Donaldson Talks Tough on Goals for SEC

WASHINGTON -- William H. Donaldson, President Bush’s nominee to head the Securities and Exchange Commission, vowed Wednesday to “vigorously enforce” the rules governing corporate America and defended his own conduct during a long career on Wall Street and in the executive suite.

“Just as the war on terrorism cannot be won overnight, neither can investor confidence be completely restored so quickly,” Donaldson, 71, said during a friendly confirmation hearing before the Senate Banking Committee.

“Corporate America, Wall Street and their professional stewards -- lawyers, accountants, corporate and financial managers and financial regulators -- still have a lot of work to do.”

Leading Republican and Democratic committee members said they planned to vote in favor of his nomination, which could be approved by the panel as early as next week.

Donaldson, a longtime Bush family friend and founder of securities firm Donaldson, Lufkin & Jenrette, said his first priority would be to pick the head of the board created to oversee the accounting industry after scandals at Enron Corp. and other corporations.

It is “the No. 1 priority that I have,” he said, vowing to look at the selection process on his first day at the SEC. “We’re behind the eight ball.”

The SEC’s top job came open in November, when Chairman Harvey L. Pitt resigned after an uproar over his handling of the accounting oversight board.

Donaldson’s comments on matters including a floor trading scandal during his tenure at the New York Stock Exchange, U.S. accounting standards for foreign firms and his pay package as head of Aetna Inc. appeared to satisfy most committee members. He also seemed to soften his previous resistance to an SEC rule prohibiting companies from revealing information to financial insiders ahead of the public.

Lawmakers expressed their eagerness to move forward with new leadership at the SEC and encouraged Donaldson to assert himself strongly in the role.

“The SEC requires strong leadership from within,” Sen. Richard C. Shelby (R-Ala.), the committee’s chairman, said. “We will expect you, Mr. Donaldson, to provide that leadership.”

Donaldson, a former Marine rifle platoon leader, reserved some of his harshest criticism for Wall Street analysts.

Major brokerage firms reached a $1.4-billion settlement with regulators in December partly to settle allegations that some stock analysts skewed research to favor companies their firms hoped to win banking business from.

“The SEC needs to be sure there is no linkage between the investment banking side of the business and the research side of the business,” he said.

The watchdog agency that awaits Donaldson is widely viewed to be at a crucial point in its history.

Public confidence in Wall Street has been battered, prompting Congress to expand and toughen the rules that the SEC enforces. State officials, notably New York Atty. Gen. Eliot Spitzer, have taken some of the initiative from the SEC in leading regulatory efforts.

President Bush on Monday proposed a major expansion of the agency’s budget. But it will fall to the next SEC chairman to champion the budget increase on Capital Hill.

Meanwhile, controversial issues involving the duty of lawyers to report corporate misconduct and an overhaul of the rules governing credit-rating firms are pending.

“Clearly, the SEC needs to take decisive actions to restore public confidence,” Sen. Paul S. Sarbanes (D-Md.), the banking panel’s senior Democrat, said.

Bush nominated Donaldson in December but the White House only recently delivered the formal nomination papers to Capitol Hill.

During the interim, some questioned whether Donaldson, with his deep ties to Wall Street, would provide the tough, independent leadership the job requires at a time when the public’s faith in the integrity of financial markets and corporate accounting has been shaken.

Donaldson on Wednesday talked tough, declaring: “I believe enforcement is at the core of the SEC.”

Sarbanes asked Donaldson whether he believed that foreign firms should be allowed to maintain different and arguably lower accounting standards than U.S. firms, reflecting their own national regulatory policies -- a position Donaldson took at the New York Stock Exchange.

He replied that the best answer was to “harmonize” international standards, so that big foreign firms still could be listed on U.S. markets.

Donaldson seemed to backpedal on his previous criticism of Regulation Fair Disclosure, the SEC rule that bans firms from revealing financial details to Wall Street insiders ahead of the public.

On Wednesday, he said the rule, which had been supported by small investors and was a favorite of former SEC Chairman Arthur Levitt, seemed to be working better.

Asked about accusations that he had been lax with NYSE floor traders who engaged in illegal trading strategies during his tenure as chairman, Donaldson criticized media coverage of the issue.

“There’s been a lot of misunderstanding and a lot of misquotation.... During my tenure at the stock exchange, enforcement and protection was always top priority,” he said.