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The SEC: What's On Donaldson's To-Do List


By most accounts, Securities & Exchange Commission Chairman William H. Donaldson is a short-timer. But don't tell his scheduler. The week after the election, the SEC chief jetted to Florida to lecture stock traders at their annual confab, spoke to leaders of charities in Chicago, and was back in Washington in time to propose stricter governance rules for U.S. stock exchanges. Donaldson, 73, is acting as if he plans to stick around through 2005 -- to the dismay of some business leaders who had hoped for a breather from post-Enron activism.

SEC insiders say Donaldson is eager to complete an ambitious agenda and roll out new initiatives. Top priorities include modernizing stock trades, finishing mutual-fund reforms aimed at preventing trading abuses, and forging a compromise to make it easier for shareholders to nominate company directors. Next on Donaldson's to-do list: requiring companies to disclose more about executive perks and pay. And he wants to clarify the opaque process for giving SEC recognition to credit-rating agencies, paving the way for new competitors.

The leftover issues are technically thorny and involve compromises that will leave no one satisfied. Under pressure from the SEC, the New York Stock Exchange is expanding electronic trading, a move that will squeeze its specialists and floor brokers. But the SEC won't give the NYSE's electronic-trading rivals the big opening they want to snag more business, either. "Whatever the SEC decides, there will be howls all around," says Council on Foreign Relations finance expert Benn Steil.

The SEC's stream of governance rules and zero-tolerance enforcement have left Corporate America resentful, too. "The SEC is operating beyond its authority," says David Hirschmann, senior vice-president of the U.S. Chamber of Commerce. The Chamber sued the agency in September over a new rule requiring mutual-fund chairmen to be independent of fund-management companies. And lobbyists gripe about the proliferation of probes into possible corporate wrongdoing. The SEC filed 639 enforcement actions in the year ended Sept. 30, just shy of '03's record 679 cases. But total penalties edged higher -- $1.2 billion vs. $1.1 billion. And SEC-ordered disgorgements of ill-gotten gains doubled, to $1.8 billion.

Lost Ally

Donaldson isn't likely to ease up. His vigilance has won kudos from the White House and Capitol Hill. And with New York Attorney General Eliot Spitzer on the prowl, the SEC can't risk being tagged as soft on enforcement. "We ought to be tough because accountability and deterrence are what make the system work," says SEC Commissioner Harvey J. Goldschmid.

But the time for toughness may be brief. Democrat Goldschmid plans to return to Columbia University School of Law next fall -- depriving Donaldson of a key ally and intellectual force in SEC debates. "When he leaves, the delicate balance Donaldson has built risks unraveling," says Joel Seligman, dean of Washington University School of Law.

Donaldson backs some initiatives that please business. His plan to streamline stock-sale registration and let companies speak more freely ahead of public offerings will make it easier to raise capital, says Michael J. Missal, a partner at law firm Kirkpatrick & Lockhart. But corporate leaders who want more such respites from the SEC may have to wait out Donaldson.

The election was a big win for the Bush dynasty. But it also was a night of victory for four other Washington political families:

Republican Connie Mack IV, a marketing executive and son of former Senator Connie Mack III, sailed into a House seat on Florida's Gulf Coast after a tough primary. With a boost from the Chicago Democratic machine, Representative-elect Dan Lipinski (D-Ill.), a political science professor, replaced his father, Bill, who retired after 11 terms. Also winners were Democratic Representa-tives-elect Dan Boren of Oklahoma, son of former Senator David Boren, and Russ Carnahan of Missouri, son of former Senator Jean Carnahan and the late Governor Mel. Two years after his mom's defeat by Republican Jim Talent, Russ capitalized on the Carnahan name to capture the seat vacated by former House Minority Leader Dick Gephardt.

A new dynasty was born in Colorado, where the Salazar brothers, Senator-elect Ken and Representative-elect John, both seized seats previously held by Republicans. They join Michigan's Levin brothers as the second House-Senate sibling tag team.

Of course, legacy lawmakers are nothing new. Michigan Representative John Dingell replaced his father -- in 1955. Rumor has it that when Dingell retires, son John Jr. is in line to take his place.


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