Risk & Compliance

SEC Chairman Donaldson to Resign

After two-and-one-half turbulent years as head of the commission, William Donaldson will step down at the end of this month; "I hope the acts of th...
Dave CookJune 2, 2005

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William Donaldson, the 27th chairman of the Securities and Exchange Commission, will step down from his post on June 30.

In a statement, Donaldson said that he took the reins of the SEC at a time when “public confidence was severely undermined, reflecting the corporate and financial scandals that had shaken the nation.” He added that there was still work to be done to bolster the integrity and strength of corporations and the markets, but he believed it was time to “return to the private sector and my family.”

Donaldson, a Republican who was appointed by George W. Bush (and who, like the President, is a Yale graduate and a member of Skull & Bones), has sided with Democratic commissioners Harvey Goldschmid and Roel Campos on a number of high-profile issues such as mutual fund and corporate governance, stock trading, and hedge fund regulation. Those positions were opposed by the SEC’s two other Republicans, Paul Atkins and Cynthia Glassman.

In a press conference late Wednesday afternoon, Donaldson maintained that “any disagreements we may have had, had nothing to do with my decision to resign.” He noted that of the roughly 3,000 decisions made by the commission during his tenure, 99 percent were unanimous, adding that only “three or four” prominent decisions were made by a three-to-two vote.

“I hope the acts of the SEC have not been characterized by a pendulum,” he added, in a nod to recent statements by the commission and by the Public Company Accounting Oversight Board. Although Donaldson insisted yesterday that the Sarbanes-Oxley Act of 2002 has been generally “well-received,” the SEC and the PCAOB acknowledged earlier this month that implementing the internal-controls provisions of Section 404 had proved very costly. Critics of 404 have “legitimate” gripes about its expense, he added yesterday.

“We had to go through year one of those rules” to see how Section 404 might have been misapplied, said Donaldson. “I want to caution everybody that the one thing we’re not doing is undercutting the thrust of 404,” just reducing inefficiencies in how those provisions are being applied.

Donaldson’s announcement follows the April departure of Stephen Cutler, the director of the SEC’s Division of Enforcement, and the announcement earlier this year by Harvey Goldschmid that he will leave the SEC this summer to return to teaching at Columbia Law School. Asked about the proposals by Democratic leaders that director of market regulation Annette Nazareth fill Goldschmid’s seat and that Roel Campos be nominated to another term, Donaldson said that the positions were for the White House to decide, adding “those are two excellent people.”

The best candidates for such positions, suggested Donaldson, would be people who would “leave the politics at the door” and make their decisions by considering “what’s best for the investing public.”

Donaldson, who turns 74 today, became chairman of the SEC in February 2003, succeeding Harvey Pitt, who resigned amid controversy the previous November. At that time he was best-known as a co-founder of Donaldson, Lufkin and Jenrette, an investment bank that was especially adroit at underwriting junk bonds.

After graduating from Yale, Donaldson served in the U.S. Marine Corps from 1953 to 1955 before receiving his MBA from Harvard Business School. In addition to founding the investment bank that bore his name, Donaldson’s wide-ranging experience includes serving as undersecretary of state under Henry Kissinger from 1973 to 1975; co-founding Yale’s Graduate School of Management in the late 1970s; and serving as chairman and chief executive officer of the New York Stock Exchange from 1990 until 1995.

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