Corporate Governance

Free Enterprise Fund v. PCAOB: Regulation, the Free Market, and the Constitution (More Legal Issues) (Part 5)

By J. Robert Brown

What of the other two issues? There is almost no law interpreting the particular language of a “for cause” restriction. It is possible, therefore, that while some limitations on removal are permissible, there may be some that go too far. A for cause restriction that is excessively narrow means that there is no real right of removal, something that might more readily impair the President's ability to execute the laws, and also might suggest no real supervision for purposes of the Appointments Clause.

Whatever the merit of the case, the facts in this case do not demonstrate an impermissibly broad restriction on removal. Section 107 of SOX allows the Commission to remove a board member who has:

• (A) has willfully violated any provision of this Act, the rules of the Board, or the securities laws;
  (B) has willfully abused the authority of that member; or
  (C) without reasonable justification or excuse, has failed to enforce compliance with any such provision or rule, or any professional standard by any registered public accounting firm or any associated person thereof.

The willful language is unusual.  The more common language is to simply permit removal upon a showing of neglect of duty or malfeasance.  See 15 USCS § 2053(a) (removal of commissioners of Consumer Product Safety Commission may only be "for neglect of duty or malfeasance in office but for no other cause."). 

Nonetheless, the provision applicable to the PCAOB is hardly broader.  First, the failure of members to respond to Commission orders concerning implementation of the law would constitute willful behavior and allow for removal.  Second, in Morrison, the "for cause" provision was in many ways even more restrictive. Except for impeachment and conviction, independent counsel could only be removed for “physical disability, mental incapacity, or any other condition that substantially impairs the performance” of his or her duties. 487 US at 626 n. 23. In other words, “for cause” did not cover anything related to performance or specifically to the duties undertaken. In this case, however, the for cause provision provides far greater latitude to remove a member of the PCAOB.

There is nothing in the particular "for cause" provision that renders it per se unconstitutional.

We have posted on the DU Corporate Governance web site most if not all of the important documents on the case, including the assorted amicus filed in the case.  

Full post as published by The Race to the Bottom on July 02, 2008 (boomark / email).