Yesterday, the Supreme Court overruled its 91-year old, New Deal-era decision in Humphrey’s Executor v. United States, expanding the President’s authority over those many independent boards and commissions that Congress has sought to protect from political influence by providing that their members can only be removed by the President for cause. The SCOTUS blog notes:
By a vote of 6-3, the justices struck down a federal law that bars the president from firing members of the Federal Trade Commission except in cases of “inefficiency, neglect of duty, or malfeasance in office.” That law, a majority of the justices ruled, violates the constitutional separation of powers between the three branches of government. And in reaching that decision, the court overruled its 91-year-old decision in Humphrey’s Executor v. United States, which had upheld the law at the center of the dispute.
More broadly, Monday’s decision was a major victory for proponents of the “unitary executive” theory – the idea that the president should have complete control over the executive branch. Under this theory, the president should be able to fire any member of the executive branch, and laws – like the one that the court struck down – that restrict his ability to do so violate the separation of powers.
Writing for the majority, Chief Justice John Roberts contended that “the President must have the assistance of officers he can trust. Although it is up to the Senate to decide whether to confirm those with whom the President would prefer to work, neither Congress nor the courts may saddle him with those with whom he cannot work. Subordinates who exercise the President’s power are subject to removal by him. Then, and only then, can they remain accountable to the President, and the President to the people.”
Justice Sonia Sotomayor penned a 49-page dissent that was joined by Justices Elena Kagan and Ketanji Brown Jackson. “Today,” she wrote, “the Court discards” the “democratic regime” created by the Constitution “in favor of one that distorts the structure of Government to fit the majority’s theory of unitary, total executive control. The result,” she concluded, “is a President who emerges with far greater power than ever before.”
The case arose following the Trump Administration’s attempt to remove Rebecca Slaughter, who was appointed during the first Trump Administration to fill one of the Democratic seats on the five-member Federal Trade Commission. Slaughter challenged her firing on the basis of Humphrey’s Executor v. United States, which addressed President Roosevelt’s attempt to fire William Humphrey as a commissioner of the FTC on policy grounds, when the FTC’s authorizing statute only allowed a president to remove a commissioner for “inefficiency, neglect of duty, or malfeasance in office.” A unanimous Supreme Court ruled in 1935 that the Federal Trade Commission Act was constitutional and that Humphrey’s dismissal on policy grounds was unjustified, paving the way for independent boards and commissions in the federal government to operate in a manner that was at least somewhat protected from political influence for the next 90 years.
It is certainly no surprise that we ended up here. As this CNN article notes: “For more than 40 years, since his service as a young Reagan administration lawyer, Chief Justice John Roberts has pressed for an exceptionally powerful US president, one who could fire the heads of independent agencies at any time.” As John Jenkins noted in this blog back in February of last year, many expected at the beginning of the second Trump Administration that SCOTUS would be open to revisiting, and ultimately overruling, Humphrey’s Executor.
I will freely admit my bias here – I have always been an independent agency fanboy.
To review the bidding, an independent agency is an entity that exists outside of the 15 executive departments and the Executive Office of the President, operating pursuant to statutory authority granted by Congress to serve some particularized mission that could be better carried out by a commission, agency or board that is shielded from direct political influence and the whims of the sitting President. While it is clear that the cabinet secretaries and their departments are always operating purely at the direction of the President, independent agencies enjoyed a certain level of detachment from the White House that, at least in my own view, allowed them to often pursue a more mission-focused agenda.
Now, don’t get me wrong, I recognize that the agenda of most “independent” agencies is set by a chairman or other leader who gets appointed by the President and is typically of the same political party as the President, so it is not like they are somehow magically above politics or not aligned with the White House’s overall agenda, but that veneer of “independence” afforded by their enabling statutes somehow has allowed many agencies to focus on their very particularized mission in what one might describe as a more objective manner with a longer-term perspective than the next presidential election.
Independent agencies actually predated the New Deal milieu in which the SEC was created, with Congress first establishing the Interstate Commerce Commission back in the 1880s for the purpose of regulating railroad rates. At that time, Congress thought that it was important to shield the ICC from the vagaries of politics so as to minimize the possibility of disruption. As this Economic Policy Institute paper notes:
Many additional independent agencies were created by Congress during the New Deal. It is commonly thought that these New Deal agencies were created to be independent because Congress wanted their decisionmaking to benefit from specialized expertise and—for several of these agencies—because they were tasked with performing adjudicative functions and, thus, were structured more like courts to preserve the integrity of the deliberative process and promote collaborative and consensus-based decisionmaking (Corrigan and Revesz 2017, 639).
During most of my time at the SEC, I observed this noble concept in action, and I was proud of it. As a federal agency with an important economic mandate, it would be insane to assert that the agency was somehow shielded from political pressure, and in fact we were continually bombarded by inquiries and cajoling from both the White House and the Hill; however, I rarely knew the political leanings of my colleagues, and typically the commissioners would approach issues from the perspective of the agency’s mission, rather than from the perspective of the current political climate. While some may accuse me of looking at my time at the agency through rose-colored glasses, I recall that I was always proud of how the agency operated so independently and with a laser-focus on its important mission in an increasingly politicized environment.
Note that my experience at the SEC was nearly twenty years ago, and toward the end of my tenure at the agency, the well-documented politicization of the SEC was becoming much more acute, and it has only gotten worse since then. Nonetheless, I am sad today to see the outcome of Trump v. Slaughter, because it will likely mean any last vestiges of the SEC’s independence will be lost, at least symbolically.
In the near term, there will obviously be no impact of the Supreme Court’s decision on the SEC, given that it is currently staffed with three Republican commissioners, going down to just two commissioners later this year. This means that there are no commissioners for the President to remove on policy grounds. Despite calls for the President to appoint Democratic commissioners to the SEC, it is likely that will not be a priority for the Administration going forward. So in terms of the SEC’s agenda, its rulemaking efforts and its enforcement efforts, yesterday’s decision will likely not change anything about how the SEC is operating in the current environment.
As we hurtle inexorably toward the Fourth of July holiday this week, I can’t help but feel that Summer is almost over even though it has really just begun. Before you break out your flag and hang your bunting to celebrate our nation’s 250th birthday, take a few moments to register for our 2026 Proxy Disclosure and Executive Compensation Conferences on October 12th & 13th in Orlando, Florida and via webcast.
Our agenda features two full days of fast-paced, topical panels, an all-star speaker lineup, and my interview with Corp Fin’s Deputy Director Christina Thomas. Our Fall Conferences will be a great opportunity to get up to speed on the SEC’s latest rulemaking initiatives, as well as other developments in executive compensation, governance, disclosure practices, activism and shareholder engagement.
You can register online at our conference page or contact us at info@CCRcorp.com or 1-800-737-1271. Do it today so you don’t miss out on our discounted “early bird” rate!
On Friday, the SEC and the CFTC issued a joint request for public comment on potential approaches to harmonize the regulatory frameworks that are applicable to portfolio margining across securities, security-based swaps, futures, swaps, and related positions. The press release announcing the request for comment notes:
The request for comment is intended to assist the agencies in evaluating whether greater coordination or alignment in portfolio margining requirements may improve risk management efficiency, reduce unnecessary market fragmentation, and enhance customer protections consistent with the agencies’ respective statutory authorities and responsibilities.
The issues addressed in the request for comment include:
– Existing portfolio margining models and practices
– Customer protection considerations
– Cross-margining and cross-product offsets
– Capital, segregation, and collateral treatment
– Risk management and margin methodologies
– Clearing agency and derivatives clearing organization considerations
– Operational and technical implementation issues
– Potential impacts on market liquidity and competition
The public comment period will remain open for 60 days following publication of the request for comment in the Federal Register. This joint request for public comment follows two similar joint requests for public comment that Meredith covered last week.
The SEC’s Office of the Advocate for Small Business Capital Formation is partnering with the Division of Corporation Finance to host a live-streamed virtual discussion titled “Rethinking the Rulebook: Modernizing the IPO Process and Access to Public Capital.” The announcement notes that the program is:
Designed to unite innovative and seasoned practitioners who are willing to question conventional approaches, propose regulatory solutions, and share insights on the Commission’s recent proposed rule changes. The event will focus on ways to support public companies in raising capital and maintaining their public status, inviting participants to contribute their expertise and engage in meaningful dialogue about modernizing the IPO process and improving access to public markets.
The program will be moderated by Courtney Haseley from the Office of the Advocate for Small Business Capital Formation and Ted Yu from the Division of Corporation Finance. Registration for this program is not required.
In the latest episode of the “Mentorship Matters with Dave & Liz” podcast, Liz and I speak about the difficult topic of losing a mentor. As with most of our relationships with others, we do not really think about the time when someone is no longer going to be in our lives, so we often don’t take the time to prepare for that possibility. But it is still possible to draw inspiration and mentorship from those we have lost, and in many ways that is a great way to keep their memory going. During the podcast, I discuss the sudden loss of my friend and mentor, Marty Dunn, who passed away six years ago this month. Check out this 31-minute podcast to hear:
– What it’s like to lose a mentor.
– How to continue to draw inspiration and guidance from a mentor even if you are no longer regularly in touch.
– The value of maintaining multiple mentor relationships.
– How Marty’s passing changed Dave’s perspective on mentorship.
– Lessons from Marty that Dave continues to carry forward, and the benefits of continuing a mentor’s legacy.
– What Dave would like people to remember most about Marty.
Thank you to everyone who has been listening to the podcast. If you have a topic that you think we should cover or guest who you think would be great for the podcast, feel free to contact Liz or me by LinkedIn or email.
The Freshfields team recently reviewed the governance terms of 86 sponsor-backed companies that went public between 2021 and 2025. In this blog, they share some of their key findings. Here are some excerpts, but read the full blog for more context:
– 90% of the surveyed companies retained “controlled company” status under applicable listing standards following their IPO.
– 87% of surveyed companies granted sponsors the right to nominate or designate directors to serve on the public company’s board. 77% permitted the sponsor to designate a majority or supermajority of the board. In 26% of companies, sponsors secured the right to designate the chairperson of the board.
– 58% of surveyed companies went public with a majority-independent board despite having no obligation to do so. Nearly all (95%) established a compensation committee, and 90% had a nominating and governance committee in place.
– In 57% of surveyed companies, the sponsor retained the right to designate at least one member of the audit committee, and in 61%, the sponsor held the same right over the compensation committee.
– Almost half (47%) of the surveyed companies with shareholder agreements in place gave sponsors consent or veto rights over key corporate actions following the IPO [. . .] In the majority of cases where veto rights were granted (86%), the sponsor owned at least 50% of the outstanding shares at the time of the IPO.
– 93% of surveyed companies permitted stockholder action by written consent [. . .] 84% permitted shareholders to call special meetings. In both cases, these rights are structured for sponsor use and typically sunset once sponsor ownership falls below a defined threshold.
– 77% of surveyed companies have a springing supermajority requirement for charter amendments, which takes effect once the sponsor’s voting power decreases to a certain level.
– 27% of the surveyed companies used an Up-C structure.
– 12% of surveyed companies had dual-class share structures at the time of IPO [. . .] Of the companies with high-vote/low-vote dual-class structures, nine out of ten were founder-led, reflecting that dual-class structures remain relatively uncommon in pure sponsor-backed IPOs.
Listed companies with operations in the United States face growing product liability, environmental and related litigation threats. Some of the world’s largest corporate groups have seen billions erased from their market capitalization overnight. Yet most listed companies still ignore the best defense available for managing their litigation exposure: ring-fenced subsidiaries. This failure has—and will—hit share prices hard if and when analysts start to price in major litigation risk from non-strategic operations.
The memo explains that ring-fencing goes beyond veil piercing. It’s focused on protecting a parent entity from creditor tactics that would be employed in a subsidiary bankruptcy.
In some cases, ring-fencing simply increases the leverage of the parent in litigation settlement discussions by clarifying that only invested equity capital is at risk. In other cases, ring-fencing is essential to permit a successful Chapter 11 filing to manage the subsidiary’s litigation liabilities without recourse to the group. And, in many cases, the ‘option’ created by ring-fencing is not called upon because the litigation threat dissipates or can be absorbed by equity capital already invested in the subsidiary.
Ring-fencing can help corporate defendants negotiate successful settlements in product liability or mass-tort litigation. For example:
In a class action context, lead plaintiff counsel will focus on the presence or absence of ring-fencing as a critical factual question that drives the amount and the structure of their settlement demands. And once the defendants and lead counsel strike a deal, ringfencing can be a key to limit opt-outs and facilitate court approval of the settlement as reasonable [. . .]
In a recent product liability matter for a multinational client, we were able to begin mediation by explaining to assembled plaintiff counsel that the last three years of operations and litigation defense had been financed with hundreds of millions of dollars of secured loans from the corporate parent, and that all of this recent secured debt ranked senior to litigation claims on the manufacturing business they were suing.
The memo explains what’s involved in a ring-fencing review. It includes an 8- to 10-page list of specific questions covering topics like legal separateness, group financing and cash management, IP rights, allocations of assets & liabilities, sources of agency and direct exposure, points of contact and intercompany claims, tax matters, insurance coverage and subsidiary officers & directors.
We recently posted the transcript for our “The SEC’s Semiannual Reporting Proposal: Considering the Alternatives” webcast, during which the all-star line-up of Skadden’s Brian Breheny, WilmerHale’s Meredith Cross, Gibson Dunn’s Tom Kim and Goodwin’s (and our own) Dave Lynn discussed the SEC’s proposed amendments that would allow public companies to elect to file semiannual reports on new Form 10-S, rather than filing quarterly reports on Form 10-Q. They addressed:
– The SEC’s proposed rule changes to the periodic reporting system
– The SEC’s proposed changes to financial statement requirements
– Potential areas for changes to the proposed rules – The experience of public companies in other jurisdictions with optional semiannual reporting – Considerations for companies when deciding to elect semiannual reporting – Potential challenges of semiannual reporting for areas such as insider trading compliance, share repurchase activity, capital-raising and investor communications – The ways in which earnings releases and earnings calls may change for companies opting into semiannual reporting – The relationship of the semiannual reporting proposal to other SEC initiatives
Members of TheCorporateCounsel.net can access the transcript of this program. If you are not a member, email info@ccrcorp.com to sign up today and get access to the full transcript – or call us at 800.737.1271.
Yesterday, the SEC announced that Kathleen M. Hutchinson has been appointed as Director of the Office of International Affairs (OIA). OIA advises on international policy and coordinates with foreign authorities to facilitate cross-border enforcement, among other things. The announcement notes:
Ms. Hutchinson has served as OIA’s Acting Director since January 2025. She started at the SEC in 2003 as an attorney-advisor in the Office of Compliance Inspections and Examinations, now the Division of Examinations, and joined OIA in 2008. Ms. Hutchinson has held several other positions in OIA, including Deputy Director and Assistant Director. She has twice served as Acting Director of the office.
Kathleen earned a J.D./M.A. from American University’s Washington College of Law and School of International Service. She holds a B.A. from Binghamton University. She began her legal career in private practice in Washington D.C. and New York City.
