SEC Chief: Businesses Resisting Reform

Too many business interests are clinging to a failed status quo and resisting necessary governance reforms, the government's top securities regulator said Thursday.

William Donaldson (search), chairman of the Securities and Exchange Commission (search), made the remarks in a speech in New York to the Conference Board, an influential business executives' group and research organization. Copies of the prepared text of his speech were released by the SEC in Washington.

Donaldson lauded the Conference Board (searchfor setting examples of "actions that can help to restore good business practices and public trust in companies, their leaders and the capital markets."

Public mistrust of Wall Street and corporate America remains high following the wave of business scandals, though doubts have been eased somewhat by SEC enforcement actions against hundreds of companies and by corporate improvements, in Donaldson's view.

"This erosion of trust in business is a serious and worrying development, and there's no guarantee the problem will automatically get resolved," he said Thursday night. While the SEC and other regulators can put clear rules in place, he added, "we know from the course of history that human nature will push aggressive managers and organizations to continue to test new laws."

Donaldson appealed to the Conference Board members to press other, more recalcitrant business organizations "to stay on the side of positive change."

"Too often certain business organizations, structured to represent 'the business community,' are dedicated in deed and rhetoric to perpetuating a myopic focus on the status quo," he said. "Too many are still intent on maintaining corporate prerogatives and preserving a narrow focus on short-term financial performance, often to the detriment of other goals of integrity and long-term performance."

Donaldson didn't mention any of those groups by name.

He told The Associated Press in an interview Tuesday that he was disappointed but not surprised the U.S. Chamber of Commerce has challenged in federal court a new rule mandating that the chairmen of mutual fund boards be independent from the companies managing the funds.

The rule, adopted by a divided SEC in response to the fund industry scandal, will take effect next year and could shake up the $7 trillion industry to which some 95 million Americans entrust their savings. The boards of an estimated 80 percent of U.S. funds — some 3,700 of them — will be forced to replace their chairmen.

In a question-and-answer session after his speech, Donaldson emphasized that businesses can keep a competitive model and still maintain their integrity — for example, by re-examining executive compensation committees.

"The compensation committees ought to sit down and figure out what exactly they're compensating for," he said, adding that there is a "more sophisticated concept of what's good management" and that board members should work for the compensation committee and not the company.

When asked if he plans to remain as the SEC chair after the November presidential election, Donaldson said, "The minute I feel my tour is over ... I will return to civilian life."