On October 3, Northwestern Pritzker School of Law, along with the Kellogg School of Management, co-hosted the 7th annual Brodsky Family JD-MBA Lecture Series, featuring Jay Clayton, senior policy advisor and Of Counsel at Sullivan & Cromwell LLP; Non-Executive Chair, Apollo Global Management; and former Chairman of the Securities and Exchange Commission.
In conversation with Allan Horwich, professor of practice at Northwestern Pritzker School of Law; and R. Mark McCareins, clinical professor of business law at Kellogg School of Management, Clayton discussed the role of the SEC, global markets, regulation of cryptocurrency, and financial literacy.
“This lecture series, made possible by the generosity of Bill, Joan, Michael, Steve, and Jonathan Brodsky, provides an important opportunity for us to bring leading experts to discuss cutting-edge issues at the intersection of law and business,” said Northwestern Pritzker Law Dean Hari Osofsky to a packed Lincoln Hall. “We very much value partnership between Northwestern Pritzker School of Law and the Kellogg School of Management, which recognizes the critical importance of bringing together legal and business expertise both to encourage innovation and to address major societal challenges.”
In addition to welcome remarks by Dean Osofsky, Dean and Donald P. Jacobs Chair in Finance at Kellogg Francesca Cornelli recognized the Brodsky family for their generosity. “One of my very first appointments as dean in 2019 was coming to the Brodsky Lecture,” she said. “I witnessed [their] generosity, how amazing this series is, and how we can collaborate together.”
Clayton opened by reinforcing how important the intersection of law, markets, and business is, especially in the United States. “I think it’s something we often take for granted,” he said. “We don’t recognize how significant it is, how unique it is in America, and how preserving it is so important.” He continued: “Without the rule of law you really don’t have the ability to plan for the long term. Because you’re not assured that at the end of the day, after putting your capital at risk for 2, 3, 5, 10 years, that the deal you struck will be enforced. Without that, you’re not willing to do that.”
He credited this country’s success to a strong rule of law. “We have 4.4 percent of the world’s population. More than 60 percent of global capital is formed here in America,” Clayton said. “So when you think about capital leading to progress, productivity, growth, and innovation, that is a remarkable statistic.”
Digital assets, including cryptocurrency, have emerged in the marketplace over the last several years. Because of their growing popularity, many are asking for government to accelerate their decision on crypto regulation and enforcement. Clayton pushed back on the notion that there is not competent regulatory clarity already in place. “In most instances that’s total crap,” Clayton said. “Most of the cryptocurrency projects are securities offerings. We have very prescriptive securities law in America. If you go out to the general public to raise money for a venture and you say to people, ‘Put your money into my venture and you can expect a return if I do a good job,’ you’re offering them security.”
Clayton said he understands it can be a restrictive approach. “We have a very paternalistic securities law regime. It has worked great for 80 years,” he said. “But if you’re going out with great asymmetry of information, you know everything and they don’t know much, we say that’s going to be incredibly regulated. You’ve got to produce financial statements, you’ve got to provide extensive disclosure…that’s the deal we made. People don’t like it because it shuts the general public out of investing in smaller growing companies. That’s been the cost of that approach to regulation.”
He continued, saying that growth is necessary: “My personal view is that was fine in the 50s, 60s, 70s, it’s still the law. We can’t just throw it out. But we do have to find ways that are consistent with our investor protection to allow retail investors to participate in growing companies and alike. There’s going to be great innovation, but it’s not going to come at the expense of running over traditional U.S. financial regulation.”
The U.S. Securities and Exchange Commission (SEC) was created in the aftermath of the Wall Street crash of 1929. It’s primary focus is to enforce the law against market manipulation, promote fair dealing, prevent fraud, and disclose important market information. McCareins asked where Clayton thinks the commission is going with ESG (Environmental, Social, and Governance), a criteria that helps stakeholders understand how an organization is managing risks and opportunities related to environmental, social, and governance criteria. “Combining them into a single score is absurd. How this ever came to be a thing is sort of remarkable,” Clayton said. With respect to the social aspect of the framework, he explained: “I believe that data can be incredibly helpful in [identifying inequities]. EEOC (Equal Employment Opportunity Commission) data ought to be disclosed and readily available for people to look at. There is discomfort and comfort in numbers. If we’re all disclosing what our workforce looks like, we all have to deal with what our workforce looks like.” Even though he supports environmental disclosure, he added that he doesn’t think that is the SEC’s job. “We’ve got a Department of Labor, a Department of Commerce, they can step forward and do that,” Clayton said. “Not just for public companies, but across the board in the United States.”
During the audience Q&A, Bill Brodsky, whose family’s generosity established the Lecture Series, asked Clayton about the lack of financial literacy taught in American schools and the SEC’s role in that. “I think it’s a huge waste that we wait until people are 25 to try and start educating them. The SEC tries. We have an office where that is their sole job. It is not nearly as effective as it should be,” he said. “I believe we should give every kid a bank account. You get connected to our financial system. It should be a part of our curriculum in grade school. This is what it means to have a bank account. This is what it means to invest in your future.”
The Brodsky Family JD-MBA Lecture Series was generously established by William and Joan Brodsky to honor their family: Michael B. Brodsky (JD-MBA ‘93) and Aleta Margolis (MSEd ‘91); Stephen A. Brodsky (JD-MBA ‘96) and Elizabeth Klein Brodsky (MBA ‘96); and Jonathan P. Brodsky (JD-MBA ‘00) and Lena Brodsky. The Lecture Series is jointly hosted by Northwestern Pritzker School of Law and the Kellogg School of Management, which offer the joint JD-MBA program.