Two Election Items for Compliance Officers to Watch

Now that election season is upon us, compliance professionals have a few races worth watching in Washington. The outcomes could have profound implications for financial regulation starting next January.

First is the intriguing case of Rep. Scott Garrett, a New Jersey Republican who serves on the House Financial Services Committee and chairs the Sub-committee on Capital Markets—a crucial role for all legislation related to corporate governance and securities law. Garrett has been a fierce foe of the Dodd-Frank Act and the Sarbanes-Oxley Act. Over the years his proposals have found their way into legislation such as the JOBS Act of 2012 (which rolled back numerous SOX governance reforms).

Now Garrett is facing trouble in his re-election campaign. Real Clear Politics rated his district (the New Jersey 5th district, tucked in the northern corner of the state) only as “leaning Republican.” Polling has been hard to find, but one poll from September put Garrett only two points above his Democratic challenger. Another earlier this month put his challenger, Josh Gottheimer, ahead by four points.

Then came news this week that Meg Whitman has endorsed Gottheimer and is raising money for him—yes, that Meg Whitman, chief executive of Hewlett-Packard and a long-time Republican activist and fund-raiser. When Whitman is on your side, your campaign is the real deal.

Whitman told the Wall Street Journal that she supports Gottheimer over Garrett because Garrett is “a Republican extremist.” She’s right; Garrett is a darling of the Tea Party who takes all the usual conservative positions one would expect from that end of the spectrum.


U.S. Rep. Scott Garrett

Garrett has a weaselly streak, too. For example, in 2015 he pushed legislation that would force the SEC to streamline corporate disclosure, and got that language included in the FAST Act—and he then voted against the FAST Act because it foremost was a highway spending bill, but he knew the bill was going to pass anyway. There’s a real profile in courage.

Garrett has also been a foe of the Public Company Accounting Oversight Board, seeking to clip its power and jurisdiction at every turn—stemming from the generous campaign donations he historically received from the audit industry. In 2015, however, those donations dried up after Garrett said he would not support the GOP’s congressional campaign because it supported gay candidates.

Now, without the cash rolling into his campaign coffers, suddenly Garrett supports the PCAOB, with new legislation to let the agency publish enforcement cases more quickly.

So, yeah. Garrett is that type of politician.

Regardless, if you generally want to see less financial regulation, Garrett has been a key player on your side. Now he’s on the ropes, and may lose his seat on Nov. 8.

If Garrett does lose, his replacement as sub-committee chairman is unclear right now. The vice-chair of the sub-committee is Rep. Robert Hurt of Virginia, but he is not running for re-election. And with the GOP likely to lose some of its size in the House, committee assignments will be scrambled in all sorts of ways. So who knows how that might affect legislative priorities in 2017.

Speaking of the GOP losing seats…

On the Senate Side

Right now Real Clear Politics projects that Democrats will pick up two more seats in the Senate, which would put the chamber at a 52-48 split favoring Republicans. Thanks to the Republican civil war ignited by Donald Trump, however, we still have several Senate seats where Republicans leading in the polls today could lose by Nov. 8: New Hampshire, Pennsylvania, North Carolina, Nevada, and possibly even Missouri.

Do I believe Democrats will pick up all five seats? No. But they could easily pick up two seats (my guess is North Carolina and Pennsylvania) and split the chamber 50-50. Grab one more (New Hampshire or Missouri) and suddenly the Democrats control the Senate.

Regardless of where the Democrats land on Nov. 9, remember what happens next. The current Democratic leader, Sen. Harry Reid of Nevada, is retiring. His replacement will be Sen. Chuck Schumer of New York—a powerful ally of Wall Street, and a member of the Senate Banking Committee. As party leader, Schumer will vacate his spot on the Banking Committee and get to select his replacement. (Party leaders decide all committee assignments.)

Historically the Senate doesn’t disregard seniority too much, but it sometimes happens. If the Democrats do split the chamber 50-50 or take control, Sen. Sherrod Brown of Ohio would presumably take over the Banking Committee (he is ranking minority member now). Sens. Jeff Merkley of Oregon and Elizabeth Warren of Massachusetts will also gain more power, since Schumer and a future Clinton Administration will want to keep the liberal wing of their party placated.

The acrimony we see today isn’t likely to go away in January no matter who wins. That said, I would advice compliance professionals to remember the old saying: Democrats can’t win, but Republicans can’t govern.

Which means that on those rare occasions when Democrats do win, like it or not, they get things done. So plan accordingly.

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