Analysis: Real Management Flattening Needed in the Enforcement Division

07/13/2009

7/13/09: Senior management in the Division of Enforcement is considering implementation of a plan to flatten management by eliminating the branch chief layer, according to a recent press account.

For many months, the union has called for the elimination of branch chiefs to streamline the current Enforcement management structure. In meetings with Chairman Schapiro, Enforcement Director Rob Khuzami, other senior SEC officials and key members of Congress, the union has pressed the need for flattening management in this fashion. Such a change would result in an immediate, substantial increase in the front line staff available to conduct investigations and improve the speed and efficiency of the decision making process in the Enforcement program. It would also restore front line investigative staff to a position of respect by empowering them to fully employ their experience in connection with the Division’s investigative work rather than continue to encumber them within the currently bloated and top-heavy structure.

This change is critical to addressing what ails the Division, which at this point should be obvious -- fundamental systemic flaws caused by a cumbersome bureaucratic structure that is preoccupied with maintaining failed processes that serve to preserve the hierarchy at the cost of effectively discharging the Division’s mandate to protect investors. The Division’s organizational structure is broken and this is reflected in the morale of the front line staff. Fixing it will require an effective structural response.

The current multi-layered structure in the division, with a management ratio of roughly three to one, has far too often resulted in slow and ineffective decision making and a tendency towards criticizing those who think outside the box in connection with investigations, which has repeatedly compromised the front line staff’s work. With respect to many recent Enforcement problems, including Madoff, front line staff have identified problems, but the bureaucracy has failed to respond to staff advice. Recent news stories about Division failures have borne this out.

For management flattening to be effective, however, the devil will be in the details. Within Enforcement management ranks, strong forces of resistance to a true flattening of the structure still exist. There will be tremendous pressure to deliver “change” that resembles the current branch chief structure as much as possible. If, for example, senior management simply declares that branch chiefs are no longer “managers,” but continues to describe their primary duties as serving as “team leaders” on “complex investigations,” very little is likely to change as a practical matter. Indeed, the creation of such a new layer of non-management “super lawyers” within the bargaining unit would likely further disenfranchise Grade 13 and 14 lawyers rather than empower them. Similarly, if a very large number of the branch chiefs are elevated to the position of assistant director, the management ratio in Enforcement will not change very much. Fixing the problem requires real change, not just the appearance of change.

For these reasons, the union supports the approach of coupling the elimination of branch chiefs with a simultaneous change in the top career ladder grade for all other Enforcement attorneys and accountants to Grade 15, similar to the Justice Department model for attorneys. The old branch chiefs would retain their Grade 15 status and salary, but their position descriptions would be the same as for current Grade 14 investigative staff. This would mitigate the appearance of a demotion for branch chiefs while at the same time foster a more meritorious system in Enforcement, in which staff members would be assigned to cases and teams based upon their abilities, knowledge and skills, rather than upon their status within a bureaucratic structure.