Since becoming head of the Securities and Exchange Commission (SEC) in 2017, Jay Clayton has presided over more than two dozen measures which make life easier for America Inc, according to a Reuters analysis of SEC announcements and interviews with more than a dozen lawyers, academics and advocacy groups.
The changes — 17 implemented so far with a further nine proposed — are part of a broader push to help reverse a 20-year decline in U.S. public company listings by modernizing disclosures and cutting regulatory costs for firms.
But a majority of them will weaken investor safeguards or diminish their rights, according to lawyers, consumer and investor groups and SEC sources.
“Under Clayton’s leadership, the Securities and Exchange Commission has been quietly chipping away at an array of rules, many quite technical in nature,” said Anna Pinedo, a partner at law firm Mayer Brown.
“Although individually these haven’t gotten much attention, in aggregate the SEC’s rulemaking agenda under Clayton adds up to positive changes for public companies.”
Clayton declined to be interviewed for this story but his spokeswoman said protecting the interests of Main Street investors was a top priority.
“The initiatives advanced under his leadership maintain or enhance investor protections, including by ensuring today’s investors receive the material information necessary to make investment decisions,” Natalie Strom said in a statement.
Appointed by President Donald Trump with a mandate to entice more companies to go public, Clayton pledged to boost jobs and pension pots by making it more attractive for small companies to sell shares on stock exchanges while also protecting mom-and-pop investors.
Corporations led by the U.S. Chamber of Commerce, the country’s biggest business group, have said red tape is partly to blame for a 50% decline in the number of listed companies over the past two decades.
“Clayton recognizes that the decline of public companies is a threat to the long-term competitiveness of the American economy,” said Tom Quaadman, executive vice president of the Chamber’s Center for Capital Markets Competitiveness.
“Clayton has taken a holistic step-by-step approach to reverse this situation.”
But trimming companies’ disclosure requirements, for example by giving them more leeway over how and what they divulge in regulatory filings, and more freedom to make redactions, mean investors will get less information, say critics.
It is still too early to see the full effects of most of the changes but corporate governance experts worry that they swing the balance in favor of companies and make public markets more treacherous for both institutional and retail investors.
“The deregulatory agenda now advancing at the SEC is too often driven by lobbyist intuition rather than hard facts about the markets we oversee,” Robert Jackson, one of five SEC commissioners, told Reuters. He has opposed several of the measures.
One of Clayton’s most contentious proposals would relax a requirement, created by Congress in 2002 following the Enron accounting scandal, for companies with less than $100 million in revenues to get their internal financial reporting controls signed-off by an independent auditor.
Another controversial proposal to cap financial rewards for whistleblowers could reduce the incentive for company insiders to come forward with evidence of wrongdoing. After fierce attacks by corporate governance advocates, that proposal may be softened as Clayton tries to get it across the line in coming months.
This week, he proposed changes that would limit the ability of shareholders to submit proposals on items like executive compensation to company management.
To be sure, Clayton has toughened market oversight in some areas. Some of the measures aimed at simplifying financial disclosures make it easier for investors to identify material information and give them more information on certain topics, such as how company employees deal in their stock.
Cryptocurrency offerings have slumped after Clayton said they should be regulated like stock offerings, and he passed a package of measures this year requiring stockbrokers to disclose potential conflicts of interest, and the commissions they earn, when giving financial advice.
The broker rules, however, were heavily criticized by advocates for mom-and-pop investors who said they still left investors exposed to conflicted advice.
Going public is expensive. Investment bankers, lawyers and auditors collectively charge millions of dollars to prepare companies for their stock market debut and it can cost millions more to comply with ongoing regulatory requirements.
But there are other reasons why companies are staying private, denying ordinary investors the sort of investment opportunities they traditionally rely on to fund their retirement.
For one, deregulation in the private market since 1996 has made it easier for firms to raise money from private investors, cutting most Americans out of the equation. Record low interest rates in recent years have spurred those wealthy individuals and institutions to put more cash into start-up investments.
Over the past five years, there has been at least $150 billion raised in private equity and debt placements, compared to $90 billion over the previous period, according to data from Dealogic. The overall figure is likely to be far larger as data on such private deals is not comprehensive.
And while the total number of public companies is lower than 20 years ago, the total value of public companies has doubled, partly due to mergers and acquisitions.
The IPO market has improved this year. As of the end of October, there had been 37 small-cap company listings, each raising between $300 million and $1 billion, on track to beat last year’s 39 listings and in line with 2017.
Bankers said this was largely due to a buoyant stock market, boosted by record low interest rates, rather than any regulatory changes introduced by the SEC.
“Although these new tools have been put in place and positively received, the continued strength of the broader market has been the primary factor driving IPO volumes,” said Jim Cooney, head of equity capital markets for the Americas at Bank of America.
A former Wall Street deals lawyer who has represented a roster of big banks and hedge funds, including Goldman Sachs and Deutsche Bank, Clayton initially disappointed Republicans and corporate lobbyists who had hoped he would hand them quick big wins.
Instead, Clayton focused on building consensus with the four other commissioners who decide on rule-making and enforcement actions at the SEC. Two of the five current commissioners were picked by the Democratic party. The rest, including Clayton, are Republican appointees.
Over the past year, though, Clayton has proved more willing to push through changes despite dissent from the Democratic commissioners, most notably Jackson, who has voted against several measures since joining in January 2018.
Jackson, an academic who has studied the reliability of corporate disclosures, said reducing the frequency and substance of information companies had to publish, “comes with real costs for real people”.
Allison Lee, the other Democrat commissioner, declined to comment. Republican commissioners Hester Peirce and Elad Roisman, did not respond to requests for comment.