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Although in absentia, the Securities and Exchange Commission (SEC) played a prominent role before the U.S. Supreme Court recently during the oral argument in Stoneridge, which has been characterized as “the Roe v. Wade” of securities fraud cases. Meanwhile, across the street from the Supreme Court, an equally important but far less public drama was playing itself out. Two of the present five SEC commissioners, both Democrats, are leaving the commission post-haste. The departure of Roel Campos and Annette Nazareth leaves three Republican commissioners, including Chairman Chris Cox � and deep worries among the investor community. Even before these departures, the SEC of late has shown a propensity to swing toward Wall Street interests, making these vacancies of even greater significance. While these are presidential appointments, the nominees are picked by the Democratic Senate leadership. As a lifelong Republican, I have always believed that the goal of robust and honest markets is bipartisan � perhaps the best argument against Big Government. But history � both distant and current � has taught us that such markets do not just happen. They must be constantly protected against the power of greed, corruption and self-dealing. That was the basis for the very creation of the SEC during the New Deal, in response to the Great Depression. During the past decade or so, in hostile territory, often with only marginal Republican support, the Democrats have been quite effective in preserving that idea. In response to the Enron and WorldCom frauds � the greatest in U.S. history � in 2002, a bipartisan Congress enacted Sarbanes-Oxley. The act established enhanced standards for corporate boards and accountants, upped criminal penalties and established the Public Company Accounting Oversight Board. But it has taken the Democrats to beat back continuing efforts by special interests to roll back the act, both in Congress and at the SEC. They have consistently shown more leadership and commitment to the rights of investors then those across the aisle. That is why, at least early on, the response of some Democratic senators to these two critical SEC vacancies has been even more disheartening. To promote nonpartisanship at the SEC, no more than three commissioners may belong to the same political party. Typically, commissioners chosen by the Democrats have had a solid background in safeguarding investors rights. Yet this time around, stressing the need for “preserving diversity,” Senator Robert Menendez, D-N.J., who sits on the Banking Committee, has come forward with Luis A. Aguilar. A partner in an Atlanta law firm and former general counsel at Invesco, Aguilar appears to have no background in acting on behalf of investors or insuring honest markets. And some of his public remarks are especially unsettling, criticizing Sarbanes-Oxley as “quickly and hastily done” and failing a “cost-benefit analysis,” for example. In a similar fashion, Senator Chuck Schumer, D-N.Y., has urged the appointment of Yoon Young Lee. A Wall Street lawyer who represents the securities industry in the corridors of Congress, Lee appears to have even less experience with issues of critical importance to the investment community than does Aguilar. Her main clients have been investment banks and stock analysts � about whom she has opined that the possibility of conflicts of interest with the interests of investors is “extremely remote.” Hardly. A crucial moment in history Now I have nothing against either Aguilar or Lee personally. And I am all in favor of diversity. But, first and foremost, the SEC needs commissioners who are experienced and forceful advocates for shareholder rights. This is especially true at this moment in history, when U.S. markets have been racked by one scandal after another: not just Enron, but Tyco, Adelphia, HealthSouth, WorldCom, AOL Time Warner and many others, including the host of companies now caught up in illegal stock backdating and even more recent corporate shenanigans resulting from the subprime meltdown. During the next year, the SEC is positioned to take up a series of issues of vital importance to investors and the public interest. One key question it will answer is whether shareholders will themselves be allowed to nominate directors for their companies’ boards. And in response to a petition recently filed by investors representing hundreds of billions of dollars, the SEC will determine whether companies must publicly disclose what they privately think about their liability for climate change. It is sound public policy that owners of the stock of a corporation be intelligently involved in its affairs. That’s the case elsewhere in the world, but not here � in part due to the power of money over our institutions, including Congress and the SEC. It’s getting worse and it certainly does not need help from the Democrats. If the SEC vacancies are filled by commissioners beholden to Wall Street, any hope that a new Democratic administration will bring with it much needed reform of U.S. corporations will be dashed. There is an old axiom that says the SEC doesn’t prevent you from being a fool, but it does prevent others from making a fool out of you. But perhaps for not much longer. Robert A.G. Monks is the sole partner at Portland, Maine-based Lens Governance Advisors. The author of many books including Corpocracy, to be published by John Wiley in December, he is a longtime advocate for good corporate governance.

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