US: Clearing up corporate crime

Abigail Rayner, New York correspondent for The Times, writes on the latest financial and business developments in the US

A new dawn of corporate cleanliness and transparency was promised as the US Senate gave its blessing to the approval of William Donaldson, to head the Securities and Exchange Commission.

The 71-year-old has pledged to get tough on corporate crime and raise investor confidence and, on being sworn into the role, said he would �hold accountable all those who have violated the public trust�.

President George Bush commended the Senate on its speedy decision to approve Donaldson. �In his new role, he will continue to crack down on corporate wrongdoing, work to protect investors and restore confidence in our capital markets,� he said.

The new chief policeman of the financial community certainly has his work cut out. The SEC is currently engaged in more than 600 investigations, among them the massive $9bn WorldCom accounting scandal and the Enron, Tyco and Adelphia debacles.

He certainly has all the credentials for the appointment. He is best known as a founding partner of Donaldson, Lufkin and Jenrette in 1959. He is a former chairman and chief executive of the New York Stock Exchange, where he served for five years from 1990. He also acted as chairman for Aetna, during a rough patch for the US insurer in 2000 and 2001 and remains on the board of Aetna and Honeywell.

His appointment follows the ungraceful exit of predecessor, Harvey Pitt, on the back of a litany of bungles that embarrassed the institution when it was at a low ebb.

Pitt was accused of being asleep at the wheel as numerous corporate scandals hit. He looked especially bad as Eliot Spitzer, the New York attorney-general and self-styled czar of Wall Street, set about taking investment banks to the cleaners over allegations of tainted stock advice.

Following the Senate�s approval, Donaldson intimated that he would accept no such rivalry. He coldly described Spitzer�s work as �constructive up to a point�, and warned state law officials to stay off his beat. Wall Street�s leading investment banks recently agreed to pay $1.4bn in fines to settle allegations arising from Spitzer-led investigations that they misled investors.

Donaldson�s first job will be to find a head for the newly created Public Company Accounting Oversight Board. Pitt fouled up the task in a series of spectacular blunders, which ultimately cost him his job. Having apparently offered the position to John Biggs - who promptly resigned as head of one of the nation�s largest pension funds - he then reneged on the decision, allegedly under pressure from the accounting industry itself.

The final straw came as Pitt finally appointed William Webster, without informing the SEC that Webster had served on the board of a company which was being investigated for accounting irregularities.

Having worn out the patience of both Democrats and Republicans, Pitt finally resigned on 5 November, just as the voting stations closed for election day.

Donaldson�s smoother style, likely born out of his background as an entrepreneur, should keep him out of the kind of trouble Harvey �the pitt-bull Pitt� attracted with his combative manner.

Despite his glowing record, some viewed the choice of Donaldson with scepticism, noting that he is a former Yale classmate of George Bush Senior�s brother, Jonathan, and remains a close family friend.

Donaldson drew criticism as Democrats on the Senate Banking Committee uncovered a scandal during his tenure at the NYSE. He has dismissed allegations that he allowed brokers to share profits with private clients. �There has been a lot of misunderstanding,� he said. �Enforcement and protection of investors was always my top priority.�

Meanwhile, corporate giant PepsiCo was having more trouble playing down a scandal. The iconic American soft drinks giant endured two recent boycott threats from rap music mogul Russell Simmons after it dropped an advertisement featuring Ludacris, a rap artist signed to Def Jam, the label Simmons founded and which is now owned by Vivendi Universal.

PepsiCo�s ad people were obviously not au fait with hip hop vernacular and had not picked up on the controversial nature of some of his songs. That is until Fox News channel commentator, Bill O�Reilly, pointed it out to them on air and called the company �immoral� for hiring Ludacris.

Hip hop activists accused the company of disrespecting the music genre. PepsiCo denied doing any such thing but still signed a $3m agreement with them to fund urban charities.

Abigail Rayner is New York correspondent for The Times (of London).