Friday, October 16, 2020

SEC Commissioner Crenshaw, Director Blass discuss diversity, Commission goals at SEC Speaks

By Amanda Maine, J.D.

The Practising Law Institute’s annual SEC Speaks conference hosted a virtual conversation between SEC Commissioner Caroline Crenshaw and Division of Investment Management Director Dalia Blass where the two discussed recent developments at the Commission and the role of women at the SEC, and balancing work and life obligations in the COVID-19 era.

Crenshaw’s first months. Blass asked Crenshaw, who joined the Commission in August after previously serving as counsel to former Commissioners Robert Jackson and Kara Stein, how she was settling into her new role, noting that Crenshaw is a JAG on active Army Reserve status as well as a working parent with a young son. Calling her experience "humbling," Crenshaw said that she has new respect for her former bosses Jackson and Stein after serving as a commissioner for the past few months. Speaking about her JAG duties, Crenshaw said that going straight from SEC work to military work on two battle assemblies since assuming her role as commissioner is still something she loves to do and has worked on everything from divorce cases to landlord-tenant matters. Crenshaw also said that being at the Commission and in the military has helped her learn first-hand what soldiers as investors are thinking and what questions they have about investment products and disclosures.

Regarding family life, Crenshaw said that she has a toddler son, and with daycare closed due to COVID-19, her confirmation hearing was particularly challenging but she praised the individuals around her, including those who share her commitment to public service.

Building on Crenshaw’s comments, Blass remarked that she was excited to have a majority female Commission (consisting of Crenshaw, Commissioner Hester Peirce, and Commissioner Allison Herren Lee) for the first time since 2011. She asked Crenshaw about her views on promoting women in government, especially in financial regulatory roles. Harkening back to an earlier conference panel moderated by Chairman Jay Clayton on the SEC’s efforts regarding diversity and inclusion (D&I), Crenshaw said that D&I has been a priority at the SEC, which has done a good job of recognizing and promoting talented women. According to Crenshaw, recent statistics reveal that 40 percent of senior roles at the SEC are filled by women, continuing an upward trend.

Crenshaw also remarked that, like any other organization, it is important to treat issues such as closing gender gaps and increasing racial diversity like other business objectives. This includes setting specific goals to identify metrics, to ensure that progress can be tracked. Part of the challenge, according to Crenshaw, lies in confronting and expanding cultural perceptions of success and leadership under which mentoring can play a big role. It’s about identifying talent and ensuring that women receive access to the same career opportunities as their male counterparts, as well as recognition for their leadership skills, she added.

Blass’s observations. Turning the conversation back to Blass, Crenshaw inquired about the director’s own experiences at the SEC and what have been some of its practices that have allowed women to achieve greater parity. Blass remarked that as a woman, a person of color, and a mother of three, the Commission’s tone at the top has meant that it was rare for her to have to choose between family and career opportunities at the SEC. According to Blass, Commission leadership has worked hard to encourage a meaningful life-work balance, including providing extra administrative leave during COVID-19, which has been helpful to all employees but women in particular by not having to choose between family and career.

Blass also praised the Commission as a fantastic place to grow as a lawyer, and not just as a woman but as a woman of color. Blass said that it is important to develop not just female leaders but also diversity within that leadership. With diversity comes differences in leadership styles, Blass said, referring back to Crenshaw’s military experience. Leadership is not one-size-fits-all, and having diverse leadership styles in the workforce presents more opportunities to rise up in the ranks. While there is still more work to be done, Blass praised the SEC for doing a "tremendous" job of investing resources in promoting a diverse workforce.

SEC initiatives. Blass then asked Crenshaw about what her priorities are as she gets settled at the Commission. Crenshaw said that her main focus is on retail investor protection, calling it one of the SEC’s core mandates. Prodded by the IM director to speak on investment management issues, Crenshaw said that Regulation Best Interest, which became effective this summer, is a priority and that the Commission needs to make sure that it lives up to its potential. The SEC needs to ensure that financial professionals aren’t getting paid to give bad advice and should examine the extent to which their incentives are misaligned. She highlighted the required disclosures on Form CRS as a way to help retail investors be informed and make good use of the disclosures, but citing a text message from her sister-in-law with a screenshot of the form, acknowledged that there is still some confusion about it. Crenshaw said that the SEC knows that there are still questions about how to explain complex concepts in a fairly short amount of space.

Crenshaw said that the SEC is working with the IM Division on the Commission’s recent proposal on modernizing the SEC’s open-end fund disclosure framework, which was approved for comment in August. Crenshaw said that she is looking forward to hearing feedback on the open-end fund disclosure proposal and thanked the IM staff for its efforts.

Blass also asked Crenshaw what she believes should be the SEC’s priorities for enforcement. Crenshaw said that the Commission must maintain its vigorous enforcement program and use its provided resources to deter fraudsters and hold individuals accountable. She singled out one area where the she believes that the Commission has effectively used its enforcement resources: the Enforcement Division’s Share Class Selection Disclosure Initiative, which encourages investment advisers to self-report when they charged 12b-1 fees to clients when the same funds were available to the clients without disclosing the lower-cost funds. The initiative resulted in $139 million being paid back to clients. According to Crenshaw, the Initiative stands out as one of the most important aspects of the SEC’s enforcement program because it helps harmed investors.

Crenshaw also discussed the Enforcement Division’s litigation efforts. The SEC must be willing to take risks and litigate important Commission priorities and use its trial experts in assessing the resource costs and litigation risks when considering settlement offers, she said. However, she advised that she supports litigating matters if the alternative is an inadequate settlement. This helps develop law that is important to protect investors in the market, she said.