SEC Names McDonough Chairman of Accounting Watchdog Agency
The Securities and Exchange Commission on Tuesday said it unanimously chose William J. McDonough, the outspoken president of the Federal Reserve Bank of New York, to head the nation’s new accounting watchdog agency.
McDonough, who turns 69 on Monday, is one of Wall Street’s most respected figures. He made waves in September -- and, to admirers, demonstrated his independence of thought -- by lashing out at excessive executive pay.
The five SEC commissioners agreed to name McDonough chairman of the Public Company Accounting Oversight Board, which Congress created in July in the aftermath of corporate financial scandals that tainted the U.S. accounting profession.
At a news conference in Washington on Tuesday, SEC Chairman William H. Donaldson said that McDonough’s “proven record of strong leadership, long commitment to public service and unquestioned integrity give all who invest in America’s public companies further reason to be confident in our efforts to demand honesty, transparency and integrity from all aspects of American business.”
McDonough joined the New York Fed in 1992 after a long career in commercial banking, mainly at the former First Chicago Corp.
As the Fed’s point man in New York, he helped lead the financial community’s response to the Sept. 11 attack on the World Trade Center. He also organized the 1998 rescue by brokerages of the giant hedge fund Long Term Capital Management, whose near-collapse threatened world markets.
As vice chairman of the Fed’s policymaking Open Market Committee, McDonough ranks second to Chairman Alan Greenspan and occasionally has been mentioned as a potential successor. However, McDonough this year said he would retire from the Fed in July.
McDonough said he planned to wrap up his work at the Fed and join the Public Company Accounting Oversight Board by the end of May.
Standing alongside Donaldson, McDonough said he sees the job of the PCAOB “as providing guidance in a constructive manner and, when necessary, to be a tough overseer to protect the public’s interests and assure that any inappropriate behavior is ended.”
Congress created the five-member board to set quality and ethics controls for the accounting industry and to police the business. The board answers to the SEC.
McDonough said that in light of the appointment, he would decline his nomination to become a director of the New York Stock Exchange.
The NYSE had turned to McDonough after withdrawing its nomination of Citigroup Inc. Chairman Sanford I. Weill. That nomination was attacked by New York Atty. Gen. Eliot Spitzer, who has spearheaded the state and federal probe of allegedly abusive brokerage practices during the 1990s bull market.
McDonough’s PCAOB appointment, subject to completion of background checks and a final SEC vote, was widely praised Tuesday. Both Spitzer and NYSE Chairman Richard Grasso lauded him.
House Financial Services Committee Chairman Michael G. Oxley (R-Ohio) said in a statement that McDonough’s Fed experience demonstrates that he is “more than capable of leading the board and reassuring individual and institutional investors that America’s capital markets will remain the most open and honest in the world.”
Reps. Barney Frank of Massachusetts and Paul E. Kanjorski of Pennsylvania, ranking Democrats on Oxley’s committee, called the appointment “very good news for those of us who want to see a vigorous Public Company Accounting Oversight Board.”
Arthur Bowman, editor of the industry newsletter Bowman’s Accounting Report, said of McDonough: “What he does now will set the tone of the industry for years to come.”
Bowman’s only reservation about McDonough concerned his age. “It’s going to take a lot of energy, and I hope he’s up to the challenge,” he said.
The PCAOB’s first chairman, former FBI Director William H. Webster, quit in November amid criticism of his role as a director of a small technology firm facing fraud accusations. The controversy over his selection, which came in a contentious 3-2 vote by the SEC, was a factor in the November resignation of then-SEC Chairman Harvey L. Pitt.
The PCAOB chairmanship pays $556,000 a year, a salary level some critics have called overly generous.
McDonough’s own attack in September on excessive pay among U.S. corporate executives attracted attention not only for its content but because of where and how he said it. The speech came at Wall Street’s Trinity Church during a memorial service a year after the World Trade Center attack.
He said the spectacular increases in executive compensation in recent years turned out to have been not only bad business but also “terribly bad social policy and perhaps even bad morals.”
Corporate-governance expert Ira Millstein, a partner at the New York law firm of Weil Gotshal & Manges, said McDonough’s Trinity Church speech demonstrates “his primary virtue: He isn’t going to get pushed around.”
