Corporate Governance

The Constitutionality of the PCAOB Goes to the Supreme Court

By J. Robert Brown

The Supreme Court has agreed to hear the case arguing against the constitutionality of the PCAOB.  The case raises issues about the limits that can be imposed on presidential removal authority for officials in the executive branch.  The PCAOB members can only be removed for cause by the Securities and Exchange Commission.  As a result, there is a double layer of removal restrictions, not something unheard of but the first time it has been raised so explicitly before the Supreme Court.  The PCAOB was a unique organization created with the intent of melding together private market sensibilities and government regulation.  Thus, the organization is a non-profit that pays private sector salaries but is overseen by the SEC. 

To the extent that the PCAOB is struck down (and there is reason to believe the conservative majority will do so), it will ironically eliminate an experiment with a more market driven form of regulation.  The PCAOB can instead be transformed into a full blown independent agency or a division of the SEC, something one would ordinarily think the plaintiffs in the case would eschew.

Full post as published by The Race to the Bottom on May 18, 2009 (boomark / email).