January 18, 2017

The Incoming SEC Chairman as I Know Him


On Wednesday, Jan. 4, President-elect Donald Trump nominated Jay Clayton to be chairman of the U.S. Securities and Exchange Commission. I'm a registered Democrat and a proud supporter of Hillary Clinton. I would enjoy being able to criticize Trump's selection. But in this case, I cannot. Trump has picked the perfect person for this important position.

I've known Jay since 1995, when he joined Sullivan & Cromwell LLP as an associate following his clerkship. While we were associates, we worked together on a few matters and I was immediately impressed by his intellect, work ethic and calm demeanor. In mid-1996, I left Sullivan & Cromwell to go in-house at a client and the lawyer I wanted to represent my company was Jay. We spent the next several years working very closely over an untold number of hours on a series of complicated equity and debt financings. I may have been the client and the more senior lawyer, but I learned a lot watching Jay in action.

In 1999, when Jay was first being considered for partner, I received a call from John Mead, then-head of Sullivan & Cromwell's corporate practice, who was also the primary relationship partner for my company. John wanted my views, as a client, on whether Jay would make a good partner. I told John, who is one of the best securities lawyers in the country, that as long as I had Jay representing me, I had no need for John to be involved with our account. John thought that was pretty high praise, and he was right! (It is also an example of why Sullivan & Cromwell is such a successful law firm; rather than being the least bit threatened by my light-hearted comment, John Mead understood that adding Jay to the S&C partnership would only strengthen the firm.)

What made Jay such a special talent? He never lost sight of the big picture, but never missed a detail. He could be forceful when it was necessary, but he was always respectful to everyone working on the deal. He was the proverbial "smartest person in the room" but never acted like it. His advice was clear, well-considered, took into account all the facts and, importantly, as one considers the skills needed to be a good SEC chairman, always seemed to have an eye on how things would play out in the future.

When I worked with Jay, he was a securities lawyer representing an issuer on public securities offerings. But even then his practice was broader than that. Since then, the breadth of his practice has really expanded. Sullivan & Cromwell assigns its corporate lawyers to the "general practice" group, perhaps harkening to a time when business lawyers were able to handle any and all of their clients' business law needs. In today's legal market, clients want specialization, and it's a rare lawyer who can transition smoothly into multiple areas of the law, particularly when representing the most sophisticated corporations and financial institutions in the world. But in Jay's case, his practice has evolved into one more like the old days; clients seek out his expertise only for their most challenging matters—whether that be securities offerings, mergers and acquisitions, investigations, enforcement, compliance or governance matters and probably much more that he cannot discuss or list on his web bio. Thus, while many securities lawyers had very little to do following the financial crisis, Jay's practice was as busy as ever, as he represented major financial institutions, such as Ally Financial, in resolving legal issues that arose from the financial crisis. His expertise in accounting issues made him the perfect fit to represent a consortium of 100 U.K. general counsels as they established audit protocols with the Public Company Accounting Oversight Board. He has also handled major Foreign Corrupt Practices Act investigations, including for Eni, the Italian oil and gas company. As the markets revived, Jay continued his IPO practice, for example, representing the underwriters on the $25 billion initial public offering of Alibaba Group.

There have been reams written about what caused the 2008 financial crises and, in my view, a lack of adequate regulation was a major part of the problem. In response, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, among other legislative and regulatory actions designed to address the failures that led to the 2008 financial crises. There is a good argument to be made that Dodd-Frank has, on the whole, worked well in restoring confidence in the financial markets and has not been the regulatory job killer that Republicans feared. But it would also be naive to think that Dodd-Frank has not imposed certain regulatory burdens that outweigh the benefits they are designed to achieve. I expect that Jay's agenda will be focused on achieving the right balance between allowing our financial markets to do what they are supposed to do—provide for the efficient movement of capital to drive our economy—and the necessary regulation to protect investors and avoid another financial disaster like we experienced in 2008.

For the career SEC staff, you should breathe a sigh of relief. I'm sure Jay has an agenda of things he wants to get accomplished, but he is no ideologue. I honestly don't know whether he is a Democrat or a Republican and I don't believe he had any pre-election role in the Trump campaign. As far as I know, the Trump transition team sought him out because they were looking for the best person for the job. I expect his agenda to be the product of his deep experience and a thoughtful, reasoned approach to solving problems. He is a good listener, although I would encourage staff members to come to meetings with him well prepared. He is a quick study and decisive, but will consider all points of view before making a decision. If you are concerned that Trump would be inclined to nominate the stereotypical Wall Street deal lawyer who is full of bluster and arrogance, you will be pleasantly surprised.

The natural tendency of Democrats will be to criticize this pick as a "Wall Street insider" who won't be sensitive to regular working-class Americans. I live in Washington and understand the politics of having to make these statements. But in Jay's case, those criticisms miss the mark and are clearly being made by people who have never met him. I think it is far more likely that under Jay's chairmanship, the good guys should have nothing to worry about and the bad guys should be concerned. Notwithstanding the heated rhetoric of our election season, good hard-working people constitute the overwhelming majority of workers in the financial sector; they will find Jay's leadership supportive of the job our financial sector does to mobilize capital, grow companies and create jobs. As for the bad apples, with questionable ethics and a focus only on making a buck without concern for the consequences, they will find an SEC leader with no tolerance for their actions and no hesitancy to take swift and forceful action against them.

I'm no Trump supporter, but if there is one thing Trump does understand (in addition to the power of a well-followed Twitter account), it's Wall Street and the financial markets. And in his pick of Jay Clayton as SEC chairman, Trump has found the best person for the job.

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