TCS Daily


Out With the Rockefeller Republican, In With the Reagan Revolutionary

By Stephen Bainbridge - June 3, 2005 12:00 AM

William Donaldson recently announced his resignation as Securities and Exchange Commission (SEC) Chairman, citing a desire to spend more time with his family. That line is to Washington what "the check is in the mail" is to the rest of us. The fact is that Donaldson was badly out of step with the Bush Administration and had been under pressure to leave for some time.

Many observers had high hopes for Donaldson when he took office in 2003. The SEC had just gone through Harvey Pitt's ham-handed tenure as Chairman. The markets were still roiling from the tech stock melt-down. The post-Enron trials and law suits were getting underway with a vengeance. Sarbanes-Oxley needed to be implemented and, if possible tamed.

Donaldson surprised many of those same observers by adopting an aggressive regulatory approach from the outset. He pushed through controversial changes to mutual fund board of director composition. He championed the trade-through rule, even though few investors supported it. He rammed through hedge fund registration. He long supported -- although eventually allow to fade away -- a highly controversial proposal to allow shareholders to directly nominate members of corporate boards. He wanted to expand the SEC's role in oversight of executive compensation.

Although nominally a Republican, Donaldson consistently sided with the two Democrats on the Commission rather than fellow Republican Commissioners Atkins and Glassman in a series of highly contentious 3-2 votes, all of which significantly increased the regulatory burden on securities firms and markets. In particular, Donaldson let Democrat Commissioner Harvey Goldschmid wield an unusual degree of influence for a minority member. Goldschmid is a very smart guy and a highly experienced securities lawyer and academic, but he is also highly partisan with a strongly pro-regulatory outlook and has been a driving force behind a number of the SEC's most controversial regulatory efforts.

In sum, as law professor (and blawgger) Gordon Smith recently noted:

        "Mr. Donaldson, a longtime friend of the Bush family, has come under fire 
        in business and political circles for pursuing an agenda that has been 
        perceived as being too regulatory." This is a distortion, in my view. The 
        point made by Donaldson's opponents is not that the SEC should not be 
        regulating, but that it should not be regulating for regulation's sake.

Exactly. It was long since past time for Donaldson to go.

As Donaldson's replacement, President Bush has named GOP Congressman Christopher Cox. I must confess to feeling a little sorry for Commissioners Atkins and Glassman, both of deserved promotion after all the times RINO Donaldson sided against them with Democrat Commissioners Campos and Goldschmid.

Yet, despite Cox's unfortunate start in life as a USC Trojan, I agree with Hugh Hewitt that Cox is a solid choice:

        Congressman Chris Cox will head up the SEC. Good choice as Chris knows 
        the securities laws inside-out. This will set off a nice scramble for his seat in 
        the very, very safe GOP district in Orange County, California.

Cox does indeed know the securities laws quite well. In between serving in government offices, he did stints as a corporate finance lawyer at both the associate and partner level with the prominent law firm of Latham and Watkins. He was a leading force in getting the Private Securities Litigation Reform Act through Congress, including making it the first Clinton veto to be overridden.

To be sure, as law professor (and yet another blawgger) Larry Ribstein predicts: "There will now be a period of blathering about how investor protection is at risk under an SEC led by someone like Chris Cox." He was right. The blathering began with a post at TAP, which I fisked over at my blog, but it's unlikely to stop there. Ignore the prating mountebanks. Cox is a very fine choice indeed.

Unlike Donaldson, whose old-style Rockefeller Republicanism was badly out-of-step with the Administration, Cox is a child of the Goldwater and, especially, the Reagan revolutions. Cox bills himself as "a leading advocate of economic growth through lower taxes, free enterprise, and limited government." The US Chamber of Commerce has repeatedly given his voting record very pro-business scores (well up in the 90s). Cox got a 100-point rating from the American Conservative Union in 2004. His lifetime Americans for Democratic Action score is a mere 5 points.

Cox can be expected to side with Atkins and Glassman on controversial issues. He should have good relations with the Hill, an area in which the SEC could stand improvement. He'll be against regulating for the sake of regulating, while favoring sensible reforms. I suspect he'll also be a voice for rethinking some of the post-Enron "reforms" that have arguably gone too far.

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