SEC leaders' cohesion shows signs of cracks

Date: Thursday, December 4, 2003

By Greg Farrell, USA TODAY

As if he didn't have enough problems cleaning up mutual funds and the New York Stock Exchange, Securities and Exchange Commission Chairman William Donaldson is about to face the biggest challenge of his nine-month tenure at the SEC: a growing rift among his four fellow commissioners.

So far, SEC Chairman William Donaldson has smoothed over ideological rifts in the agency.

Sources in the commissioners' offices say a divide has sprung up between Democratic appointees Harvey Goldschmid and Roel Campos, who favor increased SEC regulation, and Republican appointees Paul Atkins and Cynthia Glassman, who don't see new rules as the solution to every problem.

Donaldson, tapped last year by President Bush to head the SEC, is caught in the middle.

Signs of what one commissioner described as a "brewing rebellion" boiled to the surface twice last month, during an open meeting and again during Donaldson's testimony on mutual funds before the Senate banking committee.

At the open meeting, held to discuss the SEC's proposal to give shareholders greater participation in nominating a company's board of directors, Goldschmid pressed the SEC staff to finish its work by the end of February so new rules could take effect for the upcoming proxy season.

But Atkins urged the staff to take as much time as it needed to fashion the rules.

If the rules aren't completed by March, it will be at least another year before any new regulations — which are opposed by the Business Roundtable, a CEO group — take effect.

Another flashpoint — missed by most observers — occurred during Donaldson's Senate testimony. Before submitting written testimony, the SEC chairman customarily shows his fellow commissioners a draft of his remarks.

Donaldson wanted to tell the lawmakers that the SEC would adopt rules to make sure the chairmen of mutual funds are independent of the funds' management. But at the insistence of Atkins and Glassman, he scaled back his remarks, saying, "We are proposing to set enhanced standards for board independence and are considering other steps in this area."

Subsequently, he testified that it was his opinion that mutual fund chairmen should be independent.

So far, Donaldson has smoothed over ideological rifts between the two camps. In recent months, Atkins and Glassman have accommodated their colleagues and largely gone along with Donaldson's decisions to side with Goldschmid and Campos.

But when the SEC begins to discuss hedge fund registration this month — an issue proposed by Donaldson — Atkins and Glassman are likely to prove intractable, which could bring the commission to a place Donaldson has tried to avoid: a divisive 3-2 vote.

Laura Cox, a senior adviser to Donaldson, would not discuss hedge funds or any other matters before the commission. But she says Donaldson will not shy away from thorny issues if they arise.

"The chairman is not going to run from a fight just because it's contentious," Cox says. "He'll stand up for what he thinks is right."