Revisiting Business Roundtable and Section 19(c) in the Wake of the Sarbanes-Oxley Act

Abstract

Although section 19(c) of the Exchange Act authorizes the SEC to modify stock exchange rules "in furtherance of the purpose" of the Exchange Act, federalism has frustrated the SEC 's attempt to use that power to effect corporate governance reform. In Business Roundtable v. SEC, the D. C. Circuit vacated the SEC's "one share, one vote" rule, on grounds that Congress did not intend for the SEC to intrude into corporate governance, which traditionally has been considered the domain of state law. However, the Sarbanes-Oxley Act has changed the federalism calculus of section 19(c). Because Sarbanes-Oxley's amendments to the Exchange Act established a new federal policy of fighting fraud through corporate governance reform, federalism has lost much of its vitality as a constraint on SEC authority. Accordingly, the SEC should now have the power to use section 19(c) to promulgate corporate governance standards in furtherance of the purpose of Sarbanes-Oxley, particularly its audit committee provisions.