Corporate Governance

Supreme Court Strikes Down the PCAOB

By J Robert Brown Jr.

Chief Justice Roberts in a 5-4 decision (conservatives v. liberals), declared as unconstitutional the "dual for-cause limitations on the removal of [PCAOB] Board members".   The opinion is here. 

The Court did not enjoin operations of the PCAOB but did gut its authority.  See PCAOB at 33 ("In light of the foregoing, petitioners are not entitled to broad injunctive relief against the Board's continued operations. But they are entitled to declaratory relief sufficient to ensure that the reporting requirements and auditing standards to which they are subject will be enforced only by a constitutional agency accountable to the Executive.").

The main impact of the decision is to eliminate a form of regulation that attempts to bring government bureaucracies closer to the market.  The PACAOB after all was a New York non profit, not a typical government agency.  The most likely consequence will be to bring the PACAOB into the SEC, creating a regulatory body that is more bureaucratic and less in touch with the market.  In other words, this opinion must be seen as anti-market in its resolution. 

The majority assumed without deciding that the SEC commissioners could only be removed "for cause."  (The statute is silent).  The dissent was more direct on the point.  As Justice Breyer stated:

• It is certainly not obvious that the SEC Commissioners enjoy 'for cause' protection. Unlike the statutes establish-ing the 48 federal agencies listed in Appendix A, infra, the statue that established the Commission says nothing about removal. It is silent on the question. As far as its text is concerned, the President's authority to remove the Commissioners is no different from his authority to remove the Secretary of State or the Attorney General. See Shurtleff, 189 U. S., at 315 ('To take away th[e] power of removal . . . would require very clear and explicit lan-guage. It should not be held to be taken away by mereinference or implication'); see also Memorandum from David J. Barron, Acting Assistant Attorney General,Office of Legal Counsel, to the Principal Deputy Counsel to the President: Removability of the Federal Coordinatorfor Alaska Natural Gas Transportation Projects, p. 2 (Oct. 23, 2009), online at http://justice.gov/olc/2009/gas-transport- project.pdf ('[Where] Congress did not explicitly providetenure protection . . . the President, consistent with . . .settled principles, may remove . . . without cause'); The Constitutional Separation of Powers Between the Presi-dent and Congress, 20 Op. Legal Counsel 124, 170 (1996) (same).

• Nor is the absence of a 'for cause' provision in the stat-ute that created the Commission likely to have been inad-vertent. Congress created the Commission during the 9-year period after this Court decided Myers, and therebycast serious doubt on the constitutionality of all 'for cause'removal provisions, but before it decided Humphrey's Executor, which removed any doubt in respect to the con-stitutionality of making commissioners of independent agencies removable only for cause. In other words, Con-gress created the SEC at a time when, under this Court'sprecedents, it would have been unconstitutional to make the Commissioners removable only for cause. And, during that 9-year period, Congress created at least three majorfederal agencies without making any of their officers removable for cause. See 48 Stat. 885, 15 U. S. C. §78d(Securities and Exchange Commission), 48 Stat. 1066, 47 U. S. C. §154 (Federal Communications Commission); 46Stat. 797 (Federal Power Commission) (reformed post-Humphrey's Executor as the Federal Energy Regulatory Commission with 'for cause' protection, 91 Stat. 582, 42 U. S. C. §7171). By way of contrast, only one month after Humphrey's Executor was decided, Congress returned toits pre-Myers practice of including such provisions instatutes creating independent commissions. See §3, 49Stat. 451, 29 U. S. C. §153 (establishing National Labor Relations Board with an explicit removal limitation).

Full post as published by The Race to the Bottom on June 28, 2010 (boomark / email).