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U.S. Securities and Exchange Commission

Speech by SEC Chairman:
Farewell Remarks to SEC Staff


Chairman William H. Donaldson

U.S. Securities and Exchange Commission

New SEC Headquarters
June 29, 2005

I want again to thank Senator Sarbanes and Chairman Oxley for joining us here this afternoon as we mark the official opening of Station Place, and I welcome them here along with our other distinguished guests, and most importantly, along with the men and women who make up the staff of the Securities and Exchange Commission.

Station Place is the sixth building to house the SEC’s headquarters since the Commission was created in 1934. Over the years, we’ve occupied a range of locations, starting on Pennsylvania Avenue, and even in Pennsylvania itself, during the Second World War, when we were based at the Philadelphia Athletic Club.

Most recently, we’ve moved from the concrete bunker we fondly know at Judiciary Plaza, into this gleaming, sun-filled structure. With this move, the people who spend their days preaching the virtues of transparency now get to experience life inside a large glass box. That gentle irony aside, I can’t think of a more appropriate location than Station Place for the Securities and Exchange Commission. Here, with a great train station on one flank and the Thurgood Marshall building on the other, we find ourselves physically nestled between a dynamic hub of commerce and the protections of our legal system. This is precisely the juncture where our founding statute placed us 71 years ago. Joseph Kennedy, in his first speech as Chairman of the SEC, said that the Commission seeks “to reassure capital as to its safety going ahead and reassure the investor as to the protection of his interests.” That was a worthwhile objective in 1934, it is a worthwhile objective today, and I expect it will be a worthwhile objective in 2034.

As I expect most of you know, this celebration is, for me, a bittersweet one – it is a chance to honor and celebrate the accomplishments of the Commission’s staff, and a chance to hold a “housewarming” for our new building. But it is also a chance for me to say thanks and farewell.

While I look forward to my return to New York and the private sector, it will not be easy for me to leave behind the energy, enterprise and spirit that are the hallmarks of this agency and the industry it serves – a world in which I have been immersed, one way or another, for – I hesitate to admit – nearly 50 years.

The transformation of the securities markets that I’ve had the opportunity to witness over these years has been truly remarkable. Stock ownership, once the domain of a relatively privileged few, is now within the purview of more than half of all American households. Securities trading is carried on at the speed of light rather than the speed of conversation. The mutual-fund industry has come to maturity, while hedge funds barely existed when my partners and I founded our investment firm in 1959.

When I came to the Commission in February 2003, the nation was still recovering from the excesses of the ‘90s bull market. The Dow had declined the three previous years, and a few months earlier the Nasdaq had bottomed out more than three-quarters below its peak. A handful of business leaders had disregarded their obligations to investors, and in the process managed to strike a blow at investor confidence throughout the nation. Their boards had failed to provide adequate oversight, and in some cases they were abetted by their bankers and other gatekeepers.

Working with the tools provided by the Sarbanes-Oxley Act, the Commission and its staff began the hard work of seeking to correct the abuses that, at the time, appeared rampant in our markets. I arrived while this effort was underway, and in my time as SEC Chairman the agency has continued to work tirelessly to rebuild the trust between investors and their fiduciaries and agents. Much remains to be done, of course, but I have no doubt that long after I’ve gone, the agency will continue to pursue its mission with dedication and zeal.

I am very proud and appreciative of what the Commission and its staff have accomplished. We have improved disclosure and transparency for investors, enabling them to make more informed investment decisions. We have reduced the incidence of conflicts of interest, and the opportunity for self-dealing by brokers, investment advisers, market makers, and other market intermediaries. We have pursued an aggressive enforcement agenda to detect, punish, and help deter securities fraud. I believe that these actions, which we built upon the foundation laid by Congress in the Sarbanes-Oxley Act, have done much to restore the belief of the American people and investors throughout the world that our financial markets operate on a level playing field.

At the same time, we also undertook important internal reforms at the Commission to instill a more anticipatory and cooperative culture here. A guiding principle underpinning many of the Commission’s initiatives during my tenure has been to not simply react to problems as they erupt, but rather to identify potential problems and then move to address them.

As crucial as the efforts of those of us in government are to maintaining the integrity of our markets and the confidence of investors, in the end the real burden lies with market and business participants themselves. We must look to those who lead our public companies to make the conscious decision that ethics and integrity will be at the heart of every business transaction. Outspoken leadership in this regard will also help to present a more accurate profile of the vast majority of this country’s publicly-traded companies, which I remain convinced are run by honest, dedicated people who strive to make good decisions on behalf of their investors, customers and employees.

My hope is that in the years ahead my colleagues in the private sector will strive to build a business environment that, as much as possible, eliminates the conflict between the near-term horizons of some and the long-term interests of American investors. Business leaders need to be on constant guard against the dangers of a short-term focus, which can be fueled by Wall Street’s close attention to quarterly earnings.

Even taking the long-term view, of course, it would be na´ve to suggest that the day is coming when our markets will be completely free from malfeasance. What I do see from all of our efforts, however, is a market that is more transparent and more structurally sound, and therefore less open to abuse, than it was in years past. Continued progress depends on a continued commitment to transparency and accountability, even though we must acknowledge that this commitment cannot be achieved without some cost.

In this vein, our legitimate concerns about the cost of regulation and enforcement must be tempered by an appreciation for the long-term benefits we all derive from a clean market and a high level of investor confidence – or, in Chairman Oxley’s words, “the value of knowing that company books are sounder than they were before.” Thoughtful business leaders understand just how devastating it would be were we to repeat the mistakes of the recent past, even if some of those who advocate on their behalf appear willing to ignore the lessons that we’ve learned.

It has been a great honor to be SEC Chairman, and I’d like to close by saluting the permanent staff of the Commission. Throughout my career, I always knew the Commission to be an outstanding organization, staffed by intelligent, dedicated and fair regulators. But until I worked here, it was impossible for me to appreciate fully the institutional knowledge, and the commitment, found throughout the agency. The nation’s investors should be profoundly grateful to these people for the work that they do. It is not mere happenstance that the United States is home to the world’s most liquid and efficient markets, and has the highest rate of equity ownership. That reflects high levels of investor confidence, which in turn is due in no small part to the efforts of the SEC staff in faithfully administering the nation’s securities laws. It has been an honor, and a privilege, to count these people as colleagues and as friends.

I also would like to salute my predecessors as SEC Chairman, for I have been fortunate to follow in their footsteps, and my fellow Commissioners Glassman, Goldschmid, Atkins and Campos. They have all contributed greatly to the Commission’s effectiveness and professionalism, which was neatly summed up by the Nobel economist George Stigler in 1964. He wrote that, “It is doubtful whether any other type of public regulation of economic activity has been so widely admired as the regulation of the securities markets by the Securities and Exchange Commission.” More than 40 years later, I think we can still lay claim to that achievement, and I am confident that the future leaders of the SEC will be able to say the same thing 40 years from today.

Much work remains, of course, but for now my work is done. I thank you for coming on this special day, and I thank you for giving me an opportunity to serve that I will always cherish.



Modified: 07/06/2005