First Praise, Now Hisses at S.E.C.
nytimes.com
By STEPHEN LABATON
WASHINGTON, July 24 — For William H. Donaldson, the honeymoon is over.
Ushered into the chairman's office of the Securities and Exchange Commission nearly six months ago to revive an agency that was adrift in political storms, plagued by insufficient resources and overwhelmed by corporate filings, Mr. Donaldson set about to reshape the agency.
Through skillful diplomacy, he earned cautious support from Democrats and wide praise from Republicans as well as from investor groups and Wall Street institutions. In a short time, he has lifted the morale at the agency through management changes and budget increases.
"The commission is in enormously better shape," said Harvey J. Goldschmid, a Democratic commissioner. As a handpicked choice of Senator Paul S. Sarbanes, Democrat of Maryland, Mr. Goldschmid often found himself both publicly and privately at odds with Mr. Donaldson's predecessor, Harvey L. Pitt.
In contrast, Mr. Goldschmid has never been on the opposite side of Mr. Donaldson on a major vote. Mr. Donaldson and Mr. Goldschmid both describe a cordial working relationship, and Mr. Donaldson has even occasionally found himself on the same side of a vote with Mr. Goldschmid while one or both of the other Republican commissioners was on the other side.
"Bill Donaldson has brought collegiality, intelligence, maturity and a willingness to take important steps," Mr. Goldschmid said.
But now he has begun to confront a series of policy choices that have provoked some political fire. A number of companies and Wall Street institutions have complained that new rules imposed over the last year have been too steep and have quietly begun to lobby Congress and the commission to roll them back.
In an interview today over lunch in his cavernous sixth-floor office here, Mr. Donaldson said he wanted to remain above the political brawls that have plagued his Democratic and Republican predecessors.
"I've tried to avoid getting into the political," he said. "We're an investor agency. We're not a political agency."
It may be impossible, however, to remain above the fray. In recent days, Mr. Donaldson has been sharply criticized by Eliot Spitzer, the New York attorney general, for failing to challenge a provision in House legislation proposed by the Republicans that state regulators say will strip them of enforcement authority in financial cases.
Mr. Spitzer modulated his complaints after some Democrats in Washington told him that Mr. Donaldson was not the main figure behind the proposal. The New York attorney general said in an interview today that he maintained a "good working relationship" with both Mr. Donaldson and other commission officials, and that he did not "blame him for the amendment."
"We see virtually all issues the same way," he said.
But Mr. Spitzer's criticism of the measure may have had some effect on the debate. Late this afternoon, a House committee pulled the legislation after some commission officials privately told House Republicans that it was not a good time to advance the measure, which had been initially proposed by Wall Street.
Still, in the coming weeks, Mr. Donaldson faces a multitude of decisions on issues — from new shareholder proxy voting rules to tighter regulation of hedge funds and analyst conflict of interests — that will force him to decide between investors and large institutions.
"He is at a turning point," said James D. Cox, a securities law expert and professor at Duke University School of Law.
Barbara Roper, director of investor protection for the Consumer Federation of America, agreed.
"Donaldson seems to have done a good job of restoring the S.E.C. as a functioning agency," she said.
"A year out from the passage of Sarbanes-Oxley, there is clearly a backlash of views against reforms that says we're going too far and we're trying to eliminate risk. In my view, we have an unfinished agenda. The question is, will Donaldson align himself with the view that `enough is enough' of market regulation? Or, is he going to advance an investor protection beyond that?"
The proxy rules illustrate the difficult choices he faces. The Business Roundtable, an organization that represents chief executives from many of the nation's largest corporations, has urged the commission to water down its initial proposals to make it more difficult for shareholders to nominate and vote on independent directors. At the same time, institutional investors and consumer groups have urged the commission to make it easier for shareholders to make such appointments.
Mr. Donaldson and the commission must also finish issuing new rules related to the passage of the corporate governance law of the Sarbanes-Oxley Act, which will have its one-year anniversary next week. One of those issues involves the obligations of corporate lawyers to blow the whistle on companies when they detect fraud, an issue that has provoked strong and opposing views from consumer groups on one side and lawyers' groups on the other.
In contrast to his predecessor and many other top officials in Washington, Mr. Donaldson never sought a senior government position. Nor does he seem to aspire to another government job afterward.
He said that when he was first approached about the job around last Thanksgiving, he was not interested. He had recently stepped down as the chief executive of Aetna after founding his own Wall Street firm and serving as head of the New York Stock Exchange. Although he planned to continue as chairman of the Carnegie Endowment and serve on several boards, he said he was ready to move to a new phase in his life.
"Initially I said I didn't think so," said Mr. Donaldson, who is now 72 years old. "But then, the more I thought about it, the more I thought it was a real opportunity."
Once he took the job, he also departed from many other top officials who come to Washington with big policy agendas. Instead, he says, he is focusing at least half of his time on revamping the management and organization of the commission. Earlier in his career, Mr. Donaldson had been the founding dean of Yale University's management school and taught management courses.
At most agencies, such issues would be low priority. But at the commission, Mr. Donaldson said, they are vital. He acknowledged that it was an interesting coincidence that he was reshaping the management of the agency at the same time that Congress and the commission were requiring corporations across America to change the way they govern themselves.
"This is an attempt to create a structure beyond just getting managers to do their work better," he said. "The challenge for anyone to try to get a change in organization is to get buy-in from all the people."
In the process of making use of a doubling of the agency's budget, Mr. Donaldson has encountered some unusual problems.
The commission acknowledged this week, for instance, that it would be unable to spend $103 million of the record $716 million budget that it had been given by Congress for a new staff because it was unable to hire qualified accountants and lawyers quickly.
"You don't want to rush and hire willy-nilly at the cost of having the quality of work decline," he said. |
