Letter to Hon. Gary Gensler, Chair of the Securities and Exchange Commission - Hagerty Calls for SEC Reforms to Prevent the Revolving Door Between Public Service and Private Profit

Letter

Dear Chair Gensler:

On September 19, 2021, the New York Times exposed how large accounting firms send their staff into high-ranking positions in the federal government to set new tax policy and then reward the same staff members with bigger paychecks and promotions upon their return. Last month, two members of Congress wrote to the Department of the Treasury's Inspector General and Inspector General for Tax Administration, noting that their own investigation had corroborated these allegations and raised new concerns about the "accounting giants" that take advantage of "revolving-door schemes."

I have similar concerns as to whether accounting firms are taking advantage of the revolving door between public service and private profit with respect to the Securities and Exchange Commission (SEC), particularly with respect to its reported efforts to address climate change and require other environmental, social, and governance (ESG) disclosures. In responses to then-Acting Chair Allison Herren Lee's 2021 request for public input, the four largest accounting firms -- Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP, and PricewaterhouseCoopers LLP -- all advocated for the adoption of climate change disclosure requirements based on global standards.

Representatives from three of these firms are current members of the Financial Stability Board's Task Force on Climate-Related Financial Disclosures. These firms are some of the largest contributors to the IFRS Foundation, which created the International Sustainability Standards Board to deliver "a comprehensive global baseline of sustainability-related disclosure standards." They have also been among the largest donors to the Sustainability Accounting Standards Board.

Unsurprisingly, the financial press has reported that the largest accounting firms are "jumping on a bandwagon" for environmental, social, and governance issues with visions of these new regulatory requirements creating significant commercial opportunities for those firms.

The general ethics standards for public employees are set forth in law and regulations issued by the U.S. Office of Government Ethics. The SEC has recognized the need to go further and has adopted additional restrictions on practice by former members and employees that supplement the general government ethics provisions. However, the existing SEC rules are not sufficient to address the conflicts of interest inherent in the revolving door related to climate change and ESG. Recently, Federal Reserve Board of Governors nominees pledged a four-year recusal from matters that they oversee, not to seek a waiver from these recusals, and not to seek employment or compensation from financial services companies for four years after leaving government service.

Similarly, at a minimum, former SEC employees should be restricted for one year from representing, aiding, or advising any company, accounting firm, law firm, consulting firm, or other entity with respect to complying with new SEC disclosure obligations on climate change or ESG. Former SEC employees should further be barred for two years from participating in the profits of any entity that derives profits (e.g., as a partner in a law firm, consulting firm, or accounting firm) from offering advice, services, or products regarding, or defending against SEC enforcement actions related to, any SEC climate change or ESG regulations that may be implemented in the future.

With these restrictions, the public will have some assurance that any climate change and ESG regulations adopted by the SEC are free from the taint of the revolving door.

Therefore, I request that the SEC immediately amend the SEC ethics regulations to implement these restrictions, which can be done without notice and comment under the Administrative Procedure Act exception for "rules of agency organization, procedure, or practice."

Additionally, I request that you promptly respond to the following questions about the revolving door between the country's top accounting firms and the federal government and inform my office of your findings:

1. To what extent do large accounting, consulting, and law firms hire former SEC employees, and to what extent does the SEC hire former employees of large accounting, consulting, and law firms, thereby creating a revolving door problem?

2. What roles do any such current SEC employees play with respect to the types of firms by which they were formerly employed, and what roles do former SEC employees now employed by accounting, consulting, and law firms play with respect to SEC-related matters?

3. Do these accounting, consulting, and law firms, via the employees placed at the SEC or hired from the SEC, obtain outsized influence over or information regarding department or agency policies?

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

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

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

Sincerely,

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