The New York Times - November 12, 2004

Questions Loom About Direction for SEC

By THE ASSOCIATED PRESS

Filed at 2:52 p.m. ET
 

NEW YORK (AP) -- You wouldn't know that corporate scandals are still rampant in the business world by the talk coming out of Washington lately about possible changes at the Securities and Exchange Commission that could diminish its regulatory authority.

Business groups are pressing for the Bush administration to shake things up at the SEC by installing someone at the helm that is more sympathetic to their cause -- a move that could potentially undo at least some of the corporate reform that has taken place in recent years.

But what's pleasing to the business world might not be to the investing public, especially with corporate wrongdoing still so prevalent.

Since President Bush won a second term, there has been speculation of what could come at the SEC. Sure, it was this White House that appointed William Donaldson to lead the agency almost two years ago, but it is not clear if this administration wants to keep him around until his term expires in June 2007, or if he even wants to stay.

The only sure thing is that there is still plenty of work that needs to be done. The troubles now hitting the insurance industry come on the heels of many other scandals in recent years that have involved everything from the mutual fund industry to such high-profile companies as  Enron and  WorldCom.

And while the SEC at points in recent years has stood in the shadow of the aggressive corporate crime-fighting by New York Attorney General Eliot Spitzer, it has taken initiative in its own right on some cases including the accounting fraud investigations at both HealthSouth Corp. and  Qwest Communications International Inc.

Hopefully, whatever way the administration goes, it takes past mistakes into consideration.

Just think back to the tenure of former SEC chairman Harvey Pitt, who resigned under pressure two years ago after a series of political missteps during his 14-month tenure that embarrassed the Bush White House. Here was an agency that had been working hard to boost investor trust amid all the corporate scandals, and it then found itself with a chairman under fire for his own maneuvering and mishaps.

Enter Donaldson, who replaced Pitt in early 2003. When first appointed, many assumed he would be a close ally to the business world thanks to his credentials -- a Republican who was a former investment banker and had previously led the New York Stock Exchange as well as  Aetna Inc.

But he ultimately turned out to be a tough regulator and reformer.

He has backed several measures that were strongly opposed by the business community, including his push for increased oversight of the financial industry and tougher controls for the mutual fund business. He has moved to break down corporate conflicts of interest and demanded broader financial disclosure.

And he is willing to cross party lines to vote the way he thinks is right. For instance, when the SEC voted last month to make hedge-fund advisers register with the agency, the majority who favored that -- which included Donaldson and the two Democratic commissioners -- argued that the growing power of these funds and the growing interest from individual investors requires more detail in how they are run.

No wonder business groups want him out.

``Put 200 executives in a room, they will say we have seen enough regulation and legislation to stop for a while. But is that really the truth? ... We still need more effective regulation,'' said Paul Lapides, director of the Corporate Governance Center at Kennesaw University in suburban Atlanta.

On the flip side, Donaldson hasn't given shareholder advocates everything they have asked for either. A proposal that would give shareholders more power to nominate corporate board candidates has stalled, and while Donaldson has said that he is trying to come up with a compromise solution, he refuses to be pressured to quickly take action.

All these factors make it clear why someone like Donaldson is so important to have at the SEC right now. He doesn't toe a partisan line, and isn't easily bullied. He is doing just what the head of the SEC should be.

``As the chairman goes, so goes the commission,'' said Patrick McGurn, vice president of Institutional Shareholder Services, which advises large shareholders on proxy-voting issues. ``It could set off a firestorm if he was asked to leave. Maybe the more important question is whether he wants to stay.''

That's something Donaldson touched on last week, in comments to reporters after a speech to the annual meeting of the Securities Industry Association, Wall Street's biggest trade group.

``I serve at the pleasure of the president. Having said that, I also serve at my own pleasure. And by that I mean, I believe that there are a number of things we're working on, a number of things I know we're accomplishing, and as long as we're accomplishing those things, that's pleasing,'' he said.

Maybe the only certain thing is that Donaldson isn't changing his ways just to secure his job. In fact, in that speech last week, he used strong rhetoric to make his case for ethical business practices.

``Companies and managers and employees from top to bottom must embrace a spirit of integrity that goes well beyond simple adherence to the letter of the law,'' he said.

Hopefully, the administration heeds his words and doesn't get swayed by the business lobby. There is a real political benefit to staying the current course.

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Rachel Beck is the national business columnist for The

Associated Press. Write to her at rbeck(at)ap.org

Copyright 2004 The Associated Press