Drexel Talking With Former SEC Chairmen About 2 Top Positions
Drexel Burnham Lambert Inc., continuing the search for a prestigious new chairman to improve the firm’s tarnished reputation, said it is holding talks with John S. R. Shad, the former chairman of the Securities and Exchange Commission.
Shad, 65, left the SEC in 1987 and is the U.S. ambassador to the Netherlands. He is also a former vice chairman of E. F. Hutton & Co., a brokerage that is now part of Shearson Lehman Hutton Inc.
Drexel also said it is holding talks with another former SEC chairman, Roderick M. Hills, 51, about serving on Drexel’s board.
Sources said both men are leaning toward accepting the positions provided that Drexel successfully completes its settlement talks with the SEC and the U.S. attorney’s office in New York. The firm recently announced plans to settle expected criminal charges related to securities law violations by pleading guilty to six felony counts and paying a record $650 million in financial penalties.
The firm is also negotiating with the SEC on settling civil charges of market manipulation, defrauding customers and insider trading.
Employee Resentments
Drexel said Frederick H. Joseph was expected to continue as Drexel’s chief executive. Shad had given Joseph one of his first jobs on Wall Street when he hired him at Hutton in the early 1960s.
Separately, Joseph visited the firm’s Beverly Hills offices Thursday in an attempt to answer questions and quell employee resentments stemming from the firm’s decision to plead guilty to securities violations. Many traders in the highly profitable “junk bond” department in Beverly Hills are unhappy with the decision and are mounting a campaign, including T-shirts and newspaper advertisements, rallying support for embattled junk bond chief Michael Milken.
Joseph told employees Thursday that the firm expects Milken to be indicted next week on securities charges, one source said. Milken’s ability to defend himself has been hurt by Drexel’s guilty plea, traders say.
In a written statement, Drexel said the firm’s objective in approaching Shad and Hills “is to develop a fresh outlook on the problems and opportunities it faces, and to continue to make an important contribution to the nation’s capital markets.”
Word of the talks with Shad came just a day after Drexel said it had called off discussions with former White House Chief of Staff Howard H. Baker Jr. about the chairmanship. Drexel earlier had said that the talks were ended by mutual consent after Baker and the firm failed to agree on terms. A Drexel spokesman denied Thursday that the offer to Baker had been withdrawn because the firm had already decided on Shad.
Despite a telephone call Thursday to the U.S. embassy in The Hague, Shad couldn’t be reached for comment. An embassy press attache, Leonardo Williams, confirmed that Shad had been approached by Drexel about becoming chairman. Williams declined to answer questions about the talks.
As SEC chairman from 1981 to 1987, Shad overcame public doubts that a man with a Wall Street background could be tough on violators of securities laws. Although the actual work was done by the staff of the SEC’s enforcement division, Shad presided over the SEC during an era when it launched its biggest investigations ever, including the one that led to the filing last September of a massive civil complaint against Drexel.
Shad is said to have significant personal wealth, and last year he contributed more than $20 million to Harvard Business School to found a program on business ethics and leadership. A Drexel official said it was understood that Shad would contribute a major part of any earnings he received from the firm “to charitable purposes.”
Independent Directors
One source said a Drexel settlement with the SEC would almost certainly include a provision requiring the firm to take on independent directors and establish an “audit committee” of the board to monitor the firm’s affairs. The source said the appointment of Shad and Hills would be in keeping with such a provision.
Reached by phone, Hills confirmed that he had been approached by Drexel. He is chairman of Washington-based Manchester Group Ltd., a merchant banking concern, and served as SEC chairman from 1975 to 1977. Hills, however, refused to discuss the status of the talks.
If he is named Drexel’s chairman, Shad would replace Robert E. Linton, who for some time has expressed a desire to retire to his ranch in New Mexico.
Times staff writer Bill Sing in Los Angeles contributed to this story.
