July 5, 2016
The Financial Industry Regulatory Authority's ("FINRA's") Board of Governors presently consists of 24 members:
- Chief Executive Officer of FINRA;
- 13 Public Governors;
- 1 Floor Member Governor;
- 1 Independent Dealer/Insurance Affiliate Governor;
- 1 Investment Company Affiliate Governor;
- 3 Small Firm Governors;
- 1 Mid-Size Firm Governor; and
- 3 Large Firm Governors.
Of the above 24 FINRA Governors, all are appointed by the Board itself from a list of candidates recommended by the organization's Nominating Committee with the exception of the small-, mid-sized, and large "Firm" Governors . As such, only 7 of the 24 Governors are truly elected to office; and, moreover, only three so-called small firm Governors sit on the 24-member Board. The breakdown of the three FINRA member firm categories is
- Small Firm: 1 to 150 registered representative
- Mid-Size Firm: 151 to 499 registered representatives
- Large Firm: 500 or more registered representative
According to the FINRA website's "Statistics" page, as of the latest reported date of May 2016, there were 161,821 FINRA member firm branch offices spread among 3,916 FINRA member firms employing 640,111 registered representatives, which results in an average of about 41 registered representatives per branch office and 163 registered representatives per member firm. As those numbers imply, there is a smaller firm bias among FINRA's member firms. Pointedly, according to FINRA's "Election Notice" (FINRA Election Notice, June 21, 2016).
As of close of business on Monday, June 20, 2016, the number of FINRA small firms was
3,571, and the number of large firms was 184.
All of which brings us to two unsettling anomalies.
One, although FINRA bases the classification of its member firms on their respective numbers of registered representatives, no individual registered representative is enfranchised at the self-regulatory organization and not one Board seat is specifically set aside for a registered representative Governor.
Two, of FINRA's most recently published number of member firms, 3,916, the number of "small firms" totals 3,571, or nearly 91% of the regulator's total firm membership; the 184 "large firms" only account for about 5% of the membership.
Small firms account for 91% of FINRA's member firms.
Large firms account for 5% of FINRA's member firms.
FINRA allots three seats or 12.5% of the 24-Governor Board to each of the small firm and large firm members -- despite the fact that 91% of the organization's membership is characterized as "small firm."
Also, keep in mind that while FINRA allocates its voting among member firms based upon the numbers of registered representatives that each firm employs, not a single registered man or woman is enfranchised anywhere at the regulator.
As BrokeAndBroker.com Blog readers know, I frequently describe FINRA as an organization run by a gerrymandered Board. Similarly, I have made no secret that I believe that the present composition of the Board is the result of intention and designed to entrench powerful industry participants with seats that are grossly disproportionate to their fair share.
I fully appreciate and recognize that for certain FINRA senior executives and larger industry interests it is an unfortunate aspect of the self-regulatory organization that it is more beholding to its smaller member firms, but that is the manner of the constitution of the organization and not something to be massaged and manipulated to form a more desired complexion.
As I have often admonished, the better alternative for FINRA would be to divide the organization into three separate regulators for firms of 1 to 150; 151 to 499; and 500-plus registered representatives. That revision would end the failed one-size-fits-all regulatory approach and would give better voice to the respective constituencies.
Similarly, as I have long noted in the press and my published works, I deem it unconscionable that there is no seat on FINRA's Board specifically set aside for a Registered Representative Governor and that voting afforded to member firms is not also afforded to the registered men and women at those firms. It all smacks of deeming human beings as 3/5ths of a person for purposes of the benefits of governance but a non-person for all else. To those who support limiting the vote to only member firms on the altar of independent regulation, I'm wondering how that all worked out with Bernie Madoff, Allen Stamford, Muni-Bond rigging, LIBOR rigging, Bear Stearns, and Lehman Brothers?
After helping found what was variously called the NASD (later "FINRA") Dissident and/or Reform Movement in the late 1990s, I continued to promote industry reform through working with and supporting various Board candidates and causes. A few years ago, out of disgust with the direction that the FINRA small firm community was being taken, I abandoned any further active role in that regard. I saw far too many folks looking to promote their business interests or engage in despicable personal attacks against other men and women whose only alleged affront was to have the audacity to also seek nomination to various FINRA offices. As the Great Recession took its toll on FINRA membership and with particular potency among smaller firms, the lack of principled and competent leadership added to the death spiral. In all fairness, however, let us not tar all who served and acknowledge the contributions of many who ably served the small-firm constituency and the needs of industry reform,
Recently, I learned that Robert A. Muh announced his candidacy for a small-firm Governorship. In order to gain nomination, Bob needs 108 signed nomination forms. As Bob notes on his website:
Bob's impressive background is set out on his nomination website:
Throughout the course of my career I've advocated on behalf of small firms, championing our needs and representing our interests. I hope to put my 40 years of experience and industry relationships to work for you. With only three small firm representatives on the Board, it is imperative that we add a voice that will be listened to by the other 23 board members.
Bob Muh is seeking your support to run for the Small Firm seat on the FINRA Board of Governors. With over 40 years of industry experience, he is uniquely qualified to serve.
Mr. Muh is a co-founder and CEO of Sutter Securities, Incorporated, a San Francisco based full-service brokerage firm. Founded in 1992, Sutter has 22 employees. Its principal activities include municipal underwriting and trading, private placements, and expert testimony on securities related matters. Sutter serves both retail and institutional clients.
From 1978 to 1987 he was with Bear, Stearns & Co., initially as head of its Los Angeles region corporate finance department and later as General Partner and head of the Northwest Region (based in San Francisco). Prior to joining Bear, Stearns, Bob was Chairman of Newburger, Loeb & Co., Inc., a New York Stock Exchange member firm. From 1966-1969 he was a consultant with McKinsey & Co., management consultants in New York City.
Bob is a former chair of both the FINRA District Committee for District 1 and the FINRA Small Firm Advisory Board. He has also served as a director of numerous public and private companies in addition to being a Life Trustee Emeritus of the Massachusetts Institute of Technology and a Trustee of the Culinary Institute of America.
Bob has a B.S. from the Massachusetts Institute of Technology, and both an MBA and M.Phil. degree from Columbia University, where he was an Adjunct Assistant Professor. He is currently an Adjunct Professor at the University of San Francisco Law School.
A personal note from Bill Singer, publisher BrokeAndBroker.com Blog:
Bob is a far more temperate and contemplative advocate for FINRA small firms and industry reform than I, and, as such, we do not always agree on many issues. Notwithstanding our occasional disagreements, I have tremendous respect and admiration for Bob's intelligence and independence. As such, I will leave it to him to address any of my above commentary as he sees best. Without question, Bob is committed to advancing the legitimate needs of smaller firms and has always stood up to speak out for industry reform.
I urge all BrokeAndBroker.com Blog readers to press their FINRA member firm's Executive Representative to support Bob's candidacy for the Board.