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SEC Conflict Minerals Disclosures Have Done Nothing to Quell Violence in the DRC

The SEC's much ballyhooed conflict minerals disclosure rules reportedly have done nothing to reduce violence in Congo and in some ways has made it worse:

GAO found no empirical evidence that the rule has decreased the occurrence or level of violence in the eastern DRC, where many mines and armed groups are located. GAO also found the rule was associated with a spread of violence, particularly around informal, small-scale gold mining sites. This may be partly because armed groups have increasingly fought for control of gold mines since gold is more portable and less traceable than the other three minerals. Further, GAO found that the number of violent events in the adjoining countries did not change in response to the SEC rule.

Reliable data on costs is hard to come by, but is surely in the hundreds of millions of dollars over the years.

The Case Against Imposing Fiduciary Duties on Controlling Shareholders

I'm working on a law review article on fiduciary duties of controlling shareholders. In it, I take as given the longstanding proposition that controlling shareholders do owe fiduciary duties to the minority shareholders. But I believe there is a case to be made for the proposition that shareholders—majority or minority; controlling or not—should not be treated as fiduciaries at all. Here it is in a nutshell.

There are certain textbook fiduciary relationships, including those between attorney and client, executor and heir, guardian and ward, principal and agent, trustee and trust beneficiary, and senior corporate official and shareholder.[1] As with other examples of fiduciary relationships, all of these examples involve discretionary authority and dependency.[2] It is not merely that the fiduciary exercises discretionary powers that may impact the beneficiary, but that the beneficiary has justifiably reposed trust and confidence in the fiduciary.[3] Put another way, there must be reliance on the beneficiary’s part and de facto control and dominance on the part of the fiduciary.[4] The former is not merely vulnerable to the latter’s actions, but also relies on the latter to serve the beneficiary’s interests. Hence, as Judge Cardozo famously explained, fiduciaries are held to “the punctilio of an honor the most sensitive.”[5] As such, a fiduciary is obliged to put the interests of their beneficiary ahead of their own.[6]

None of this is true of the controlling shareholder—minority shareholder relationship. Granted, the controller wields discretionary voting power that could be used adversely to the interests of the minority, but the minority does not repose trust and confidence in the controller.[7] The minority does not rely on the controller to put the minority’s interests ahead of the controller’s own interests.[8]

Update: My friend and colleague Andrew Verstein sent along this comment:

I completely agree. 

But, I do tend to think that it would be a better world if minority shareholders can begin to repose trust in majority shareholders - which they can do if the law effectively imposes such duties. 

Of course, that still leaves many questions, such as this one: can the law just stipulate fiduciary relationships wherever they would be helpful, without any preexisting social understanding of trust?  If randomized controlled studies proved conclusively that the economy would function better if everyone were a fiduciary to individuals younger than them, could we just decree such a relationship? Probably not. There seem to be practical and theoretic limits to instrumentally imposed fiduciary duties. And that makes your observation truly central to the debate. 

Harvard Law School Business Associations Exams from 1871

Harvard Law School Agency Law exam from 1871 (h/t @OrinKerr) pic.twitter.com/VVIjoq7heu

— Steve Bainbridge (@PrawfBainbridge) October 9, 2024

Harvard Law School Partnership Exam from 1871 pic.twitter.com/hjuUoVaD1X

— Steve Bainbridge (@PrawfBainbridge) October 9, 2024

Harvard Law School Corporations Exam from 1871 pic.twitter.com/tD6yOKzfCP

— Steve Bainbridge (@PrawfBainbridge) October 9, 2024

The Distinction Between a Principal’s Liability for Torts of an Independent Contractor with Respect to Inherently Dangerous Activities and Ultra-Hazardous Activities: An Explainer

I gave this to my class today and thought it might be of interest to some readers.

The principal can be held liable where the contractor’s performance involves an inherently dangerous activity. In the Majestic case, for example, the Parking Authority of the City of Paterson hired Toti Contracting to demolish a building adjacent to one owned by Majestic Realty.[1] A wrecking ball operated by a Toti employee knocked a section of wall onto the Majestic building’s roof, causing extensive damage. Humorously, the Toti employee explained: “I goofed.”[2] Majestic sued the Authority. The trial court held that Toti was an independent contractor and, accordingly, that the Authority could not be held liable. The New Jersey supreme court reversed, adopting:

[A] rule which would impose liability upon the landowner who engages an independent contractor to do work which he should recognize as necessarily requiring the creation during its progress of a condition involving a peculiar risk of harm to others unless special precautions are taken, if the contractor is negligent in failing to take those precautions. Such work may be said to be inherently dangerous, i.e., an activity which can be carried on safely only by the exercise of special skill and care, and which involves grave risk of danger to persons or property if negligently done.[3]

Demolition was just such an activity, according to the court.[4]

In a classic article, Professor Sykes explained that:

Vicarious liability is clearly efficient for many inherently dangerous activities. In cases where the agent’s activity requires particular, ex ante precautions the principal can require those precautions in the agency agreement, and provide that failure to undertake the precautions will result in loss of the agent’s fee in a one-period agency, discharge or demotion in a multiperiod agency, or some other adequately severe penalty. The enforcement costs of this simple agreement are low if the desired precautions are cheaply observable—opportunities for inexpensive observation of precautions arise in many inherently dangerous activities. Vicarious liability is unambiguously efficient under these conditions.[5]

Majestic distinguished inherently dangerous activities from ultra-hazardous ones.[6] Under Majestic, the principal is liable with respect to both types of activities. The difference is that the principal is vicariously liable with respect to liable ultra-hazardous activities without regard to the negligence of the contractor. As the Majestic court put it, the principal’s “liability is absolute where the work is ultra-hazardous, but it is contingent on proof of negligence in cases of inherently dangerous activity.”[7]

Judge Posner advanced an economic justification for the ultra-hazardous exception—which he called the “abnormally dangerous” activity exception—in Anderson v. Marathon Petroleum Co.[8] In general, Posner argued, a principal does not directly supervise the independent contractor’s work. Accordingly, the principal typically has little ability to prevent negligence on the part of the independent contractor (or the latter’s employees). Where an activity is abnormally dangerous, however, it is by definition one that “might very well result in injury even if conducted with all due skill and caution.”[9] With respect to such activities, Posner argued:

[I]t is important not only that the people engaged in it use the highest practicable degree of skill and caution, but also—since even if they do so, accidents may well result—that the people who have authorized the activity consider the possibility of preventing some accidents by curtailing the activity or even eliminating it altogether. . . . The fact that a very high degree of care is cost-justified implies that the principal should be induced to wrack his brain, as well as the independent contractor his own brain, for ways of minimizing the danger posed by the activity. And the fact that the only feasible method of accident prevention may be to reduce the amount of the activity or substitute another activity argues for placing liability on the principal, who makes the decision whether to undertake the activity in the first place.[10]

Note that this analysis seemingly would not justify an exception to the no liability rule where the conduct is merely inherently dangerous. Because inherently dangerous activities by definition can be conducted safely with special care and precautions, there seems less justification for requiring the principal to “wrack his brain” for precautions.[11]

Lazy Man's Corn Cakes

• 1 14.5-ounce can creamed corn
• 1 ½ cups Kodiak Buttermilk Pancake and Waffle Mix
• 1 egg, beaten
• ½ cup whole milk

Combine all ingredients (do not over work). If mix is too thick add a tablespoon of milk at a time until you get the batter consistency you want.

Heat a griddle to 375º (I use my infrared thermometer to check). Grease lightly with vegetable oil. Using a ¼ measuring cup or scoop add batter to griddle. Cook until bubbles appear in the batter, flip and cook until the cakes are golden brown.

I served then with maple glazed pork chops.

Pork Chops (Sous Vide) with Maple Glaze

• 2 8-ounce boneless pork chops
• ¼ cup maple syrup
• 1 ½ tablespoons apple cider vinegar
• 1 teaspoon Dijon mustard
• ¾ teaspoon dried thyme
• ¾ teaspoon dried Italian parsley
• ¼ teaspoon garlic powder
• ¼ teaspoon onion powder
• Salt and pepper

Liberally season pork chops on both sides with salt and pepper. Vacuum seal the chops in a plastic bag. Place in a 140º sous vide bath for 1 ½ hours. Remove chops from bath and bag. Pat pork chops dry with paper towels. Sear 1 minute on each side in a blazing hot skillet.

Meanwhile, combine all remaining ingredients in a small sauce pan. Bring to a simmer and allow to reduce to a glaze. Keep warm. 

When pork chops are ready, spoon glaze over them.

I served them with corn cakes.

Expanding on the question of whether Trump can fire Gensler

You will recall that a few weeks ago I posted Trump pledges to fire SEC Chair Gary Gensler: Does the President have the power to do so? I got an email today from a reporter asking "Are you sure he really could remove him from chairmanship?"

I am not "really sure" Gensler can be removed from his position as SEC chair. But I am pretty sure at about a 95% confidence level. It has never been done, but as I explained in the original post the consensus view (that I share) is that the Chair serves as such at the pleasure of the president.

Whether Trump can fire Gensler from his position as a member of the Commission is a separate question. No member of the Commission has ever been fired by a President. (The technical term is removed.) At least one member (former Chairman Harvey Pitt) was subjected to so much pressure that he resigned as both Chair and a Commissioner, but none has ever been removed by a President.

The legal issue is actually quite complex. The foundational case on this issue is Myers v. United States (1926), which held that the President has the exclusive power to remove executive branch officials, such as postmasters, without the need for Senate approval. In this case, the Supreme Court struck down a law that required the President to obtain Senate consent to remove a postmaster. The Court held that the power to remove appointed officers is a key component of the President's ability to ensure that the laws are faithfully executed. The decision emphasized that the removal power is an inherent aspect of executive authority, necessary to maintain the President's control over the executive branch.

In 1926, however, there were very few of the so-called independent agencies that we know today. The SEC, FTC, and so on were created in the New Deal and after.

In Humphrey's Executor v. United States (1935), the Supreme Court held that the President could not remove a member of the Federal Trade Commission (FTC) for reasons other than those allowed by statute, which typically include inefficiency, neglect of duty, or malfeasance. This decision emphasized that independent agencies, like the FTC, perform quasi-legislative and quasi-judicial functions, and thus should be shielded from direct presidential control.

These cases established a fundamental distinction between executive branch officials (such as members of the Cabinet) and members of the independent agencies.

But there’s a wrinkle. The statute that created the FTC included a provision that  the President could only remove FTC commissioners for “inefficiency, neglect of duty, or malfeasance in office,” none of which Humphrey had committed. The statute creating the SEC has no comparable provision. In addition, in 1934, when the statute creating the SEC had been adopted, Humphrey’s Executor had not yet been decided. As far as anyone knew, Myers was still the controlling precedent. Hence, there is an argument to be made Congress left out a removal provision out of the Securities and Exchange Act because it assumed that empowering the President to remove a Commissioner was unconstitutional.

The trouble is that Wiener v. United States (1958) held that that the President does not have the authority to remove a member of the War Claims Commission, an independent commission comparable to the SEC, without cause, even though the statute creating the commission was silent on the issue of removal.

Accordingly, the Supreme Court ruled that President Eisenhower could not remove a member of the War Claims Commission simply because he wanted to appoint someone else. The Court reasoned that the WCC was an independent body intended to operate free from executive influence, and that the nature of its functions—quasi-judicial in this case—required insulation from political pressures. The decision thus established a presumption that the removal of officials from independent agencies is restricted to ensure their independence and neutrality.

But then there is a further complication. In Wiener, the Supreme Court relied heavily on legislative history that tended to show Congress had intended to insulate the WCC from external review by both the executive and the judicial branch. There is no such legislative history pertinent to the SEC.

On top of all of which, we must consider that we are dealing with cases decided decades ago. The modern Supreme Court’s approach to statutory interpretation, deference to Presidential powers, and other relevant issues is much different than was that of the Court in the 1930s and the 1950s.

So I am “really sure” that the bottom line answer to the question of whether the President can remove an SEC Commissioner is a resounding “maybe.”

Of course, given current polls, it’s probably just a theoretical inquiry.

Does Delaware SB 313 Eviscerate Omnicare v. NCS Healthcare?

I got a very interesting question from an adopter of my Business Associations casebook:

Do you think Omnicare is still relevant/good law after SB 313?  Could a governance agreement under 122(18) include an agreement with an acquirer (who holds some shares in the target) that the board must submit a merger to a shareholder vote at some future date without any fiduciary duty out clause.  (And as in Omnicare, also have a separate agreement by the target’s controlling shareholder to vote yes for the merger)?'

For the benefit of the uninitiated, in Omnicare, Inc. v. NCS Healthcare, Inc., decided by the Delaware Supreme Court in 2003, the primary legal issues revolved around the validity of a merger agreement and the use of "lock-up" provisions that could potentially coerce shareholder approval. The decision underscored the importance of ensuring that corporate boards remain free to fulfill their fiduciary duties to shareholders, especially in the context of mergers and acquisitions.

Omnicare, Inc. and Genesis Health Ventures, Inc. both sought to acquire NCS Healthcare, Inc., a company facing financial difficulties. NCS's board of directors agreed to a merger with Genesis, and this agreement included several defensive measures: a voting agreement where certain NCS shareholders committed in advance to support the merger, and a "force-the-vote" provision requiring the merger to be submitted to a shareholder vote even if the board withdrew its recommendation. Omnicare subsequently made a higher offer to acquire NCS, which the NCS board believed was financially superior to Genesis's offer. However, due to the lock-up provisions, the NCS board was unable to terminate the merger agreement with Genesis.

The Delaware Supreme Court held that the merger agreement between NCS and Genesis was invalid. The Court found that the combination of the lock-up provisions and the force-the-vote provision was coercive and precluded the NCS board from exercising their fiduciary duty to seek the best value reasonably available to shareholders. The court emphasized that such arrangements improperly restricted the board's ongoing statutory and fiduciary obligations to protect the interests of the company's shareholders. Accordingly, such an agreement could only be upheld if it included a fiduciary out.

A "fiduciary out" clause is a provision that allows a company's board of directors to terminate a contract under certain circumstances, without incurring liability to the counterparty. This clause is particularly important in the mergers and acquisitions context when a better offer is made by another party after a merger agreement has already been signed. The fiduciary out clause is designed to ensure that the board can continue to act in the best interests of the shareholders by considering superior proposals, even if an initial agreement is in place. It provides a legal and ethical "out" for the board to accept a more favorable deal without facing penalties for breaching the original agreement, thereby aligning the board's actions with their fiduciary duties to maximize shareholder value.

SB 313 refers to a bill that became law in Delaware this year. It amended Delaware corporate law in a number of respects. It created new section 122(18) of the Delaware General Corporation Law, which provides that a corporation shall have the power to:

Notwithstanding § 141(a) of this title, make contracts with one or more current or prospective stockholders (or one or more beneficial owners of stock), in its or their capacity as such, in exchange for such minimum consideration as determined by the board of directors (which may include inducing stockholders or beneficial owners of stock to take, or refrain from taking, one or more actions); provided that no provision of such contract shall be enforceable against the corporation to the extent such contract provision is contrary to the certificate of incorporation or would be contrary to the laws of this State (other than § 115 of this title) if included in the certificate of incorporation. Without limiting the provisions that may be included in any such contracts, the corporation may agree to: (a) restrict or prohibit itself from taking actions specified in the contract, (b) require the approval or consent of one or more persons or bodies before the corporation may take actions specified in the contract (which persons or bodies may include the board of directors or one or more current or future directors, stockholders or beneficial owners of stock of the corporation), and (c) covenant that the corporation or one or more persons or bodies will take, or refrain from taking, actions specified in the contract (which persons or bodies may include the board of directors or one or more current or future directors, stockholders or beneficial owners of stock of the corporation). Solely for purposes of applying the proviso in the first sentence of this subsection, a restriction, prohibition or covenant in any such contract that relates to any specified action shall not be deemed contrary to the laws of this State or the certificate of incorporation by reason of a provision of this title or the certificate of incorporation that authorizes or empowers the board of directors (or any one or more directors) to take such action. With respect to all contracts made under this paragraph (18), the corporation shall be subject to the remedies available under the law governing the contract, including for any failure to perform or comply with its agreements under such contract.

As the bill's synopsis explains:

... new § 122(18) specifically authorizes a corporation to enter into contracts with one or more of its stockholders or beneficial owners of its stock, for such minimum consideration as approved by its board of directors, and provides a non-exclusive list of contract provisions by which a corporation may agree to:

a. restrict or prohibit future corporate actions specified in the contract;

b. require the approval or consent of one or more persons or bodies (including the board of directors or one or more current or future directors, stockholders or beneficial owners of stock) before the corporation may take actions specified in the contract; and

c. covenant that the corporation or one or more persons or bodies (including the board of directors or one or more current or future directors, stockholders or beneficial owners of stock) will take, or refrain from taking, future actions specified in the contract.

As I see it, there are four possible answers to my adopter's question:

1. Who cares? This flippant answer is premised on the view that Omnicare is more or less a dead letter. In a bench ruling in Optima International of Miami, Inc. v. WCI Steel, Inc., Vice Chancellor Lamb opined that "Omnicare is of questionable continued vitality.” At the very least, courts have given "a limited reading and application of Omnicare going forward." Megan W. Shaner, Revisiting Omnicare: What Does Its Status 10 Years Later Tell Us?, 38 J. Corp. L. 865, 884 (2013). Personally, I think Omnicare was bad law and bad policy. But it remains on Delaware's books (and, accordingly, in my casebook). So I am disinclined to embrace this answer.

2. Who knows? SB 313 was rushed through the legislative process with very little time taken to seriously evaluate it. Many commentators think the bill was not well thought out and was poorly drafted. There are rumors that the Delaware bar (which de facto drafts Delaware corporate law) plans to revisit the bill next year to clean it up. On this view, the bill leaves a lot of open questions (including the one at bar) that will need to work their way through the courts. Personally, I lean somewhat towards this view.

3. Yes, SB 313 does gut Omnicare. In the immediate reaction to SB 313's introduction, I tweeted that: "Am I wrong in thinking that the statute negates Omnicare, Inc. v. NCS Healthcare, Inc.?" Basically, Omnicare rested on the proposition that a board has continuing fiduciary duties that preclude it from entering into binding precommitments. New section 122(18) appears to allow boards to enter into agreements containing binding precommitments. 

4. Probably not. Legislative history rarely figures prominently in Delaware corporate law decisions, but there is a passage in the legislative synopsis that is worth pondering:

New § 122(18) does not relieve any directors, officers or stockholders of any fiduciary duties they owe to the corporation or its stockholders, including with respect to deciding to cause the corporation to enter into a contract with a stockholder or beneficial owner of stock and with respect to deciding whether to perform, or cause the corporation to perform, or to breach, the contract, whether in connection with their management of the corporation’s business and affairs in the ordinary course or their approval of extraordinary transactions, such as a sale of the corporation. New § 122(18) also does not affect the case law empowering a court to grant equitable relief in respect of a contract, such as when a contract is set aside because the counterparties thereto have aided and abetted a breach of fiduciary duty or when a court reviews director actions under an enhanced form of judicial scrutiny. See e.g. Paramount Communications Inc. v. QVC Network Inc., 637 A.2d 34 (Del. 1994); ACE Limited v. Capital Re Corporation, 747 A.2d 95 (Del. Ch. 1999). Instead, the amendments are intended to promote a policy of granting such relief based on the application of equitable principles, including equitable principles relating to fiduciary duties and public policy.

If we take seriously the proposition that 122(18) does not relieve the board of "any fiduciary duties," that would seem to include the fiduciary duties as set forth in Omnicare (assuming we do not adopt answer 1). This is particularly so because the passage goes on to note that the new provision does not impact the caselaw involving enhanced scrutiny. Omnicare was an enhanced scrutiny case, after all. 

(In passing, I note that I find the statement that "the amendments are intended to promote a policy of granting such relief based on the application of equitable principles, including equitable principles relating to fiduciary duties and public policy" puzzling. Promote how? With what result?)

Finally, when SB 313 first was introduced, I tweeted that "the new language in 122(18) [seems to] invite a Schnell v. Chris-Craft end run," observing that "[i]t would seem easy enough for a court to say that "inequitable action does not become permissible simply because it is legally possible." 

Joan Heminway appears to agree, as she argues that post-SB 313 shareholder agreements should include a fiduciary out:

If the parties truly intend for fiduciary duties to trump the contract (as the bill proponents have claimed) and we can anticipate challenges in that regard based on the nature of the agreement, stockholder agreements should provide in advance for the eventuality of a conflict.  Otherwise, a stockholder agreement authorized under DGCL § 122(18) may be found either invalid ex post because the board’s original approval of the agreement may later be determined to have been a breach of the directors’ fiduciary duties (for failure to include a fiduciary out, as in Omnicare) or unenforceable in litigation over a board decision to breach or refrain from breaching the agreement in the face of a perceived fiduciary duty conundrum related to the corporation’s performance under the terms of the agreement.  A well-crafted fiduciary out (which would undoubtedly be somewhat bespoke, as it should be in the M&A context, based on the nature of the corporation’s obligations in the contract) should help avoid litigation, or at least enable its early dismissal, in the event of either type of legal claim.

Personally, I lean towards some combination of this answer and #2. But I welcome thoughts.

DExit is "highly recommended"

I just noticed that Larry Solum's Legal Theory Blog gave my article DExit Drivers: Is Delaware's Dominance Threatened? a "highly recommended" grade. Many thanks. @lsolum https://t.co/Jm7J5GCcOE

— Steve Bainbridge (@PrawfBainbridge) August 7, 2024

VC Travis Laster on my article, DExit Drivers

Delaware VC Travis Laster says my article, DExit Drivers, makes many interesting points that make it worth reading. 😎 

I've posted a new article to SSRN: DExit Drivers: Is Delaware's Dominance Threatened?

I've posted DExit Drivers: Is Delaware's Dominance Threatened? to SSRN:

Abstract: For over a century, Delaware has led the corporate law landscape, though it has not been without competitors. States such as Georgia, Maryland, New Jersey, Ohio, Pennsylvania, Tennessee, and Virginia have attempted to rival Delaware, attracted by its significant tax revenue from incorporations. Today, Nevada emerges as a notable challenger, actively promoting "DExit" – a push for companies to leave Delaware. Consequently, this analysis primarily examines the choice between Delaware and Nevada.

Widespread discussion of the potential for mass DExit was triggered by recent criticisms from business leaders and prominent corporate lawyers. While such complaints have not yet triggered a mass exodus from Delaware, many firms are reportedly considering changing their corporate domicile. But is Delaware’s dominance genuinely at risk? Are these just isolated incidents or signs of a broader trend?

This article provides both and empirical and a qualitative analysis of firms that reincorporated from Delaware to another state between 2012 and 2024. It analyzes these firms based on size, filing status, and new state, along with their stated motivations.

The data suggest two main conclusions. First, almost all reasons given for reincorporation seem implausible. If DExit becomes more frequent, plaintiff lawyers should scrutinize these disclosures, particularly focusing on enhanced liability protections for controllers, directors, and officers, suggesting possible conflicts of interest requiring entire fairness review.

Second, the number of reincorporations from Delaware remains minimal compared to the vast number of new incorporations Delaware attracts annually. Given the strong inertia behind the initial incorporation decision and the weak drivers for DExit, it is unlikely to become widespread soon.

Trump pledges to fire SEC Chair Gary Gensler: Does the President have the power to do so?

Per Bloomberg:

Donald Trump said he would fire the Securities and Exchange Commission chair and pick crypto-friendly regulators if he returns to the White House in a bid to court virtual currency enthusiasts and harness the industry’s growing influence in the political arena.

Curiously, the question of whether the President has the power to remove SEC Commissioners without cause is an open one. Before we get to that question, however, let’s start with the issue of Gensler’s status as SEC chair.

Reorganization Plan No. 10 of 1950 section 3 provides that the President has the power to designate a member of the Commission to serve as its chairman. Dicta in some decisions and some law review commentary argues that the President therefore can remove a Commissioner from the position of chairman. See, e.g., S.E.C. v. Blinder, Robinson & Co., Inc., 855 F.2d 677, 682 (10th Cir. 1988) (stating that "the chairman serves at the President's pleasure"); Adam C. Gillette, Form over Function: How Collins v. Yellen Signals A Threat to the Independence of Multimember Financial Regulatory Agencies, 26 N.C. Banking Inst. 109, 129 (2022) ("The President is free to name a new chair from the members at any time."). This seems to be the general understanding. Certainly, it is what I’ve always understood.

So if reelected Trump likely could remove Gensler from his post as chairman and designate a different member of the Commission to serve as chairman. But can he remove Gensler as a Commissioner?

15 U.S.C. sec. 78d provides for appointment of commissioners, but contains no statutory guidance as to their removal from office. In Free Enter. Fund v. Pub. Co. Acctg. Oversight Bd., 561 U.S. 477 (2010), Chief Justice Roberts' majority opinion noted that "[t]he parties agree that the Commissioners cannot themselves be removed by the President except under the Humphrey's Executor standard of 'inefficiency, neglect of duty, or malfeasance in office,' and we decide the case with that understanding." Id. at 487 (citations omitted). In a dissent joined by Justices Stevens, Ginsburg, and Sotomayor, Justice Breyer complained that:

One last question: How can the Court simply assume without deciding that the SEC Commissioners themselves are removable only “for cause”? ... Unless the Commissioners themselves are in fact protected by a “for cause” requirement, the Accounting Board statute, on the Court's own reasoning, is not constitutionally defective. I am not aware of any other instance in which the Court has similarly (on its own or through stipulation) created a constitutional defect in a statute and then relied on that defect to strike a statute down as unconstitutional. 

Id. at 545-46 (emphasis in original).

He went on to state that:

It is certainly not obvious that the SEC Commissioners enjoy “for cause” protection. Unlike the statutes establishing the 48 federal agencies listed in Appendix A, infra, the statute 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. 

Id. at 546. 

A 2013 Harvard Law Review note argued "that if the President were to remove an SEC commissioner without cause, a reviewing court would uphold the removal." Note, The SEC is not an Independent Agency, 126 Harv. L. Rev. 781, 782 (2013). 

A 2022 blog post on the Yale Journal of Regulation's Notice & Comment site stated that "[i]t is widely assumed that SEC commissioners are insulated from removal by the President without good cause, but this view lacks any clear statutory basis" and concluded that "much of the current impetus around implied removal protection suggests that, were the Supreme Court to address the issue squarely, presidential removal power would win the day."

SEC chairs traditionally have resigned after a Presidential election in which control of the White House changes hands. If Gensler declined to fall on his sword, it is unclear whether he can be fired.