FINRA CEO Search Committee

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FINRA's CEO Search Stumbles at the Gate
Written: January 27, 2009

By Bill Singer
http://RRBDLaw.com
http://BrokeAndBroker.com
 
Please see earlier blog http://www.brokeandbroker.com/index.php?a=blog&id=115 for context of this entry.
In response to yesterday's blog posting about FINRA's non-disclosure of the names of the members of the search committee charged with finding a replacement for departed CEO Mary Schapiro, some readers suggested that such "secrecy" was not only understandable but in keeping with the self-regulatory organization's past.  For the record, I do not believe that non-disclosure of the names and affiliations of members of the search committee is "understandable," and it is certainly not part of the regulator's tradition--if anything, it is part of a worrisome trend by too many politicians and regulators to keep us in the dark and uninformed. The spinning of public disclosure has become an art form in which once volunteered substantive facts are now replaced by evasive references lacking in substance and whose only purpose seems to be to further what I view as inappropriate, private deliberations behind closed doors.  Am I paranoid? Perhaps.  But you tell me--what other reason is there for FINRA's most recent hide-and-seek press release?
To reiterate, on January 23, 2009, FINRA posted a press release entitled FINRA Board of Governors Launches Search to Replace Schapiro; Stephen Luparello to Serve as Interim FINRA / CEO Board Also to Act to Fill Two Board of Governors Vacancies. http://www.finra.org/Newsroom/NewsReleases/2009/P117753 In pertinent part, we the investing public and industry are not informed as to who is on the search committee or what their affiliations are (or even how that committee was constituted); we are only told that

The Board of Governors of the Financial Industry Regulatory Authority (FINRA) has established a search committee to identify candidates to replace FINRA CEO Mary L. Schapiro, whose nomination to become chairman of the Securities and Exchange Commission (SEC) was approved by the U.S. Senate yesterday.
I would refer you to http://www.finra.org/Newsroom/NewsReleases/1996/P010572, which is the NASD's July 2, 1996 Press Release  entitled: NASD Chairman Tully Names Search Committee to Find Successor to Nasd President and CEO Hardiman.  In relevant part, that release stated:

The Committee is composed of seven members and includes industry, non-industry, issuer, and public representatives. Each member of the Search Committee currently serves on the NASD Board or the Boards of NASD Regulation, Inc., or The Nasdaq Stock Market, Inc. In addition to Mr. Tully, who is Chairman and Chief Executive Officer of Merrill Lynch & Co., Inc., and who will chair the Search Committee, the members of the Committee are as follows:


  • John H. Biggs, Chairman and Chief Executive Officer of the Teachers Insurance Annuity Association (TIAA) and the College Retirement Equity Fund (CREF) in New York.
  • Elaine L. Chao, President and Chief Executive Officer of the United Way of America in Alexandria, Virginia, former Director of the Peace Corps, and former Deputy Secretary of the U.S. Department of Transportation.
  • Jon S. Corzine, Chairman of Goldman, Sachs & Company in New York and Chairman of the firm's Management Committee.
  • Richard M. DeMartini, President and Chief Operating Officer of Dean Witter Capital and member of the Management Committee of Dean Witter, Discover & Co., in New York and current Chairman of the Nasdaq Board of Directors.
  • Robert R. Glauber, adjunct lecturer at the Center for Business and Government of the Kennedy School, Harvard University in Cambridge, Massachusetts, and former Under Secretary of the U.S. Treasury for Finance in the Bush Administration.
  • James S. Riepe, Managing Director, member of the Management Committee and Director of T. Rowe Price Associates, Inc., a Nasdaq-listed company, and a former Chairman of the Investment Company Institute.

The 1996 Search Committee selected Frank Zarb to head NASD.  A decade later, on January 12, 2006 when Mary Schapiro was selected  to replace departing CEO Robert Glauber, FINRA released a press release http://www.finra.org/Newsroom/NewsReleases/2006/P015848 entitled: NASD Board Names Future Successor to Chairman and CEO Robert R. Glauber Effective December 2006.  I have highlighted the only reference to the search committee in that press release:

n announcing Mary's election now, the Board of Governors is acting to ensure a smooth handover in NASD's leadership as Bob Glauber prepares to step down late this year at the end of his current term," said Richard F. Brueckner, Chief Executive Officer of Pershing LLC and Presiding Governor of NASD's Board of Governors. Mr. Brueckner also served on the special Board committee charged with selecting NASD's next Chairman and CEO. The search committee was composed of a majority of non-industry members of the NASD Board.. . .
From full disclosure of the names and affiliations of each search committee member some 13 years ago, to an oblique reference ("majority of non-industry members") lacking any names three years ago, to the most recent release that merely recites the name "search committee."  I know that with the election of President Obama, "hope" is supposed to have come to America; but I'm not sure that we also bargained for "obfuscation " from our regulatory community.  What the hell are you folks at FINRA hiding that you didn't just volunteer the names and affiliations of those on the search committee?
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Handicapping the FINRA CEO Race: The Touts Weigh In
Written: January 29, 2009

By Bill Singer
http://RRBDLaw.com
http://BrokeAndBroker.com
I recently read an Investment News story: Rumors fly over who’ll be next Finra CEO (January 29,2009) in which Bruce Kelly wrote that at a recent Financial Services Institute (FSI) conference, some participants were discussing successors to departed FINRA CEO Mary Schapiro and that among

Those [names] being bandied about as potential replacements for Mary Schapiro, who now heads the Securities and Exchange Commission, include Rick Ketchum, CEO of NYSE Regulation Inc.; Annette Nazareth, a former member of the SEC; and Douglas Shulman, commissioner of the Internal Revenue Service.
As I have recently written in this Blog, FINRA has apparently decided to conduct the search for its next CEO in a less that open manner.  The self-regulator once named the names of folks on its CEO Search Committee but has now simply announced the formation of committee without disclosing who is on it. Without any question, FSI and its members have every right to muse about proposed candidates for FINRA's CEO slot, and, even more, should exercise those rights to ensure that the very best candidate is selected.  Nonetheless, since FINRA has decided to cloak its search in far more secrecy than in years past, it is all the more critical that the self-regulator clearly disclose any discussions it has had or is having (or will have) with any trade organization concerning the search.  While I am not suggesting that FSI or any other group would be floating names at the behest of interested parties, I am nonetheless concerned that the report of FSI's members' preferences does not mislead the FINRA search committee.  
In the recent high-profile case of In the Matter of Next Financial Group, Inc.(June 18, 2008) http://sec.gov/litigation/aljdec/2008/id349jtk.pdf, the Securities and Exchange Commission imposed a $125,000 fine and a Cease and Desist order for recruiting tactics in violation of Regulation S-P.  On Page 17 of that Decision, it is noted that

NEXT also took a more serpentine route to make its position known. In April 2007, NEXT persuaded the Financial Services Institute (FSI) to issue a “Member Briefing” that echoed the points in its Wells submission (DX 70).11 The trade press also portrayed NEXT’s position sympathetically.12
11 FSI describes itself as an advocacy organization for independent broker-dealers and their registered representatives (DX 69 at 3). It was organized in January 2004. Many of the independent broker-dealers who founded FSI were previously members of the FPA—an organization that submitted comments during the rulemaking proceeding that led to the promulgation of Regulation S-P. See supra note 7. Two of the attorneys who represent NEXT in this proceeding prepared FSI’s Member Briefing (Tr. 725-26; DX 70 at 13).
As the SEC set forth in the Next case, FSI is an advocacy organization. As such, FSI likely acts in what its management team believes is the best interests of its members. Whatever those considerations are, they may involve conflicts that would favor the selection of one candidate over another -- again, understandable and common, but we need to make sure that whatever influence and access at FINRA that FSI has is counter-balanced by similar opportunities for other groups.
It would be silly to opt for a system of floating trial balloons for a Ketchum or a Nazareth, and seeing how they rise. That would not produce a robust roster of qualified candidates.  I would have much preferred for FINRA to have fully disclosed who was picked to serve on its search committee, what criteria were used, and how that committee plans to obtain a master list of names to consider.  If the task is to be accomplished by asking some attendees at various trade conferences who they like, it reduces the undertaking to nothing more than handicapping at a racetrack.  On the other hand, that's how things seem to have been done at NASD and now FINRA for far too long -- pals, cronies, and insiders. 
Having spoken to a number of FINRA participants (both from the dissident/reform community and otherwise), I can confirm that Douglas Shulman would certainly be a welcome CEO at FINRA.  He won a reputation for himself as a contemplative, fair, and courteous regulator--qualities that would be welcome at FINRA's helm.  Who else would I add to the stew?  For starters, how about someone like Barry Goldsmith, click on his name to see his impressive background.  For the record, Barry and I banged heads more than anything; nonetheless, he was a class act, a tremendously skilled regulator with impeccable credentials, and someone for whom I have the rarest of accolades as a regulator: I trusted him.  If FINRA were re-populated with a management team of the likes of Shulmans and Goldsmiths, the industry and the investing public would be far better served.
Frankly, all that I and other FINRA dissidents/reformers are asking for is a fair opportunity to be heard and to participate in the selection process for this most important of regulatory jobs.  While it's fun to look for the rumors and tidbits of gossip, there has to be a more respectable way to replace Mary Schapiro.

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