Challenges Facing Rep. Cox at the SEC
ALEX CHADWICK, host:
If he's confirmed by the Senate, Congressman Cox will take over at the SEC from William Donaldson. Mr. Donaldson served during a time of many scandals for American business--Enron, Arthur Andersen and WorldCom, for instance. He's been in the post for two and a half years. William Donaldson enforced new regulations to prevent more of these scandals.
John Coffee teaches at Columbia Law School and specializes in corporate and securities law. He's joining us now.
Professor Coffee, when William Donaldson was nominated to the SEC post by President Bush back in 2003, here's what he had to say then.
(Soundbite of news conference)
Mr. WILLIAM DONALDSON (Securities and Exchange Commission): There have clearly been numerous instances of serious malfeasance which, if proven, we will continue and must continue to deal with swiftly. As my mother used to say many years ago, it's time for all of us to pull up our socks.
CHADWICK: So, Professor Coffee, what is the sock status with American business at this point? How good a job has William Donaldson done?
Professor JOHN COFFEE (Columbia Law School): I think he did an excellent job. He wasn't a hell-bent-for-leather reformer like Arthur Levitt, but he saw the crisis. He knew that as SEC chairman he had to be the voice and the champion of the American investor. And I think he implemented Sarbanes-Oxley, which was the reform legislation that followed Enron and WorldCom, very effectively. So I think that he did as much as could be done to hold together a commission that had become very polarized and was increasingly splitting.
CHADWICK: I think there's some question, at least as I read the morning papers, about whether he's leaving of his own volition. Maybe he's been too good a regulator and he's been asked to leave.
Prof. COFFEE: I doubt that, because I think the White House was very grateful to him. He did solve the credibility crisis that had arisen during the chairmanship of Harvey Pitt, the prior chairman. He restore the credibility of the SEC and the morale of its staff, and I think the White House had grown very tired of seeing the SEC on the front page of the paper every morning with a new scandal and a new crisis. So to that extent, I think there was some gratitude, but I think he was 74 years old and it was increasingly difficult to hold together a polarized, contentious body where some of the commissioners really didn't like each other.
CHADWICK: We'll note that this is a bipartisan commission. There are five commissioners, and no more than three can be from any one party. Apparently the two Democrats are thinking of leaving in the next few months, so there may be new appointments there. But tell me, what does American business want to see now from the SEC? What are they going to be hoping for from Christopher Cox?
Prof. COFFEE: Well, first of all, I think you'll have great pressure from the smaller corporations. They want some of the requirements of Sarbanes-Oxley which have proved very costly to them liberalized and reduced. The SEC right now has an advisory committee that is trying to find ways to reduce the cost impact of Sarbanes-Oxley on the smaller public corporations. I'm sure Mr. Cox is going to be very supportive of that. He may want to take it even farther than that advisory committee will recommend. That's one area.
There are a number of other areas where he could go and reconsider Sarbanes-Oxley, but I think that's still--it's too close to the scandals of Enron and WorldCom to expect that Congress is going to want to really repeal or change much in Sarbanes-Oxley.
CHADWICK: But perhaps some loosening of the regulatory atmosphere?
Prof. COFFEE: Well, of course what the business community would like is reduced penalties, reduced enforcement. Their view is the SEC has risen to the competitive challenge of Eliot Spitzer by making its enforcement policies tougher and certainly the SEC's penalties have grown by several orders of magnitude.
CHADWICK: Eliot Spitzer, I'll note, is the New York attorney general who's made quite a name for himself investigating corporate scandals.
John Coffee directs the Center on Corporate Governance at Columbia Law School.
Professor Coffee, thank you.
Prof. COFFEE: Thank you.
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