Feb. 15 (Bloomberg) -- Here’s the big question for Mary Jo White: If she becomes chairman of the Securities and Exchange Commission, where will her interests lie? With the public that pays her salary? Or with the people handing her the big bucks?
White is the white-collar defense lawyer and former U.S. attorney nominated by President Barack Obama to lead the SEC. Her financial disclosures say that upon leaving New York-based Debevoise & Plimpton LLP, the law firm will give her $42,500 a month in retirement pay for life, or more than $500,000 a year.
This means she has a direct interest in Debevoise’s future profits, and therefore an incentive to help make sure only good things come the firm’s way. Debevoise’s partner-retirement plan is unfunded, meaning the firm pays benefits from its continuing business operations.
The proof that this poses a problem can be seen in her proposed solution. White, 65, said that after she is confirmed by the U.S. Senate, Debevoise would make a lump-sum payment to her in lieu of monthly retirement checks for the next four years. After that, when presumably she is no longer the SEC’s chairman, her monthly payments would resume for life.
For someone with a reputation for caring deeply about her reputation, this is a serious error in judgment. Think about it: If there’s nothing wrong with having a financial interest in Debevoise, why not take the firm’s monthly checks while she’s SEC chairman and skip the lump sum?
Alternatively, if she believes there is something wrong with being owed money by Debevoise while she’s SEC chairman, why not cut off all ties with the firm and negotiate a one-time payment that settles everything? There’s no good reason she shouldn’t. There’s also a precedent for doing so.
The last time a partner from a major law firm was picked as SEC chairman was in 2001, when President George W. Bush appointed Harvey Pitt of Fried, Frank, Harris, Shriver & Jacobson LLP. Pitt, a renowned securities lawyer who had been at the firm 23 years, severed all relationships with Fried Frank, taking a lump-sum payment for all future amounts he was owed, discounted for the time value of money.
“Because the SEC regulates public companies, it is better for the public to know that the commissioners of the SEC do not have any other financial interest other than the U.S. public and the U.S. government,” Pitt told the Senate Banking Committee at his confirmation hearing in July 2001.
SEC Commissioner Daniel Gallagher cut all economic ties with his former law firm, Wilmer Cutler Pickering Hale & Dorr LLP, when he was appointed in 2011. Another example: When Donald Nicolaisen retired from PricewaterhouseCoopers LLP to become the SEC’s chief accountant in 2003, he cashed out, including his interest in the accounting firm’s unfunded retirement plan. He did so to eliminate any questions about his independence.
“When partners leave the firm to join the SEC, all financial interests in PwC are severed,” said Caroline Nolan, a spokeswoman for PricewaterhouseCoopers.
White declined to comment for this article. So did a Debevoise spokeswoman, Gabriella Schoff. A White House spokesman, Eric Schultz, declined to answer my questions about White’s disclosures. He e-mailed a one-sentence statement: “The independent Office of Government Ethics has communicated to the U.S. Senate that Ms. White is in compliance with all laws relating to financial interests.” All that shows is that it’s hard to legislate good ethics.
As for additional steps to address conflicts of interest, White said she would cash out her capital account at the firm, as well as her cash-balance retirement plan. (This is different from the program paying $42,500 a month). She wouldn’t participate in matters related to Debevoise or former clients for two years.
Clients listed by White include the accounting firm Deloitte & Touche LLP, whose China affiliate is being sued by the SEC for refusing to comply with an SEC subpoena. Others include General Electric Co., JPMorgan Chase & Co. and UBS AG, each of which has reached multiple settlements with the SEC’s enforcement division.
Some of White’s other proposed remedies are puzzling. Her husband, John W. White, is a partner at the law firm Cravath, Swaine & Moore LLP. Her disclosure filing said he would “convert to a non-equity partner status” and receive a fixed salary and annual performance bonus. The disclosures didn’t say how much money he would get for his Cravath stake or his yearly pay. For all we know, his steps to address conflicts of interest might make them worse.
White said she would avoid matters involving Cravath or its clients, unless authorized by the SEC’s chief ethics officer. Cravath, like Debevoise, is one of the country’s most prominent corporate-law firms. That means a lot of potential recusals -- taking her out of the mix on decisions that might be crucial to regulating U.S. capital markets, and possibly leaving the five-member commission deadlocked in 2-2 votes.
White’s husband also sits on advisory panels to the Financial Accounting Standards Board and the Public Company Accounting Oversight Board. White said she would decline to participate during her SEC tenure in any matter involving either board, unless authorized.
Those are unpaid positions with no authority to set policy. It isn’t important to the country for John White to be in those groups, which meet only a few times a year. It is important that the SEC chairman have unfettered ability to weigh in on U.S. accounting and auditing standards, as well as the oversight of audit firms. White’s husband should step down from those posts.
White undoubtedly has solid experience for the job. She needs to decide which she wants more: to serve the public, or to cling to the trappings of life as a tall-building lawyer. Most importantly, her finances shouldn’t be tied to Debevoise’s fortunes in any way, now or in the future.
She should know this already. So should the senators asking questions at her confirmation hearing.
(Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.)
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