headfirst into another ESG issue: the Conflict Minerals Rule required by the Dodd-Frank reform legislation, which requires companies to investigate and disclose whether their products contain conflict minerals (tantalum, tin, tungsten, and gold, or 3TG) from a war-torn part of Africa. In early 2017, Piwowar defanged the regulation when he controversially suggested that the SEC would not enforce the “enhanced disclosure” required by the Conflict Minerals Rule. In response, a Democratic Commissioner said: “It is unprecedented, for one commissioner, acting alone and without office notice and comment, to engage in de facto rulemaking.”

Four Senators asked the SEC inspector general to examine the legality of Piwowar’s action, but the IG ultimately found that it did not violate any laws. At the same time, the IG also examined Piwowar’s comments on yet another hot-button issue – the pay-ratio rule – in which he directed SEC staff to reconsider its implementation. The IG found that action lawful as well.

Piwowar will likely be replaced by nominee Elad Roisman, who serves as chief counsel for the Senate Banking Committee. If confirmed, his five-year term would expire in 2023.

Only time will tell whether he follows the activist ways of his predecessor.

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