Even before Harvey Pitt resigned as the nation’s top securities cop, a list of successors was circulating.
One name stands out among the enforcers, lawyers, judges and academics. It’s the name of a politician with a rock star’s popularity: New York’s Rudolph Giuliani.
Fans of the former mayor shouldn’t get their hopes up. Even if he were asked to head the Securities and Exchange Commission, he’s shown little interest.
The fact that his name surfaced says less about his suitability for the job than about what investors yearn for in a new post-Pitt era.
It’s not complicated. They want somebody who will go after the bad guys and champion the good players.
They want somebody who can tell them the truth and contribute to fixing a system run amok during the stock market run-up in the late 1990s, when crooked CEOs got rich while employees and investors got wiped out.
It’s not much of a stretch to say that many small investors feel as vulnerable financially now as New Yorkers felt physically after terrorists struck Sept. 11–a moment of extreme crisis when Giuliani emerged as a calm and compassionate leader.
Many investors remain cynical about the chance for financial reform. Still, they don’t want to believe the markets are rigged.
Frankly, they don’t have much choice. With fewer workers covered by pensions, many will depend on investments to see them through retirement.
Who better than a Giuliani-like figure to restore faith?
It goes without saying that the SEC chief needs to be someone who won’t bow to the powerful firms the agency regulates–or to politicians. That’s a tall order considering the SEC depends on Congress for funding.
The new chief needs Giuliani’s political sensibilities, somebody who appreciates the depth of public outrage over financial shenanigans.
Add to the list Giuliani’s charisma. We normally don’t think of regulators as charismatic, but the SEC sorely needs a powerful communicator to promote its agenda.
President Bush, despite his party’s election victories, can’t afford to recommend another industry insider like Pitt, a corporate attorney who promised the industry a “kinder, gentler” SEC.
“Bush and his people understand they’re going to have to bring in somebody vigorous,” says Jack Wing, chairman at the Center for Law and Financial Markets at Chicago’s Illinois Institute of Technology.
The stakes for the agency and investors have seldom been higher.
The SEC effectively relinquished its role in setting national securities policy when it failed to step up and vigorously prosecute practices that flourished during the stock boom.
That role was usurped by aggressive state attorneys general like New York’s Eliot Spitzer, whose lawsuits spotlight brokerage firms that allegedly encouraged research analysts to tout stocks to help firms land underwriting business.
The SEC requires brokerages to alert investors to potential conflicts. That disclosure is important, but Spitzer’s prosecution uncovered alleged eye-popping abuses and put firms on notice that questionable practices won’t be tolerated.
Just as important as its watchdog role is the SEC’s ability to influence policies at self-regulating bodies such as the stock exchanges. The exchanges, in turn, can require companies to shape up and adopt better governing practices.
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Free-marketer Raymond Ball, an accounting professor at the University of Chicago Graduate School of Business, joins Wing in wanting a more activist SEC chief.
But he’s hoping for an individual who will be influential enough to hold lawmakers at bay while the private sector cleans up its act.
“There will be immense political pressure to write more federal rules,” Ball says, an outcome he thinks would be damaging over the long haul.
White House officials say Bush is in no hurry to replace Pitt. That’s a mistake. It’s time to get serious about the SEC.
Come to think of it, maybe Giuliani isn’t a far-fetched choice after all.
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