Management consultant and professor Peter Cohan is taking aim at Schumer’s SEC revamping proposal. As we wrote last week, the New York Senator wants the agency to be self-funded, but Cohan says that would create too many conflicts of interest.
Talking to Business Insider, Cohan said that if the SEC were to get paid by the very banks it is supposed to regulate, it would create tremendous conflicts of interest.
Cohan’s point is that while Schumer may be thinking that this process would make it easier for the SEC to get the funds it needs since it will no longer have to fight for more money from the Treasury, it would also make the SEC financially dependent on the very industry from whose occasional malfeasance it is supposed to be protecting the public.
Cohan says that the issue that is even bigger than how the agency will get funded, is its underqualified staff, (or, as Markopolos likes to call it “financially illiterate bunch.”) which is unable to keep up with financial innovation.
“There is no way the SEC can attract talent as they can’t pay the qualified people,” he said.
But Cohan has an idea to improve the SEC. He acknowledges it’s a bit simple, but it addresses the core of the problem- create an independent agency that would produce firms’ financial statements.
“If you look at what caused the problems, Enron, Madoff, it all came down to being able to produce fake financial statements, so if you want to stop this from happening, you would take away this ability and create an independent agency to do it. Then the SEC’s job would be easier,” Cohan said.
Cohan, who also teaches management at Babson College, says he can’t cant imagine letting his students grade themselves. “But that’s what we do with managers and CEOs. Given the money that’s at stake, if they can get away with fake report cards, they’ll do it.”
You can read Cohan’s post on the issue here.