This will be a quick one, but I just had to get something off my chest before the weekend.  As you probably know, there is an election upcoming.  No, not that one, the one to elect certain members of FINRA’s Board of Governors.  That Board consists of 24 members, as follows:

  • Robert Cook, who is the Chief Executive Officer of FINRA;
  • 13 Public Governors;
  • one Floor Member Governor;
  • one Independent Dealer/Insurance Affiliate Governor;
  • one Investment Company Affiliate Governor;
  • three Small Firm Governors;
  • one Mid-Size Firm Governor; and
  • three Large Firm Governors.

Some of these seats are appointed, but others are subject to elections.  On August 7, one Large Firm Governor and one Small Firm Governor are up for election.  To make things easy on the membership when it comes to elections, FINRA has a Nominating Committee, whose job, according to FINRA’s website, is “nominating persons for appointment or election to the FINRA Board.”  In fact, they get to nominate seven of the Board members (the three Small Firm Governors, the one Mid-Size Firm Governor, and the three Large Firm Governor).  This makes sense.  You get a bunch of qualified and experienced people together, and they use their collective skills to identify the best person for the job.

According to FINRA’s By-Laws, the Nominating Committee has no choice NOT to do its job.  Note the use of the word “shall” here:  “The Nominating Committee shall nominate and . . . support: Large Firm, Mid-Size Firm, Small Firm, Public, Floor Member, Independent Dealer/Insurance Affiliate and Investment Company Affiliate Governors for each such vacant or new Governor position on the Board.”

Given this clear language, don’t you find it surprising, perhaps even disturbing, that the Nominating Committee has declined to nominate anyone for the Small Firm Governor seat?  As provided in this Election Notice,

With respect to the Small Firm Governor seat, the Nominating Committee determined it would not nominate a candidate for election in 2020.  Instead, any eligible candidates who obtain the requisite number of petitions will be included on the ballot.

There is no explanation provided why the Nominating Committee bailed on its responsibility.  I acknowledge that the Nominating Committee’s obligation actually to nominate someone is qualified by the phrase “[e]xcept as otherwise provided in these By-Laws,” but I looked and could not find anything in the By-Laws that provides the Nominating Committee can blithely abdicate from its sole responsibility.  Maybe it’s lurking in there somewhere, and someone from FINRA can educate us all.  But, if I am correct, and there is nothing that allows the Nominating Committee to do what it has done here, i.e., punt, then we should all collectively wonder what the point is of having that committee in the first place.  And what is it about the Small Firm seat in particular that causes the Nominating Committee such problems?  I ask that because this is not the first time the Nominating Committee chose to sit on its hands regarding the Small Firm seat. It did the same thing in 2018, also, as reflected in this Election Notice.  I don’t have answers here, only questions.

Finally, this also goes to prove a point I have made before: if FINRA was held to the same standards to which it holds its members, things would be pretty messy.  If a broker-dealer includes some mandatory supervisory obligations in its WSPs, but doesn’t bother to follow them, you know exactly how well that is going to be received by the examining staff.  I don’t know that this is an entirely apt comparison (as the duty to supervise is a legal duty while the Nominating Committee’s duty to nominate someone is self-imposed), but I think you get my point.  Let me tell you, it is a very difficult conversation to have with a client who is already angry at what they perceive to be FINRA’s incompetence or indifference when they read something like this, knowing that if the roles were reversed, and they were the one who simply decided not to perform some obligatory task, that they would be scrutinized to death over it.