Just as Elisse Walter ascends to the chairmanship of the Securities and Exchange Commission on Dec. 14, several other top officials are set to depart the agency.
The transience gives Ms. Walter a whole new set of challenges – as if she needs more – when she takes over for outgoing chairman Mary Schapiro.
Ms. Walter, currently an SEC commissioner, must lead the agency with a short-handed commission of four members, rather than the usual five, who are split evenly between two Republicans and two Democrats. The partisan divisions have been unusually stark over the last couple years.
Ms. Walter also must replace Meredith Cross, director of the Division of Corporate Finance, Robert Cook, director of the Division of Trading and Markets, and Mark Cahn, general counsel. All three announced their departures earlier this week. Ms. Cross and Mr. Cahn will leave by the end of the year. Mr. Cook will stay on for a transitional period, according to an SEC release.
Making the situation even more complicated is the uncertainty of how long Ms. Walter will remain chairman. She can stay through the end of her commission term in late 2013. In the meantime, President Barack Obama is expected to nominate a permanent chair as well as a new commissioner for the seat that Ms. Schapiro is vacating. Both positions require potentially difficult Senate confirmations.
Candidates for the division director posts must consider a job offer without knowing who their boss ultimately will be. Surely that will add a challenging twist to recruiting.
The SEC turnover comes at a time when Ms. Walter will have her hands full wrangling consensus – or at least three votes out of four – for dozens of pending Dodd-Frank-financial-reform-law rules as well as other controversial initiatives, such as money market fund reform and rules that govern the standard of client care for investment advisers and brokers.
On the surface, lacking two division heads and a general counsel would seem to further slow down the agency's work, compounding the gridlock that is likely to occur among the commissioners.
On the other hand, there's also inertia at a bureaucracy as big as the SEC – and I mean that in the positive sense. A body that is in motion tends to stay in motion, according to the laws of physics. That rule of nature also applies to government.
The thousands of SEC staff members will maintain most of the agency's functions regardless of the tumult at the top.
“All three [departing officials] have highly competent deputies who would be able to continue the work without significant hindrance to the programs of the division,” said Eugene Goldman, a partner at McDermott Will & Emery LLP and a former SEC senior counsel.
A former SEC staff attorney, Laura Anne Corsell, said that Ms. Walter's vast regulatory experience will help facilitate the transition. Ms. Walter has served as a SEC commissioner since 2008. She was on the SEC staff from 1977 to 1994 and also has been an official at the Commodity Futures Trading Commission and the Financial Industry Regulatory Authority Inc.
She cautions not to overestimate the difficulties of operating with a four-person commission.
“I don't think it's quite like playing when you have someone in the penalty box,” said Ms. Corsell, a partner at Montgomery McCracken Walker & Rhoads LLP. “The strength of the staff in several areas is going to keep things moving in the right direction.”
The Division of Investment Management – the one that most directly affects investment advisers – has a chance of humming along like normal. Its director, Norm Champ, was recently appointed and probably will stay on board.
On Thursday in a speech in New York, Mr. Champ announced that the SEC would once again allow the use of derivatives in actively traded ETFs – a move that is likely to make funds happy. It marks the resumption of SEC consideration of so-called exemptive relief for ETFs.
Life goes on at the agency's Capitol Hill headquarters.