DIMENSIONS interviewed Professor Paul G. Mahoney, a member of the SEC's Investor Advisory Committee (IAC), on how the IAC operates and how its recommendations influence the SEC’s disclosure rulemaking, as well as other securities disclosure topics.
Paul G. Mahoney is a professor at the University of Virginia School of Law, where he also served as the dean from 2008 to 2016. Professor Mahoney’s teaching and research interests include securities regulation, law and economic development, corporate finance, and financial derivatives and contracts. He is the author of Wasting a Crisis: Why Securities Regulation Fails (University of Chicago Press, 2015) and has served on the IAC since mid-2018.
This interview expresses the views of Professor Mahoney and does not necessarily reflect the views of the IAC, the SEC, the University of Virginia, or any other organization.
What is the SEC’s Investor Advisory Committee?
The current IAC is actually its second incarnation. The SEC chartered an earlier Investor Advisory Committee in 2009 in accordance with the Federal Advisory Committee Act. The mission of that committee was to advise the SEC on matters of concern to investors and provide information and recommendations on regulatory programs from the point of view of investors. Subsequently, Section 911 of the Dodd-Frank Act established the current Investor Advisory Committee to advise and consult with the SEC on regulatory issues, including initiatives to protect investor interests and promote investor confidence in the markets. The statute directs the current IAC to submit its findings and recommendations to the SEC.
What is the background of the committee members on the IAC?
The statute itself imposes certain requirements on the composition of the IAC’s membership. It must include a representative of state securities commissions and a representative of the interests of senior citizens; as well as the general membership, who should represent the interests of individual investors, including mutual-fund investors, and the interests of institutional investors. Dodd-Frank also established an Office of the Investor Advocate within the SEC, and the Investor Advocate (currently Rick Fleming) is designated in the statute as a member of the IAC.
If you look at the current membership of the IAC, it is quite well suited to satisfy those requirements. Our chair, Anne Sheehan, was formerly the director of corporate governance of the California State Teachers’ Retirement System. The committee also has members from the private and public institutional investor communities; members affiliated with the Consumer Federation of America and the AFL-CIO; and members like me, who come from more of an academic or research background. So the membership represents a nice cross-section of backgrounds and perspectives.
Why should securities lawyers and financial-reporting professionals follow what the IAC finds and recommends?
The statute mandates that the SEC review any findings or recommendations that the IAC brings it. Moreover, the SEC must respond publicly to those findings and recommendations and disclose what action, if any, it intends to take in response. So, of course, securities lawyers and financial-reporting professionals should want to know what the IAC is doing because we have, at a minimum, the power to draw the SEC’s attention to an issue. Beyond that, the IAC has a statutorily mandated consultative role in the SEC’s ongoing work to modernize and simplify the ongoing disclosure requirements for public companies under Regulations S-K and S-X, which the SEC calls the Disclosure Effectiveness Project.
What do you see as your role on the IAC?
As an academic, I do not have the depth of practical day-to-day experience in the markets that many of my IAC colleagues have. What I bring is the perspective of someone external to the securities markets who has nevertheless thought about, taught, researched, and written about securities regulation for nearly 30 years. In my opinion, it is important for the SEC to hear both the practical, internal perspectives and the theoretical, external perspectives to adopt good policies.