Supreme Court Observations: PCAOB Case & Separation of Powers

Guest Commentary

The Honorable Dick Thornburgh, K&L Gates LLP*

*General Thornburgh, along with former Attorneys General of the United States, The Hon. William P. Barr and The Hon. Edwin Meese III, joined Washington Legal Foundation on an amicus brief supporting the petitioners in Free Enterprise Fund.

Today’s narrow decision in Free Enterprise Fund v. PCAOB is a refreshing re-affirmation of the principle that if the President is to “take Care that the Laws be faithfully executed,” he must have a reasonable level of authority over federal officials charged with executing those laws.  The Court is to be applauded for so forcefully adhering to the principle without at the same time threatening any significant disruption in government operations.

At issue in the case was the fate of the Public Company Accounting Oversight Board (PCAOB), an entity created as part of a series of accounting reforms adopted in the Sarbanes-Oxley Act of 2002.  The PCAOB was granted broad powers to regulate accounting firms that conduct audits of publicly traded companies.  Congress went out of its way to ensure the PCAOB’s “independence” from Presidential control.  Although the PCAOB reported to the Securities and Exchange Commission, the Act provided that the SEC could not remove members of the PCAOB at will, but only “for good cause shown.”  Moreover, SEC Commissioners themselves could only be removed by the President for good cause.

 The Court held that this “dual for-cause limitation” violated separation-of-powers principles embedded in the Constitution.  For the past 75 years the Court has recognized the constitutionality of “independent” executive branch agencies whose leaders cannot be removed by the President without “good cause.”  But today’s decision held that Congress went too far in creating a “dual for-cause limitation,” because for the first time it denied the President any role in deciding whether “good cause” existed for removing an executive branch officer.

In our democracy, the American people are entitled to decide how the laws are to be executed, by voting for a new President every four years.  But if the President lacks the authority to control the conduct of officers exercising significant administrative powers, the ability of voters to control their own government is significantly diminished.  Headlines from Afghanistan earlier this month well illustrated the point, when President Obama exercised his authority to remove General Stanley McChrystal from control of American armed forces in that country.  Voters in 2012 ought to be permitted an opportunity to register their approval or disapproval of U.S. policy in Afghanistan.  Their opportunity to do so would be significantly diminished if the military leaders were effectively insulated from the President’s control and he thus could not be held accountable for their successes or failures.

At the same time that it re-affirmed separation-of-powers principles, the Court is to be commended for ensuring that government operations are not disrupted.  By excising only one provision of Sarbanes-Oxley while upholding the remainder of the statute, the Court ensured that the PCAOB can continue to perform its important oversight functions.  The only change is that now the SEC is authorized to remove PCAOB board members at will, thereby ensuring that their activities will be more tightly controlled.  Moreover, the Court went out of its way to make clear that Congress is entitled to amend Sarbanes-Oxley  to provide for any other administrative structure that adheres to separation-of-powers principles.  For example, Congress could grant removal power directly to the President, subject to a “good cause” limitation.  By eschewing any effort to dictate precise structural requirements, the Court granted Congress broad flexibility in meeting the challenges of the modern administrative state and explained that it is the role of the elected branches of government – not the courts – to establish rules governing the day-to-day operations of government.  All the Court insisted on was that Congress not establish a system that deprives the President of the ability to exercise control over how the laws are to be executed.

One thought on “Supreme Court Observations: PCAOB Case & Separation of Powers

  1. Pingback: Last Week At WLF « The Legal Pulse

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