Apparently, public companies aren’t the only entities that prefer the occasional Friday news dump when it comes to controversial announcements. At approximately 4:00 pm eastern time on Friday, the SEC announced that it had removed PCAOB Chair William Duhnke and had designated Duane DesParte to serve as acting Chair. At the same time, the SEC announced that it was seeking candidates to replace all five current members of the PCAOB board. This article by Politico’s Kellie Mejdrich provides an overview of the politics behind the shakeup. Here’s an excerpt:
The sudden firing followed mounting pressure from [Senators] Warren, Sanders and several left-leaning groups who in recent weeks called on SEC Chair Gary Gensler to replace the entire board leading the PCAOB. The progressives warned that the agency, which was established after the Enron and WorldCom accounting scandals to inspect public company audits, was failing to crack down on corporate wrongdoing and was captured by industry.
Warren said Duhnke’s removal was “absolutely the right move” and she signaled that she would push for a bigger shakeup. The SEC, which is also responsible for hiring the PCAOB’s leaders, may grant her wish. The agency said it would seek candidates for all five of the regulator’s board positions, even as three of its members who serve five-year terms remain in place.
Over on the Radical Compliance blog, Matt Kelly reviews Duhnke’s “tumultuous and controversial” tenure as Chair of the PCAOB and provides some thoughts about what the changes are likely to mean for auditors and compliance professionals.
The SEC’s action prompted a dissenting statement from commissioners Peirce & Roisman, who said that the SEC acted in an “unprecedented manner that is unmoored from any practical standard that could be meaningfully applied in the future.” Mindful of the fact that under the leadership of Jay Clayton, the SEC took similar action to replace all incumbent PCAOB board members in 2017, the dissenting commissioners said that action was distinguishable, since most of the board members who were replaced at that time were serving after their terms had expired.
The dissenters didn’t mention the fact that the SEC’s 2017 action was also unprecedented. As the WSJ noted at the time, it represented the first time that PCAOB directors who desired a second term had ever been denied that opportunity by the SEC. That action was followed up by the SEC’s controversial decision to deny board member Kathleen Hamm a second term in 2019.
In light of the history here, the dissenters sound a bit like Captain Renault from Casablanca. C’mon guys, the PCAOB has been a political football for some time now, and what’s sauce for the goose is sauce for the gander.
– John Jenkins