Let's give proxy advisory reforms a sunset provision

02/08/2020

Let's give proxy advisory reforms a sunset provision

I concur with Professors Yoon-Ho Alex Lee, Matthew Spitzer and Eric Talley who endorse the SEC's proposed regulation of proxy advisory services with an important caveat:

In our own scholarship, we have advanced the analytic argument that these difficulties need not place a prohibitive roadblock in the way of new financial regulations. To the contrary, they often represent an opportunity for regulatory experimentation—i.e., the embrace of new regimes on a provisional basis, and the concomitant value of information and learning that comes from such experimentation. Moreover, we are of the view that the added wisdom that comes through regulatory learning—along with the value of the “real option” to decide whether to retain the provisional rules—constitute unappreciated benefits in the calculus of cost-benefit analysis (“CBA”). ...

... if the proposed rule were characterized as provisional (and subject to an express sunset provision), the Commission would benefit in three concrete ways:

First, including a sunset will allow the Commission to tally as an additional benefit the “option value” associated with a provisional rule. In other words, given the high degree of uncertainty concerning the effects of the proposed rule, the Commission can legitimately recognize expected benefits of information generated from the provisional rule change simply by including a sunset provision.[7]

Second, the provisional period will allow the Commission to gather data from the industry so that, upon sunset, the Commission will be much better equipped to move forward with a more permanent version (and possibly a better version) of its rule with reliable empirical data.

Finally, in the case that the rule’s critics prove correct in their fears about the rule’s prohibitive costs, the sunset provision would allow the Commission a more seamless path to repealing the rule.

On the basis of the foregoing analysis, we are of the opinion that the Commission’s proposal is a promising one as measured through a regulatory experimentation lens.

Posted at 04:16 PM | Permalink

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I concur with Professors Yoon-Ho Alex Lee, Matthew Spitzer and Eric Talley who endorse the SEC's proposed regulation of proxy advisory services with an important caveat:

In our own scholarship, we have advanced the analytic argument that these difficulties need not place a prohibitive roadblock in the way of new financial regulations. To the contrary, they often represent an opportunity for regulatory experimentation—i.e., the embrace of new regimes on a provisional basis, and the concomitant value of information and learning that comes from such experimentation. Moreover, we are of the view that the added wisdom that comes through regulatory learning—along with the value of the “real option” to decide whether to retain the provisional rules—constitute unappreciated benefits in the calculus of cost-benefit analysis (“CBA”). ...

... if the proposed rule were characterized as provisional (and subject to an express sunset provision), the Commission would benefit in three concrete ways:

First, including a sunset will allow the Commission to tally as an additional benefit the “option value” associated with a provisional rule. In other words, given the high degree of uncertainty concerning the effects of the proposed rule, the Commission can legitimately recognize expected benefits of information generated from the provisional rule change simply by including a sunset provision.[7]

Second, the provisional period will allow the Commission to gather data from the industry so that, upon sunset, the Commission will be much better equipped to move forward with a more permanent version (and possibly a better version) of its rule with reliable empirical data.

Finally, in the case that the rule’s critics prove correct in their fears about the rule’s prohibitive costs, the sunset provision would allow the Commission a more seamless path to repealing the rule.

On the basis of the foregoing analysis, we are of the opinion that the Commission’s proposal is a promising one as measured through a regulatory experimentation lens.