In my book, Corporate Governance after the Financial Crisis, I wrote that:
... the federalization of corporate governance has resulted in rules that were wrong from the outset or may quickly become obsolete, but are effectively carved into stone with little prospect for change.
In sum, the federal role in corporate governance appears to be a case of what Robert Higgs identified as the ratchet effect. Higgs demonstrated that wars and other major crises typically trigger a dramatic growth in the size of government, accompanied by higher taxes, greater regulation, and loss of civil liberties. Once the crisis ends, government may shrink somewhat in size and power, but rarely back to pre-crisis levels. Just as a ratchet wrench works only in one direction, the size and scope of government tends to move in only one direction—upwards—because the interest groups that favored the changes now have an incentive to preserve the new status quo, as do the bureaucrats who gained new powers and prestige. Hence, each crisis has the effect of ratcheting up the long-term size and scope of government.
We now observe the same pattern in corporate governance. As we have seen, the federal government rarely intrudes in this sphere except when there is a crisis. At that point, policy entrepreneurs favoring federalization of corporate governance spring into action, hijacking the legislative response to the crisis to advance their agenda. Although there may be some subsequent retreat, such as Dodd-Frank’s § 404 relief for small reporting companies, the overall trend has been for each major financial crisis of the last century to result in an expansion of the federal role.
A top Republican lawmaker wants the GOP to move on from its nearly decade-long obsession with killing the Dodd-Frank Act.
Rep. Patrick McHenry (R-N.C.), the GOP frontrunner to become the next chairman of the Financial Services Committee, said his party should instead focus on legislation that will help prevent the next economic crisis and addresses all the ways that technology is rapidly reshaping banking. Such policies might draw bipartisan support, unlike efforts to gut Obama-era financial regulations.