Donaldson Leaving The SEC

I can't hardly let this event pass without comment. William Donaldson was given a tough job given the scandals of the time. He believed that he needed to get tough. Eliot Spitzer and the Attorney General's office of New York was essentially doing the SEC's job and upstaging the SEC at every turn. But now we have had our capital markets regulated back into a corner.

Over the past six months Mr. Donaldson has been telling the financial heads of small public companies that he believes that the rules that the SEC wrote for compliance with the internal control provisions of the Sarbanes-Oxley Act need to be revised for smaller companies. Yet every time he testifies to Congress about the Sarbanes-Oxley Act, he tells those ladies and gentlemen that they have written the greatest piece of legislation ever and that there is no need for change.

Similarly, he started out backing shareholder rights reforms that would allow various shareholder groups more freedom in nominating director candidates. Mr. Donaldson realized later that this plan was probably going to create more chaos, greenmailing and fueding within public companies without ever really creating better governance.

The mutual fund scandals blew up on Mr. Donaldson's watch. The answer again, more governance reform. Mr. Donaldson believed that adding independent directors to focus on regulatory issues on each fund was the answer. Little has been done to address the real issues of these fund abuses, which lies in the fund company's top management who timed trades for themselves and friends. The individual fund boards have no real power to address these types of corporate decisions.

And hedge funds, don't even get me started. These funds are trading securities like any other mutual fund, except their clientele is a lot more exclusive and they are much more aggressive. The SEC should simply start regulating these funds until the courts tell them where their limits are.

Mr. Donaldson's real failures have come from his desire to be a friend to all. He has had something good and encouraging to say to every audience he speaks. This of course has led to many conflicts in his own agenda. Now that he has finally backed himself too far into the corner, he really has no choice but to walk out of the room across the newly painted floor. Mr. Donaldson has expressed his hope that we don't step backwards on his newly minted reforms. Personally, I pray we do.