The SEC Caving To Politics?
Wednesday, December 15, 2004 at 6:35AM According to a distrubing article in the WAll Street Journal, the SEC may be falling prey to political influence, leaving investors, like the environment, to fend for themselves.
Link: WSJ.com - Political Capital.
Business Groups Are Seeking Ouster Of SEC's Donaldson December 14, 2004; Page A4 Top business groups in Washington have launched a quiet campaign to persuade the White House to dump Securities and Exchange Commission Chairman William Donaldson. The groups argue that the post-Enron crackdown on big business has gone too far, and now threatens to hurt the economy by discouraging companies from taking risks. Their hope is to replace Mr. Donaldson with a business executive who has a reputation for integrity, but also understands the problems that the corporate crackdown has caused for executives and their boards of directors. Mr. Donaldson, they argue, doesn't. The Business Roundtable, the U.S. Chamber of Commerce, the National Association of Wholesaler-Distributors and other business groups took an unusually active role in this year's election, encouraging their members to reach out to employees and help register and turn out new voters likely to be sympathetic to the president. Bush campaign manager Ken Mehlman has given them generous credit for helping to re-elect President Bush.
In return, these groups are now looking for some easing of the harsher regulatory and enforcement climate that has grown up in the wake of the corporate scandals. The effort isn't discussed much in public, and probably won't get any attention at this week's economic summit. That's because polls show corporate executives still rank low in public esteem, and any effort to ease up on regulation or enforcement against them is likely to be politically unpopular.
But in private, the lobbyists have been pressing their case that easing up on SEC enforcement and regulation is necessary to keep the economy healthy. And they believe the White House has heard their message.
Mr. Donaldson was appointed by Mr. Bush two years ago and has worked to restore the reputation of an agency that often appeared asleep at the switch during an outbreak of corporate accounting scandals. In the push for tougher regulatory and enforcement measures, however, he has generally found himself teamed up with the two Democratic commissioners on the SEC -- Harvey Goldschmid and Roel Campos -- and opposed by the two Republicans -- Paul Atkins and Cynthia Glassman -- in the minority.
As reported in these pages yesterday, Mr. Donaldson broke the mold last week when he sided with the Republicans in opposing a staff recommendation to fine Global Crossing Ltd. Chairman Gary Winnick $1 million for failing to disclose a series of transactions that artificially boosted revenue. Mr. Donaldson argued Mr. Winnick shouldn't be held responsible because he was a nonexecutive chairman of the company. The SEC staff argued Mr. Winnick was up to his elbows in running the company, regardless of his title.
Some SEC watchers wonder whether the unusual vote was an effort by the chairman to save his job. Mr. Donaldson, who has indicated to colleagues he'd like to stay on for another two years, wasn't available to comment. But Matthew Well of the SEC said that "the assertion that any commissioner would vote for political reasons is ridiculous." As for the campaign to oust Mr. Donaldson, Mr. Well said, "Chairman Donaldson is going to stay around as long as he feels he is being effective."
Thomas Donohue, the feisty president of the U.S. Chamber of Commerce, insists he has "no idea about a campaign to get rid of Donaldson." But he has been the most public of the lobbyists in calling for change at the SEC. The Chamber has even sued the agency over its new rules requiring independent directors at mutual-fund companies.
Other business groups are less public in their criticism, but no less concerned. Mr. Atkins, one of the Republican commissioners, also has pushed the case against Mr. Donaldson at the White House, arguing that the chairman is less friendly to free financial markets than was his Democratic predecessor, Arthur Levitt. Mr. Atkins is said to be interested in the top job himself, although business lobbyists argue the job should go to someone with more business experience.
On hold for now is any effort to revise the Sarbanes-Oxley law, which beefed up the SEC, created the Public Company Accounting Oversight Board, and imposed new restrictions on companies. Any effort to revise that law in the current political climate would be opening a can of worms, and could lead to changes that the business community opposes.
But changing attitudes at the SEC could go a long way to satisfy the business groups' concerns. Mr. Donohue is particularly bothered by efforts by the SEC, and by New York Attorney General Eliot Spitzer, to force large settlements out of companies by threatening charges. Mr. Donaldson is a former chief executive himself, and a longtime friend of the Bush family. As a result, everyone involved with the effort seems eager to avoid any personal embarrassment to him. But don't be surprised to see Mr. Donaldson moving on sometime early next year.
Write to Alan Murray at Alan.Murray@wsj.com1
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