It’s too soon to judge William Donaldson’s performance as chairman of the US Securities & Exchange Commission. In the weeks since the White House announced his nomination, and while he awaits Senate approval, this gray eminence of Wall street is staying tight-lipped. Thus rumors and speculations swirling around the sixth floor of the SEC where Donaldson’s offices are located are only based on his background and past experiences.
It’s clear that Donaldson’s main task is to recover investors’ confidence, so badly eroded after Enron’s and WorldCom’s thievery. However, with his background as an investment banker – one of the elite who lit the bonfire of the vanities in the first place – not everyone sees him as the best candidate to achieve this goal. According to a survey carried out by Broadgate Consultants, only 40 percent of fund managers polled think he is the best choice to head the SEC.
But Brian Lane, former head of the SEC’s corporation finance division and now partner at New York-based law firm Gibson Dunn & Crutcher, warns that it’s wrong to ‘judge a book by its cover.’ He says that if anything, Donaldson’s ‘wealth of experience’ should be a guarantee of how much he can restore the power of the SEC, which is at its lowest level since its creation in the 1930s.
Political personality
Bill – as he is familiarly called – is best known as the founder of the investment bank Donaldson Lufkin & Jenrette. He was also CEO of the New York Stock Exchange from 1990 to 1995 and helped found Yale University’s Graduate School of Management.
‘He is a brilliant choice because he’s got a unique set of qualifications, both academically and professionally. He’s got a great knowledge of how the capital markets work and their needs. He’s got a broad working experience and impeccable credentials,’ says lawyer Boris Feldman, partner with Wilson Sonsini Goodrich & Rosati.
That’s not too far from what NYSE CEO Dick Grasso said about him in a somewhat effusive statement: ‘President Bush has made an outstanding choice in nominating Bill Donaldson as chairman of the SEC. He has a unique combination of public and private sector experience and his achievements as a seasoned and respected business leader, public official and academician are well documented. He is an entrepreneur and true patriot who will bring to the commission his strong commitment to investor protection as well as his vision of extending the US equities markets’ role as the most efficient and competitive in the world.’
Feldman also extols Donaldson’s ‘very good political skills’, which should help bring unity to the commission. Lane, though, hopes that in working with the government Donaldson ‘won’t become a different person.’ He explains that in his new role Donaldson will have to be aware of how different it is working for a public commission where he has to put aside personal interests, and where he is no longer dealing with clients’ needs. Instead he has to balance investors’ needs with public services requirements.
Walk softly and carry a big stick
Some say that with his Wall Street point of view, Donaldson may take a lax approach to regulation. But Lane is quick to stress that ‘similar things were said about Arthur Levitt – Harvey Pitt’s predecessor – when he took over as chairman of the SEC, and he turned out to be quite tough with regulations.’ He adds, ‘Levitt was also in the investment management field and I always point at him as an example of how stereotypes don’t work.’
Donaldson has already aired his opinion that foreign companies shouldn’t be forced to abide by the same rules as domestic issuers. That sounds especially good for European companies, which were complaining about the severity of the Sarbanes-Oxley rules for non-US companies before Harvey Pitt stepped down.
Lane says, ‘I’m sure Donaldson will also listen to foreign companies and he’ll be sensitive to their needs.’ Lane’s view is that the US Congress should be very careful about imposing US rules on foreign companies because they have different standards.
The fact is that after Donaldson’s nomination, the SEC confirmed that it will not force non-US firms to take on certain regulatory burdens as part of the Sox drive to improve auditing procedures. Jim Gemmell, a partner at London-based accountants Horwath Clark Whitehill, describes the move as a ‘huge step forward’. He explains that Sox is trying to enforce rules that are already applied in the UK and therefore is a bit more of the same. ‘Some of the Sox rules are just trying to catch up with what we have had here for while,’ he concludes.
Time will tell, but what’s certain is that for now all eyes are on Donaldson and his every move is being carefully watched.
