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PIABA Report Details FINRA’s Governing Board’s “Wall Street Ties”

The report claims public governors on the regulator’s board are too distant from investor interests.

A not-for-profit industry group recently scrutinized the board of governors for the Financial Industry Regulatory Authority and produced a report that “raises a major red flag” on the regulator.

The report, released Wednesday by the Public Investors Arbitration Bar Association, is critical of the board’s composition. It claims that members of FINRA’s board of governors “have material Wall Street ties, serve on too many corporate boards to effectively represent the public, and face other conflicts of interest” that could interfere with their mission.

Half of the 24 seats on FINRA’s board are reserved for “public governors” who the report focuses on and says are charged with defending public-oriented interests. An excerpt from FINRA’s by-laws, included in the report, states the public governors should not have a “material business relationship with a broker or dealer or [other] self-regulatory organization.”

While the report praised the value in having retired regulators and industry professionals as board members, it claims the board is not proportionately aligned with the public interest and takes issues with several members.

In some cases, a number of pages are dedicated to individual public board members. The report includes a detailed breakdown of reasons PIABA sees FINRA Chairman and Public Governor William H. Heyman, the vice chairman and CIO of The Travelers Companies, is unfit to be a member of the board.

The report claims Heyman’s presence on the board should not be allowed because of his past career in the securities industry, his role at Travelers and conflicting memberships on other financial services companies boards. He is currently a board member or affiliated with Bank Leumi USA, Atlas Merchant Capital, the Advisory Council of the Bendheim Center for Finance at Princeton University, the Economic Club of New York and others.

In addition to the easily accessible information on Heyman (such as his board memberships), the report says he has exceeded his mandated term limit as a public governor and that he has ”a number of different connections to FINRA members, as does his wife.”

Other public governors have similarly detailed descriptions that lean in favor of PIABA’s argument that they are unsuitable to be public board members.

According to the report, Carol Anthony Davidson has “a material business relationship” as a board member of Legg Mason, a global asset management firm that has a FINRA member subsidiary.

For reasons similar in nature and because of the worry they participate on too many corporate boards in general, the report also includes arguments against Chairman Emeritus of Ogilvy & Mather Shelly Lazarus, Managing Director of Kita Capital Management Joshua S. Levine, Co-CEO of Bridgewater Associates Eileen Murray, and Managing Partner and Co-founder of the Cynosure Group Randal Quarles.

Another criticism of the public board is the manner in which it is constructed. Currently, candidates to serve as public governors are recommended to the board by a nominating committee that must include equal membership from the industry and public governing boards. But since a number of members on the public board are already too close to the industry, per the report, and there are few limitations on who can serve, it is less likely the composition of the board will change.

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