Securities and Exchange Commission Chairman William H. Donaldson said he will resign at the end of the month, capping a 21/2-year tenure that marked the most active period since the agency's founding at the end of the Great Depression.
The Bush administration tapped Donaldson, who turns 74 today, in 2003 to help clean up the securities industry after Wall Street trading abuses and scandals at Enron Corp. and WorldCom Inc. shook the stock market and the confidence of investors.
The president intends to nominate Rep. Christopher Cox (R-Calif.) to replace Donaldson, according to an Associated Press report.
Donaldson, a former investment banker and chairman of the New York Stock Exchange, mostly steered clear of the headlines and pushed ahead with dozens of new rules designed to heighten oversight of the $7.9 trillion mutual fund industry and the largely unregulated hedge fund sector.
"This period has represented an extraordinarily active and effective time for the agency," Donaldson said at a news conference yesterday.
"Although there will always be more work to be done to preserve and enhance the integrity and strength of our nation's corporations and markets, I believe the time has come for me to step down and return to the private sector and my family," he said.
Under Donaldson's watch, the agency hired an unparalleled 1,200 new employees and brought a record 1,700 enforcement actions against securities violators from Adelphia Communications Corp. to Xerox Corp., collecting about $7 billion in disgorgement and penalties. But in recent months, business groups have begun to complain that the SEC has gone too far in interpreting the 2002 corporate accountability legislation known as the Sarbanes-Oxley Act. They argue the agency imposes too many new costs without producing enough benefits.
Donaldson's departure could presage an era of dramatic change and give the Bush administration an opportunity to reshape the SEC. On several key issues, including rules on stock market structure and the imposition of civil penalties against corporations, Donaldson has cast his vote with the agency's two Democrats, both of whose terms will have ended this year.
Donaldson said, "Right from the beginning, we felt that the enforcement side of our work had to be reinforced. . . . We've done that."
But he acknowledged that there has been "legitimate worry" about parts of the Sarbanes-Oxley Act. However, he said there is broad support for the law generally.
He also cautioned business critics of the agency, noting that as a result of the abuses of a few years ago, "disillusionment with American industry goes way beyond just the investor community" and that polls show much of the public views "the business world as not a very attractive group of people."
He said, "I would have thought that most business organizations would get behind positive changes. . . . It just makes sense to me that thinking business organizations would get behind that and save their ammunition for things like unnecessary expenses, which I think are legitimate concerns."
President Bush said, "Bill Donaldson took on a tough job at a tough time. . . . He vigorously and fairly enforced our nation's securities laws and helped rebuild the public trust in corporate America that has been important to our economic recovery."
Cox, 52, calls himself "a leading advocate of economic growth through lower taxes, free enterprise, and limited government" in a biographical sketch on his Web site. Cox, a former corporate lawyer and associate White House counsel during the Reagan administration, did not return e-mail late yesterday. He has taken a particularly active role in tax reform and promoted legislation that limited private securities lawsuits.
The Business Roundtable, a group of corporate chief executives, yesterday issued a statement in which they urged Donaldson's eventual successor to strike "the right balance so that companies continue to grow and create jobs." The U.S. Chamber of Commerce, which is suing the agency over mutual fund rules, pressed the need for "modern, effective regulations that foster innovation and growth," according to a statement by chief executive Thomas J. Donohue.
"There are certainly elements of the business community that are hoping for a counterrevolution," said David M. Becker, general counsel at the SEC from 2000 to 2002. "Whether or not the administration will accommodate is an open question. Who the chairman of the agency is, is more important than it has been in a long time."
Donaldson said there are a number of issues still "cooking" at the agency, including providing investors with more information about executive compensation.
"Donaldson has been a far stronger champion for investors than we had reason to expect," said Barbara Roper, director of investor protection for the Consumer Federation of America. "The likelihood is we will see a very different and less active SEC emerge."
Democrat Harvey J. Goldschmid will leave this fall to return to his teaching post at Columbia University. The term of Democrat Roel A. Campos expires later this year. Senate Democrats have proposed elevating SEC market division director Annette L. Nazareth to fill Goldschmid's shoes, but the White House has not yet acted on the recommendation.
Investor advocates said Donaldson's departure probably means the death of a proposal that would give shareholders more power to nominate corporate directors. Donaldson had issued a proposal, but it bogged down amid complaints from trade groups and Treasury Secretary John W. Snow.
Richard Ferlauto, an official at the American Federation of State, County and Municipal Employees, said he is concerned that the proxy issue could become a "litmus test" in the search for Donaldson's replacement.
The timing of Donaldson's announcement came as something of a surprise. Though agency insiders had openly speculated he might leave by the end of the year, word that his last day would come June 30 gave observers pause. Senate Banking Committee Chairman Richard C. Shelby (R-Ala.) yesterday praised Donaldson for leading the agency out of a crisis when it was condemned for not acting quickly to detect large-scale accounting frauds and trading problems.
Donaldson told commissioners about his decision Wednesday morning, after they met in private to discuss enforcement division business. Before he made his announcement, all five commissioners had their photos taken together in a conference room, the last time they would meet there before the agency relocates to a new office near Union Station. According to people who have spoken with him in recent weeks, Donaldson has reflected on the toll his job has taken on his wife and 15-year-old son, whose lacrosse games he has missed. Both had remained in their New York home.
Joel Seligman, a longtime historian of the agency and dean of the law school at Washington University, said Donaldson played a key transitional role for the SEC, though the results of the November elections emboldened business interests to campaign against closer corporate oversight and Donaldson's regulatory agenda. Two recent incidents put Donaldson's management team on the defensive. An audit called into question some of the agency's financial controls at the same time the SEC is pressing companies to improve theirs. Separately, agency officials uncovered a $48 million budget shortfall in part because of problems with leases and renovations.
Relations among the agency's five commissioners also had begun to fray, over disputes about substantive issues such as the scope of mutual fund rules and petty ones such as where their offices would be in the new building. Relations were particularly tense between Donaldson and Atkins. Despite the sometimes public sparring, several commissioners issued supportive statements. Goldschmid said Donaldson "reestablished trust and integrity" and Glassman said he brought "great stature to the office."
Staff writer Jeffrey H. Birnbaum contributed to this report.