William Donaldson, investment banker who led SEC, dies at 93

William Donaldson, a founder of Wall Street investment bank Donaldson Lufkin & Jenrette who presided over a divided Securities and Exchange Commission during its crackdown on corporate misdeeds from 2003 to 2005, has died. He was 93.

He died on June 12, according to Yale University’s School of Management, of which he was the founding dean. No cause was given.

In a career that spanned a half-century, Donaldson was co-founder and chairman of DLJ, the first New York Stock Exchange member to go public; an undersecretary of state under President Richard Nixon; and head of the New York Stock Exchange. 

With his background in business, Donaldson defied expectations with a binge of rulemaking during his 28 months at the helm of the SEC. “I did what I did without concern for the politics of it, and I think that is the role of an independent agency,” he said in a 2008 interview.

He attempted to help restore confidence in corporate America following a wave of fraud, including the bankruptcies of Enron Corp. in 2001 and WorldCom Inc. the following year. Appointed by President George W. Bush, Donaldson jumped party lines to join with the commission’s two Democrats, Harvey Goldschmid and Roel Campos, to approve new regulations that drew opposition from business and in Congress.

“Bill had a remarkable career in public service, business, and academia — a life well lived,” the SEC’s five commissioners said late Friday in a joint statement. “He was a man known for his integrity and dignity.”

SEC initiatives

The trio prevailed in 3-2 votes requiring hedge fund managers to register with and be examined by the SEC; mutual fund boards to be led by chairs independent of executive management; and electronic stock trades to be routed to the exchange offering the best price.

Another Donaldson initiative, to make it easier for shareholders to elect candidates to corporate boards, was abandoned in the face of opposition from business groups and the White House.

The contested votes were unusual at the SEC, which had traditionally passed rules with the unanimous support of its Republican and Democratic commissioners. After Donaldson stepped down, courts struck down the rules on independent chairs of mutual funds and the registration of hedge funds.

Donaldson also locked horns with Republican Commissioners Paul Atkins and Cynthia Glassman over their opposition to imposing multimillion-dollar fines on public companies for fraud, misrepresentation and accounting violations. Total penalties increased 10-fold to $3.1 billion in fiscal 2005 from two years earlier.

“People say that if the SEC doesn’t act with unanimity that it somehow undercuts the message the agency is sending,” he said in the 2008 interview. “I don’t think that is true.”

Skull & Bones

William Henry Donaldson was born on June 2, 1931, and raised in Buffalo, New York, the second son of Eames Donaldson and the former Guida Marx.

His father, in the late 1920s, opened a business making castings for automobiles. It “went belly up in the Depression,” and he “spent the rest of his life trying to recoup from the loss and pay back his debts,” Donaldson recalled in an oral-history interview with Harvard Business School in 2002.

As an undergraduate in Yale’s class of 1953, he played hockey, was publisher of the Yale Daily News and became friends with Jonathan Bush, brother of the future president, George H.W. Bush. Donaldson was selected for Skull & Bones, the university’s secret society that counts both Presidents Bush as members.

After graduation with a degree in American studies, he served in the Marine Corps from 1953 to 1955. Donaldson didn’t see combat, as the Korean War ended while he was in training, but he commanded a rifle platoon in Japan and Korea and later in Hawaii as aide-de-camp to the commanding general of the 1st Provisional Marine Air Ground Task Force.

Donaldson went to Wall Street to join investment firm G.H. Walker & Co., where he worked for the senior partner, George Herbert Walker, the uncle of his friend Jonathan and of the first President Bush. Donaldson left to get his MBA at Harvard Business School in 1958, then returned to G.H. Walker to work on mergers and acquisitions.

‘Very superficial’

At the time, Dan Lufkin, a Donaldson classmate from Yale, was working for a private investor, Jeremiah Milbank. Donaldson and Lufkin shared an apartment and, according to Donaldson, also shared complaints about “the way business was being done.”

“The kind of advice that was being given to Milbank and the kind of research we were getting” at G.H. Walker “seemed very superficial and very retail-oriented,” he said. “It was just beige, buy-this-sell-that statistical analysis coming out of the back rooms of Standard & Poor’s, as we used to say.”

With Richard Jenrette — Lufkin’s Harvard Business School classmate, then working at Brown Brothers Harriman — they opened Donaldson Lufkin & Jenrette in 1959 to offer a new kind of research to the emerging industry of mutual funds and institutional investors.

“We were interested in doing what we called scuttlebutt research, like talking with the marketing vice president,” Donaldson said in the interview with Harvard Business School. “We were out calling on competitors and suppliers and really understanding the economics of the marketplace so that we could make a judgment on where the company fit in.”

They took the company public in 1970 after persuading the NYSE to rescind a rule barring public ownership of member firms.

Advised Rockefeller

Donaldson stepped down as DLJ chairman in 1973 to join the Nixon administration as undersecretary of international security affairs, working with Secretary of State Henry Kissinger. He lasted just seven months in the post and became an advisor to Vice President Nelson Rockefeller.

He returned to Yale to become the first dean at its School of Management, which he led from 1975 until 1980. “His view of what management professionals should be has left a permanent mark on SOM, Yale and the world,” Yale President Peter Salovey said the statement announcing Donaldson’s death.

For the next decade, Donaldson ran a private investment firm, Donaldson Enterprises Inc.

In 1991, he became chairman and chief executive officer of the New York Stock Exchange. In his first months, Donaldson drew notice for calling out the finance industry for too much risk-taking and not enough social responsibility. 

Bloomberg News reported in 1994 that he was losing support from the board of directors for a second term because they believed he “hasn’t done enough to promote the companies that list their stocks on the exchange.”

Donaldson left the post in 1995 and became a senior advisor to his old firm, DLJ. Credit Suisse Group AG bought DLJ in 2000 for $13.4 billion.

Aetna CEO

In 2000, Donaldson’s fellow members on the board of Aetna Inc., the U.S. health insurer, named him as chairman and CEO following the resignation of Richard L. Huber. During Donaldson’s 13 months in charge, Aetna sold its financial-services and international units to ING Groep for $7.7 billion to focus on health care.

Just as turmoil at Aetna created that opportunity, trouble at the SEC opened the door for Donaldson’s career capstone.

In November 2002, Harvey Pitt announced he would resign as SEC chairman after drawing criticism for his ties to the accounting industry. President George W. Bush named Donaldson to succeed Pitt.

Donaldson’s first wife, the former Evan Burger, was president of the board of Spence-Chapin Services to Families and Children, a nonprofit adoption service in New York. She died in 1994. They had two children, Kimberly and Matthew.

In 1995, Donaldson married the former Jane Phillips, a founding partner of executive search firm Phillips Oppenheim Group and former executive director of admissions and placement at Yale’s management school. They had a son, Adam.