The Cox revolution: how the former U.S. lawmaker is changing the SEC.

• Author: Whalen, Christopher
• Position: Christopher Cox - Securities and Exchange Commission

With the selection of Rep. Christopher Cox (R-CA) to succeed William Donaldson at the Securities and Exchange Commission, the focus of the agency has changed from punishing the corporate guilty to seeking to improve protection for investors. Some cynics thought Cox's appointment represented the business community retaking control over the SEC from a relative moderate like Donaldson, but Cox is showing himself to be an activist in many respects, imposing new disclosure requirements on C-suite compensation and continuing a number of other initiatives begun under Donaldson, in particular the agency's push to improve the quality of disclosure by companies and mutual funds.

When Donaldson was appointed to head the nation's securities regulator in 2003, his mission was to restore confidence in the wake of the cascade of financial fraud scandals that swirled around corporations such as WorldCom and Enron. After the Bush Administration stampeded Congress into enactment of the Sarbanes-Oxley Act in the fall of 2002, Donaldson worked hard to protect the industry he helped to build even as he levied some of the largest fines and stiffest civil and criminal penalties ever on the Street's former clients.

In many respects, the reformer reputation of Donaldson was undeserved. The former head of broker Donaldson, Lufkin & Jenrette was highly accommodative to the New York Stock Exchange and to corporate issuers alike. Seen through cynical eyes, the Sarbanes-Oxley legislation and Donaldson's subsequent "reform" efforts at the SEC were simply a means of distracting attention from the enabling role that the NYSE, NASDAQ, and SEC too played in the fleecing of American investors with the New Economy bubble, a role abetted by an assortment of well-compensated investment bankers, lawyers, auditors and other supposed gatekeepers. Just ask New York Attorney General Eliot Spitzer.

As Wall Street focuses on future earnings rather than the current performance of a company or bank, policymakers in Washington are tasked to maintain the perception of solidity rather than solve intractable problems such as proactively detecting corporate behavior, and Donaldson did the job. Under the former investment banker, executives were fined, hedge funds spanked, and mutual funds investigated, but issues like soft dollar payments to brokers and the use of arbitration to conceal the bad acts of Wall Street were left off the table. Indeed, during Donaldson's tenure and apparently with his approval...