Corporate Governance

FEF v. PCAOB and the Threat to SEC Independence (Part 2)

By J Robert Brown Jr.

When the term "independence" is used with respect to federal agencies, it can have a multitude of meanings.  Sometimes the term is descriptive, merely signifying a free standing agency that is not otherwise part of another bureaucracy.  In other words, the concept of indepenence means independent of any other agency or bureaucracy.  Thus, a list provided by the US Government includes as independent such agencies as the CIA and the EPA.  On the other hand, the IRS is not independent because it is part of the Department of Treasury. 

Independence, however, has another meaning.  In the context of the Constitution and separation of powers, independence connotes executive branch agencies that, despite their locations, have some independence from the President.  Independence can take a number of shapes.  Some agencies have the right to submit their budget to Congress without clearing it first through OMB.  Some agencies have the authority to litigate their own cases, without having to go through the Justice Department.  Some can even litigate in the Supreme Court without obtaining approval of the Solicitor General.

Yet in the greater scheme of things, none of these indicia of independence really matter.  Even if agencies can submit their own budgets or litigate their own cases, they will be beholden to the President if the President has the plenary right to remove those running the agency.  Thus, if in the exercise of independence, an agency submits a budget opposed by the President, the head of the agency can be fired and replaced by someone more cooperative.  In short, independence largely comes down to restrictions on the President's right to remove those running the agency.

Since the famous case of Humhprey's Executor back in the 1930s, the Supreme Court has upheld the right of Congress to restrict the President's ability to remove certain executive branch employees to circumstances where the President has cause.  In that case, the Supreme Court struck down President Roosevelt's attempt to remove a commissioner of the FTC in the absence of cause.  With the President only able to remove heads of agencies for cause, they can, in theory, submit unpopular budgets to Congress or litigate unpopular cases and know that the President cannot remove them as a result.  In short, they are independent of the President. 

In that context, the EPA and CIA are not independent agencies.  In the Executive Branch, those agencies are subject to plenary removal authority by the President.  To the extent displeased with any action by those agencies, the President can remove the directors.  The best example of this occurred when President Nixon wanted to dismiss Archibald Cox in connection with his Watergate investigation.  When the Attorney General, Elliott Richardson, refused (an act of independence), he resigned (but could have been fired).  The same thing happened to William Ruckelshaus.  Only when Robert Bork agreed to fire the Special Prosecutor did the departures stop.  

Thus, for purposes of independence, it matters whether the President has plenary right to remove the head (or, in the case of a commission, the heads) of an agency. 

Full post as published by The Race to the Bottom on October 12, 2010 (boomark / email).