President Bush nominated William Donaldson, former Chairman and CEO of the New York Stock Exchange, as the next SEC Chairman. After expressing confidence in Donaldson’s ability to do the job, Bush asked why he would take it. Donaldson’s response was that he felt it was a civic duty to take it on; recalling Donaldson’s service in the U.S. Marine Corps, Bush responded, “It’s semper fi.”57
Donaldson came to the SEC with the belief that the agency had become too reactive, and worked to instill an anticipatory capability within the staff. Peter Derby, one of Donaldson’s chief of staff triumvirate, articulated that attitude as, “we’ve got to look over the hill and around the corner and see what’s coming upon us.” Paul Roye remembered Donaldson’s call for action plans. “‘Give me the layout of the things that we are going to do to attack this problem; I want it done.’ He was definitely action-oriented.” 58
The new Chairman brought to the SEC a “managerial style that basically we had accountability. He knew that the whole agency needed to be respected, have strong morale, pull in the same direction.” Donaldson retained many of the division heads, and selected Donald Nicolaisen to serve as Chief Accountant. “I had from day one the full support of the Chairman. Chairman Donaldson was very clear that this was an area where he respected my years of experience and abilities.”59
Donaldson established an Office of Risk Assessment and authorized the Office of Compliance and Inspections to identify priority areas of concern, the major one being derivatives. His experience in market structure issues – Annette Nazareth considered “he had probably the best market experience of almost anybody with whom I worked” – fostered the development of Regulation NMS, which established rules to modernize and strengthen the regulatory structure of U.S. equity markets and re-designated SEC rules to facilitate the creation of a national market system. The SEC addressed illegal activities, including late trading and market timing issues, in the mutual fund industry, after Massachusetts and New York state officials had each filed action against Putnam Investments, one of the nation’s largest mutual funds.60
One of Donaldson’s challenges as Chairman was working with his fellow Commissioners. “There were always rumors that certain Republican Commissioners during the Bill Donaldson era were complaining about Bill Donaldson and that Bill Donaldson didn’t support the ‘Republican views’ as tenaciously as he should.” While his predecessor had always spoken first at Commission meetings, Donaldson “intentionally chose to speak last to allow all the Commissioners to speak.” There was a perception among staff “that, to the extent the enforcement program had been less vigorous than it might have been, it was at the Commission level, not at the staff level. There were a variety of stratagems apparently employed by members of the Commission to slow down enforcement.”61
Donaldson characterized the Commission at the start of his Chairmanship as badly divided along partisan lines. In his view, unanimous votes would be unlikely when dealing with the tough problems, and he preferred to take on those problems. There were only a handful of split votes during his Commission, and those that were publicized were the ones where he voted with the Democratic Commissioners.62
Donaldson had planned from the start to serve as SEC Chairman for less than a full term, so rumors that he had been eased out by the White House were unfounded. When he left office in mid-2005, President Bush sent him a handwritten note: “I asked you to take on a tough job at an important time in our nation’s history, Chairman of the SEC. Your leadership was very important in helping restore confidence in our markets. I asked you to serve after a distinguished career in the private and public sectors and you used your talents and experience wisely. Thanks and best wishes.”63
(57) June 22, 2009 Interview with William Donaldson
(58) June 12, 2015 Interview with Peter Derby; June 21, 2016 Interview with Paul Roye
(59) June 12, 2015 Interview with Peter Derby; December 10, 2010 Interview with Donald Nicolaisen
(60) November 4, 2005 Interview with Annette Nazareth; Stephen Labaton, “S.E.C. Chief Vows to Act on Mutual Funds,” The New York Times, November 8, 2003
(61) April 13, 2015 Interview with Roel Campos; Peter Derby, May 12, 2009 Fireside Chat: SEC Office of the Chairman; May 31, 2015 Interview with David Becker
(62) June 22, 2009 Interview with William Donaldson
(63) June 22, 2009 Interview with William Donaldson; June 14, 2005 Handwritten Note to SEC Chairman William Donaldson from President Bush
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